Thursday, March 22, 2007
S.C. Agrees to Hear Challenge to Banks’ Debit Practices
By KENNETH OFGANG, Staff Writer
The California Supreme Court yesterday agreed to decide whether banks may deduct overdraft and other fees from customers’ direct deposits of Social Security and other public benefit checks.
By a vote of 6-0, with Justice Ming Chin recusing himself, the court granted review in Miller v. Bank of America, NT & SA., A110137, at yesterday’s conference in San Francisco. The First District Court of Appeal, Div. Three ruled last Nov. 20 that the bank’s deductions, averaging more than $28 million per year, are legal.
That ruling came in a class action brought by senior citizens and disabled persons whose accounts were debited to pay NSF or overdraft charges or ATM or other service fees or to repay balances that had been accidentally credited to their accounts and had been withdrawn by the customers before the errors were discovered.
Evidence showed that more than $800 million per month in government benefits are electronically deposited into Bank of America accounts. An expert testified that California has about 3 million persons between the ages of 65 and 84 and another 400,000 over 85 who are Social Security or SSI recipients; the average Social Security benefit in 2003 was between $900 and $950 per month and the maximum SSI payment $757.
Bank of America responded that it is standard banking practice to debit customers’ accounts for unpaid fees or erroneous credits, regardless of the source of the funds. If banks could not do so, it argued, they would have to impose numerous restrictions on such accounts in order to make certain they did not become overdrawn.
San Francisco Superior Court Judge Anne Bouliane sided with the plaintiffs, instructing the jury that deposits of public benefits cannot be debited to pay bank fees. The instruction was based on Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, in which the California Supreme Court prohibited a bank from utilizing its common law setoff rights against public benefits to recover on an account holder’s delinquent but separate credit card account.
The jury returned a verdict for more than $75 million in compensatory damages for violation of the Consumer Legal Remedies Act related to NSF fees, plus statutory damages of $1,000 for each class member “who suffered substantial economic or emotional damage.”
Jurors also awarded name plaintiff Paul Miller $275,000 for emotional distress resulting from being overdrawn on multiple occasions as a result of debits from his account.
Bouliane awarded class members nearly $300 million in damages and restitution on non-jury claims for violation of other statutes, including the unfair competition and false advertising laws. The false advertising claims were based on the bank’s alleged misrepresentations that customers would have instant access to the full amount of their directly deposited funds, as well as the allegedly false subsequent representations that they had a legal right to deduct fees from those accounts.
The Court of Appeal, however, in an opinion by Justice Peter Siggins, distinguished Kruger.
Siggins explained that Kruger, as well as legislation subsequently enacted to limit banks’ setoff rights, apply “only to independent obligations—such as the credit card account involved in Kruger.”
Financial Code Sec. 864, he noted, expressly exempts a “charge for bank services or a debit for uncollected funds or for an overdraft of an account imposed by a bank on a deposit account” from legislation requiring advance notice of the bank’s intent to debit an account to collect a debt owed to the bank and prohibiting any such setoff if it would leave less than $1,000 in the account.
The case drew a number of amici, with the state attorney general and consumer and senior citizens groups supporting the plaintiffs, while banking organizations as well as the U.S. Department of Justice backed B of A.
In other conference action, the justices agreed to decide whether Los Angeles Superior Court Referee Mark Frasin abused his discretion by disqualifying several deputy district attorneys from participating in the prosecution of a juvenile charged with a sex offense. The referee ruled that prosecutors at the Compton courthouse had exceeded the bounds of appropriate advocacy by trying to block the release of the minor victim’s medical records to the defense, even though the minor’s father had consented.
Div. Seven of this district’s Court of Appeal ruled that the referee acted within his discretion and denied the district attorney’s writ petition.
The case is People v. Superior Court (Humberto S.) , B193386.
Copyright 2007, Metropolitan News Company