California Supreme Court Draws Setoff Boundary
The California Supreme Court has refused to extend an earlier holding prohibiting a bank from setting off customer debts using funds in a deposit account from public benefits. In Miller v. Bank of America, NT and SA, the Court held that Bank of America could setoff overdraft fees and fees for insufficient funds "(NSF") charged to a checking account with funds in the account, regardless of whether those funds came from public benefits.
In Miller, plaintiff received Social Security Supplemental Security Income ("SSI") payments by direct deposit into a Bank of America checking account. In 1998, the Bank inadvertently credited his checking account, then reversed the credit to correct its error. The reversal of the credit caused plaintiff's account to have a negative balance, which depleted his SSI benefits payments for that month. Separately, plaintiff occasionally overdrew his account, and the Bank paid the overdraft and NSF charges, at least in part, with his SSI funds on deposit. Plaintiff filed a putative class action complaint against the Bank, alleging the Bank could not set off these charges with funds in his account from public benefits.
Continue Reading...Preemption by Federal Agencies to be Limited
Last month, the White House released a Memorandum for the Heads of Executive Departments and Agencies regarding federal preemption, with specific instructions about how and when federal agencies may assert preemption of state laws through agency regulations. The memo states a general policy that "preemption of State law by executive departments and agencies should be undertaken only with consideration of full prerogatives of the States and with a sufficient legal basis for preemption."
More specifically, the memo provides: (1) heads of federal departments and agencies should not include preemption provisions in regulatory preambles, unless preemption is also a provision in the codified regulations; (2) preemption provisions should only be included in codified regulations if justified under "legal principles governing preemption," including Executive Order 13132 (1999); and (3) heads of federal departments and agencies must undergo a review of regulations issued in the last 10 years to ensure compliance with these preemption principles, and amend any regulations not in compliance.
Tracking the Proposed Financial Regulatory Changes
Last week, President Obama announced sweeping proposed changes in federal financial regulation. U.S. Treasury Secretary Timothy Geithner and Director of the National Economic Council Lawrence Summers wrote an op-ed piece describing the new regulatory structure, called "A New Foundation: Rebuilding Financial Supervision and Regulation."
The Final Report of the proposed comprehensive plan has five stated goals: (1) to promote robust supervision and regulation of financial firms; (2) to establish comprehensive supervision of financial markets; (3) to protect consumers and investors from financial abuse; (4) to provide the government tools to manage the financial crisis; and (5) to raise international regulatory standards and to improve international cooperation.
Continue Reading...9th Circuit Revives Claim on TILA Rate Disclosures
The Ninth Circuit last week reversed and remanded the dismissal of a credit card rate increase disclosure case in Barrer v. Chase Bank USA, NA.
In Barrer, plaintiffs had a Chase credit card. In February 2005, plaintiffs received a Change in Terms Notice from Chase, amending the terms of the cardholder agreement, including significantly increasing the applicable interest rate. Plaintiffs continued to use the card and the applicable interest rate increased within two months. Plaintiffs filed a putative class action complaint alleging Chase violated the Truth in Lending Act, 15 U.S.C. §1601 et seq., and Regulation Z, 12 C.F.R. §226. Plaintiffs claimed that Chase failed to disclose that it would increase the APR on the account based on information obtained from their credit report. The district court granted Chase's motion to dismiss and entered judgment for Chase. Plaintiffs appealed.
Continue Reading...