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1.5.10.2 Challenges to Deception or Manipulation of Posting Order

Courts have generally held that the National Bank Act and the OCC regulations do not preempt a challenge to a bank’s deception regarding overdraft fees or its manipulation of the order of posting charges and deposits in order to maximize overdraft fees, especially if deception is involved.200 Courts often contrast these claims with claims that challenge the amount of the fee or the bank’s right to impose it. For example, courts have held that federal law does not preempt the following claims.

Duty of good faith. A number of courts have held that federal law does not preempt a claim that a bank violated the duty of good faith and fair dealing by measures such as manipulation of posting order.201 Since the duty of good faith and fair dealing is uniformly imposed on all parties as an element of contract law, courts have recognized that compliance with that duty has no more than an incidental effect on a bank’s exercise of its deposit-taking powers, so it falls within the savings clause of the preemption regulation.202

The Ninth Circuit’s decision in Gutierrez v. Wells Fargo Bank203 holds that federal law preempted a claim that a bank violated the duty of good faith by manipulating the order of posting debits in order to increase overdraft fees. However, the court characterized the plaintiff’s claims as seeking to impose a blanket prohibition on the posting order the bank had chosen. A case that merely seeks relief for consumers harmed by the bad faith aspects of the bank’s manipulation of the posting order can be easily distinguished from Gutierrez.204 The flaws in the Gutierrez court’s reasoning are discussed in detail in § 1.5.10.4, infra.

A later decision by a district court in Connecticut holds that the NBA and the OCC regulations do not preempt a claim that a bank breached the covenant of good faith and fair dealing by assessing overdraft fees when there was enough money in the consumer’s account to cover the transaction, failing to provide an accurate description of its overdraft program in its account agreement and other documents, executing its contractual obligations in bad faith, and depriving consumers of the full benefit of the contract.205 The relevant events began in 2016, so it appears that the decision is applying the post-Dodd-Frank preemption standards.

Affirmative misrepresentations. There is broad agreement that federal law does not preempt claims that banks made affirmative misrepresentations about the operation of their overdraft programs.206 As the Ninth Circuit has stated, “[s]tate laws of general application, which merely require all businesses (including national banks) to refrain from fraudulent, unfair, or illegal behavior, do not necessarily impair a bank’s ability to exercise its . . . powers.”207

Breach of contract. Claims that banks breached their contracts with depositors by, for example, failing to abide by a clause promising to notify depositors in advance of any fee changes or by charging overdraft fees when the account was not overdrawn are not preempted.208 The savings clause of OCC’s preemption regulation explicitly preserves state contract law.209

Footnotes

  • 200 {190} See § 3.8.4.5, infra (discussing reordering).

  • 201 {191} Hanjy v. Arvest Bank, 94 F. Supp. 3d 1012, 1024–1025 (E.D. Ark. 2015) (claim that bank’s posting order violated duty of good faith does not more than incidentally affect bank’s exercise of its deposit-taking powers and is not preempted); King v. Carolina First Bank, 26 F. Supp. 3d 510 (D.S.C. 2014) (allowing plaintiffs to proceed with claim that bank’s manipulation of posting order violated duty of good faith; federal law does not preempt breach of contract, conversion, and unjust enrichment claims based on posting order); In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litig., 1 F. Supp. 3d 34 (E.D.N.Y. 2014) (allowing plaintiffs to proceed with good faith and UDAP challenges to bank’s manipulation of posting order); Hughes v. TD Bank, 856 F. Supp. 2d 673 (D.N.J. 2012) (agreeing with another decision that federal law does not preempt claim that bank breached covenant of good faith and fair dealing by manipulating posting order); In re Checking Account Overdraft Litig., 797 F. Supp. 2d 1312 (S.D. Fla. 2011) (claim that posting order violated duty of good faith not preempted; also holding UDAP, breach of contract, unconscionability, and conversion claims not preempted), later op. at 2014 WL 12557839 (S.D. Fla. June 24, 2014) (denying motion for judgment on pleadings; reiterating that claims are not preempted); Old Nat’l Bank v. Kelly, 31 N.E.3d 522 (Ind. Ct. App. 2015) (federal law would preempt a claim that bank had no right to employ a particular posting order or a claim challenging the content of disclosures, but does not preempt a claim that bank’s delayed debiting, batching, and posting practices abused its contractual discretion and violated the duty of good faith). Cf. In re TD Bank, N.A. Debit Card Overdraft Fee Litig., 150 F. Supp. 3d 593 (D.S.C. 2015) (claims alleging deceptive practices, unconscionability, violation of duty of good faith, and other theories are preempted as applied to posting order, because they challenge bank’s method of calculating and imposing overdraft fees, but not as applied to bank’s imposition of overdraft fees for accounts that were not in fact overdrawn); White v. Wachovia Bank, 563 F. Supp. 2d 1358 (N.D. Ga. 2008) (allowing depositors to proceed with claim that bank’s manipulation of posting order breached its contractual duty of good faith and fair dealing, without addressing preemption; also holding that federal law does not preempt UDAP, conversion, and unjust enrichment claims or claim that account agreement is unconscionable). See generally § 1.5.10.4, infra.

  • 202 {192} See Hanjy v. Arvest Bank, 94 F. Supp. 3d 1012, 1024–1025 (E.D. Ark. 2015).

  • 203 {193} 704 F.3d 712 (9th Cir. 2012). See also Hawthorne v. Umpqua Bank, 2013 WL 5781608 (N.D. Cal. Oct. 25, 2013) (applying Gutierrez’s preemption determinations to California branch of Oregon-chartered bank pursuant to 12 U.S.C. § 1831a(j)).

  • 204 {194} See, e.g., In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litig., 1 F. Supp. 3d 34, 47 (E.D.N.Y. 2014) (distinguishing Gutierrez on this ground).

  • 205 Walker v. People’s United Bank, 305 F. Supp. 3d 365 (D. Conn. 2018).

  • 206 {195} Gutierrez v. Wells Fargo Bank, 704 F.3d 712 (9th Cir. 2012); Larin v. Bank of Am., 475 Fed. Appx. 121 (9th Cir. 2012) (no preemption of claim that bank violated state law by affirmatively misrepresenting the value of its overdraft program, rather than by operating it as it did); Walker v. People’s United Bank, 305 F. Supp. 3d 365 (D. Conn. 2018) (claim that bank violated UDAP statute by misrepresenting that it would charge overdraft fees only when the transaction exceeded the money in the account is not preempted; UDAP statute is a law of general application and does not prohibit any NBA or OCC requirements—or require banks to do anything that federal laws prohibit); In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litig., 1 F. Supp. 3d 34 (E.D.N.Y. 2014) (allowing plaintiffs to proceed with good faith and UDAP challenges to bank’s manipulation of posting order). See also Whittington v. Mobileoil Fed. Credit Union, 2017 WL 6988193 (E.D. Tex. Sept. 14, 2017) (claim that credit union made misrepresentations about its overdraft program is not preempted); TD Bank, N.A. Debit Card Overdraft Fee Litig., 150 F. Supp. 3d 593 (D.S.C. 2015) (claim under deceptive practices statute is preempted as applied to posting order, because it challenges bank’s method of calculating and imposing overdraft fees, but not as applied to bank’s imposition of overdraft fees for accounts that were not in fact overdrawn).

  • 207 {196} Gutierrez v. Wells Fargo Bank, 704 F.3d 712, 727 (9th Cir. 2012) (quoting from Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 555 (9th Cir.2010)).

  • 208 {197} In re TD Bank, N.A. Debit Card Overdraft Fee Litig., 150 F. Supp. 3d 593 (D.S.C. 2015) (declining to dismiss claim that bank breached contract by charging overdraft fees when accounts were not in fact overdrawn); Hanjy v. Arvest Bank, 94 F. Supp. 3d 1012 (E.D. Ark. 2015) (declining to dismiss claim that depositors’ contract with bank did not expressly authorize fees for debit card overdrafts); In re Checking Account Overdraft Litig., 797 F. Supp. 2d 1312, 1319 (S.D. Fla. 2011) (contract claims not preempted), later op. at 2014 WL 12557839 (S.D. Fla. June 24, 2014) (denying motion for judgment on pleadings; reiterating that claims are not preempted); Smith v. Wells Fargo Bank, 38 Cal. Rptr. 3d 653, 672-673 (Cal. Ct. App. 2006). See also Hughes v. TD Bank, 856 F. Supp. 2d 673 (D.N.J. 2012) (refusing to dismiss various claims on preemption grounds, including a claim that bank charged overdraft fees when account was not overdrawn); White v. Wachovia Bank, 563 F. Supp. 2d 1358 (N.D. Ga. 2008) (federal law does not preempt UDAP, conversion, or unjust enrichment claims, or claim that account agreement was unconscionable, against bank that imposed overdraft fees when accounts were not in fact overdrawn).

  • 209 {198} 12 C.F.R. § 7.4007(c)(1) (state contract laws apply to national banks to the extent consistent with Barnett Bank decision). See Clark v. Bank of Am., 2013 WL 12286057 (E.D. Ark. Sept. 10, 2013) (claim that bank’s assessment of attorney fee—in addition to $100 fee for garnishment—breached deposit agreement is a contract claim, so it is not preempted). See generally National Consumer Law Center, Mortgage Lending § 5.8.4.2 (3d ed. 2019), updated at www.nclc.org/library.