The Office of the Comptroller of the Currency’s interpretive letter 1082 once again demonstrates the agency’s bias in favor of national banks and against consumers.
The OCC recently issued the letter against the background of a major class action — Miller v. Bank of America — in which a California trial court ordered Bank of America Corp. to pay $1.5 billion to a large group of depositors. The plaintiffs alleged that B of A wrongfully debited their deposit accounts for overdraft charges in violation of a California Supreme Court decision. That decision prohibited banks in California from exercising a right of setoff against deposit accounts that contain Social Security funds and other government payments.
A California appellate court overturned the trial court’s judgment in Miller, but the California Supreme Court recently agreed to review the case.
The OCC’s interpretive letter favors big national banks and hurts consumers in two ways. First, the OCC allows national banks to process overdraft items using an unfair method that maximizes their overdraft fees. As shown in the Miller case, the typical big bank first pays the largest check or other debit item received on an account on a particular day, even if that item is not first in time. Paying the largest item first increases the likelihood of an overdraft, in which case the bank imposes separate fees on each smaller item received on the same day.
The Center for Responsible Lending estimates that banks and credit unions collect $17.5 billion in overdraft fees each year, resulting in effective interest rates comparable to rates on predatory payday loans. The “largest check first” policy approved by the OCC is anticonsumer and aggravates the unreasonableness of national bank overdraft fees.
Second, IL 1082 asserts that a national bank “is not exercising its right to collect a debt” — and therefore is not governed by state law — when it debits an account to recover overdrafts and related fees. This assertion is designed to prevent depositors in Miller and similar cases from relying on state consumer protection laws.
As the letter admits, the U.S. Supreme Court has repeatedly held that national banks are subject to state law when they exercise “their right to collect their debts.” However, this letter claims that a national bank does not create a “debt” when it allows an overdraft and does not “collect” a debt when it recovers the overdraft and related fees.
The OCC’s tortured reasoning is contradicted by legal authorities and evidence introduced in Miller, which demonstrate that an overdraft creates a creditor-debtor relationship between the drawee bank and its customer, and that the drawee bank collects a debt when it recovers the overdraft and related fees.
Accordingly, national banks are clearly engaged in debt collection and are subject to state law when they seek to recover overdrafts and related fees.
IL 1082 recalls a previous OCC interpretive ruling, which allowed national banks to charge fees for cashing “on us” checks presented by payees who did not have accounts at the banks. The OCC issued that ruling against the background of a lawsuit filed by Wells Fargo & Co. to preempt a Texas law prohibiting banks from charging fees to payees for cashing “on us” checks.
The OCC justified Wells Fargo’s fee by claiming that it was a “service fee” charged to “customers,” even though Wells’ stated purpose for the fee was to discourage non-account holders from using its teller windows.
In addition, the OCC claimed that Wells Fargo’s check-cashing fee did not represent a “condition” to its payment of checks, because the OCC recognized that checks lose their status as negotiable instruments under the Uniform Commercial Code whenever payment is conditional. The OCC wanted to make sure that Wells Fargo could collect its fees without losing any benefits under the UCC.
The common thread between IL 1082 and the Wells Fargo letter is the OCC’s desire to enhance the fee income of national banks while supporting their efforts to preempt state consumer protection laws. The OCC has issued numerous regulations, rulings, and court briefs over the years in a systematic effort to bar consumer claims against its constituents. In the OCC’s legal universe, debts become nondebts, noncustomers become customers, and conditions become nonconditions — whatever is necessary to advance the interests of the constituents who pay the agency’s bills.
The Treasury Department is reportedly considering a plan that would establish the OCC as the single regulator for all federally chartered banks and thrifts. Such a plan should be strongly opposed, because it would not serve the public interest in promoting a safe, sound, and ethical banking industry that serves rather than exploits consumers.