UCL Class Action Against Bank Challenging Overdraft Fees Fails because National Bank Act (NBA) Preempted Class Action Claims Under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) California Federal Court Holds, but Grants Plaintiff 20 Days’ Leave to Amend Class Action Complaint
Plaintiff filed a putative class action in California state court against Bank of America alleging violations of California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) arising out of the Bank’s failure to disclose its Nonsufficient Funds/Overdraft Fees policy (NSF/OD fees policy). Montgomery v. Bank of America Corp., 515 F.Supp.2d 1106, 1108 (C.D. Cal. 2007). The thrust of plaintiff’s class action was that the Bank charged NSF/OD fees “on a sliding scale per overdraft[ that is] overly harsh, unjustified, and bear no relation to the actual damages incurred by the bank and are therefore in breach of California contract law,” and that the Bank’s NSF/OD fee agreements “are contracts of adhesion and unconscionable” due to their failure to accurately disclose the fees that may be assessed. Id., at 1111. Defense attorneys removed the class action to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA), id., at 1108. In the face of a defense motion for judgment on the pleadings, plaintiff filed an amended class action complaint; defense attorneys moved to dismiss the amended complaint. Id. The only ground addressed by the district court was whether the class action claims were “preempted by regulations promulgated by the Office of the Comptroller of the Currency (‘OCC’) pursuant to the National Bank Act (‘NBA’).” Id., at 1109. Because the district court found that the claims were preempted, it granted the defense motion and dismissed the class action complaint.
After noting that Congress did not expressly preempt state laws in this area, _Montgomery_¸ at 1109, the district court turned to whether “field preemption” existed or whether the court could “imply preemption” to the class action claims, id., at 1109-10. It noted that “The National Bank Act of 1864 was enacted to protect national banks against intrusive regulation by the States.” Id., at 1110 (citations omitted). And under established case law, “state attempts to control the conduct of national banks are void if they conflict with federal law, frustrate the purposes of the [NBA], or impair the efficiency of national banks to discharge their duties.” Id. (citation omitted). Defense attorneys argued that the claims in the class action complaint were preempted by 12 C.F.R. § 7.4002, which expressly authorizes banks to “impose charges and fees” as described therein. Id., at 1111. Under the Bank’s theory, because federal regulations authorize banks to charge fees, federal law occupies the field and “it is up to the OCC, not private plaintiffs, to determine whether a bank has properly weighed the discretionary factors set forth in Section 7.4002 when setting the fee amounts.” Id., at 1112. Plaintiff’s lawyer countered that preemption is disfavored, particularly as it concerns the “historic police powers of the States” to protect consumers. Id., at 1112-13 (quoting Smiley v. Citibank, 11 Cal.4th 138, 148 (Cal. 1995), aff’d, 517 U.S. 735). Plaintiff also argued that the class action’s “failure to disclose” allegations are not preempted by the NBA, id., at 1113.
The district court agreed with the defense. Congress has enacted legislation concerning banking “‘from the days of M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 325-26, 426-27 (1819),’” Montgomery, at 1113 (quoting Bank of Am. v. City & County of S.F., 309 F.3d 551, 558 (9th Cir. 2002), and so the presumption against preemption does not apply. Id. (citing also Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 957 (9th Cir. 2005) (“the usual presumption against federal preemption of state law is inapplicable to federal banking regulation”). The federal court held that the class action claims “are all based on the amount of and means of disclosure of NSF/OD fees assessed by [the Bank]” and, as such, “are preempted by 12 C.F.R. § 7.4002.” Id. The court explained at page 1113 that “Section 7.4002(a) specifically provides that ‘[a] national bank may charge its customers non-interest charges and fees, including deposit account service charges.’” Accordingly, “to the extent plaintiff contends that defendants’ conduct constitutes unfair or deceptive business practices pursuant to the UCL and the CLRA, these claims are in conflict with the NBA and the regulations promulgated thereunder.” Id., at 1113-14 (citations omitted). Because the claims asserted in the class action complaint are preempted by the NBA and its regulations, the court granted the defense motion to dismiss. Id., at 1114. However, the court granted plaintiff 20 days’ leave to amend, id.
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