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Financial Services Law Insights and Observations

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  • District court allows some claims to proceed in ATM-fee action

    Courts

    On September 28, the U.S. District Court for the Southern District of California allowed fraud claims under California’s Unfair Competition Law (UCL) and breach of contract claims to proceed against a national bank and several independent ATM operators (collectively, “defendants”) in a putative class action alleging that the defendants (i) charged unwarranted fees for using out-of-network (OON) ATMs for balance inquiries; (ii) made deceptive and misleading representations on screens and on signs regarding those fees; and (iii) assessed fees in violation of governing account documents. As previously covered by InfoBytes, the class action alleged 13 claims against the defendants for violations of, among other things, the UCL, and claims for conversion, negligence, and breach of contract. In March, the court dismissed all 13 claims but allowed the plaintiffs leave to amend a number of them. After the plaintiffs filed their amended complaint, the defendants subsequently submitted four new motions to dismiss.

    The court denied dismissal of the UCL claims against all ATM operators, concluding that the plaintiffs sufficiently alleged claims under the fraud prong. Specifically, the court noted that the plaintiffs provided details with enough particularity, such as the date and location and examples of the specific screen prompts, which established that the ATM operators “employed a misleading series of screen prompts at the ATM machines to trick Plaintiffs, and other accountholders, into engaging in OON balance inquiries.” However, the court dismissed all the unjust enrichment claims and one plaintiff’s breach of contract claim against the national bank, concluding, among other things, that the dispute between the plaintiffs and national bank is covered by a “valid and enforceable written agreement,” which precludes the assertion of unjust enrichment. Moreover, the court allowed two plaintiffs’ breach of contract claims to proceed against the national bank, determining that “[b]oth parties have set forth reasonable, opposing interpretations of the [account agreement],” and the plaintiffs’ definition of “balance inquiry” under the agreement is at least plausible. Thus, the court denied dismissal as to those claims. 

    Courts Class Action Fees State Issues ATM

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  • Federal Reserve Board extends temporary actions on intraday credit availability

    Federal Issues

    On October 1, the Federal Reserve Board extended certain temporary actions that are designed to increase the availability of intraday credit to mitigate the impact of Covid-19.  The temporary actions were previously announced on April 23 (previously covered here), and include: (1) suspending uncollateralized intraday credit limits and waiving overdraft fees for eligible institutions; (2) permitting a streamlined procedure to request collateralized intraday credit; and (3) suspending two collections of information that are used to calculate net debit caps.  The actions are extended to March 31, 2021.

    Federal Issues Covid-19 Federal Reserve FRB Consumer Credit Overdraft Fees Debit Cards

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  • District court rescinds arbitration order in ATM and overdraft fee case

    Courts

    On August 10, the U.S. District Court for the Southern District of California agreed to reconsider a prior decision, which granted a bank’s motion to compel arbitration in connection with a lawsuit concerning the bank’s assessment of two types of fees. As previously covered by InfoBytes, the court compelled arbitration of a plaintiff’s lawsuit asserting claims for breach of contract and violation of California’s Unfair Competition Law due to the bank’s alleged practice of charging fees for out-of-network ATM use and overdraft fees related to debit card transaction timing. The court concluded that even if the California Supreme Court case McGill v. Citibank rule— which held that an arbitration agreement is unenforceable if it constitutes a waiver of the plaintiff’s substantive right to seek public injunctive relief (covered by a Buckley Special Alert here)—was applicable to a contract, it would not survive preemption as the U.S. Supreme Court has “consistently held that the Federal Arbitration Act (FAA) preempts states’ attempts to limit the scope of arbitration agreements,” and “the McGill rule is merely the latest ‘device or formula’ intended to achieve the result of rendering an arbitration agreement against public policy.” 

    The plaintiff moved for the court’s reconsideration after the U.S. Court of Appeals for the Ninth Circuit issued opinions in Blair v. Rent-ACenter, Inc. et al and McArdle v. AT&T Mobility LLC). In Blair (and similarly in McArdle), the 9th Circuit concluded that McGill was not preempted by the FAA. The appellate court found that McGill does not interfere with the bilateral nature of a typical arbitration, stating “[t]he McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” (Covered by InfoBytes here.)

    The court granted the plaintiff’s motion, concluding that the public injunction waiver in the account agreement is “encompassed by McGill” and therefore, the arbitration agreement is “invalid and unenforceable,” and because the arbitration agreement includes a non-severability clause, the “clause plainly invalidates the entire arbitration agreement section as a result of the invalidity and unenforceability of the public injunction waiver provision therein.”

    Courts State Issues Fees Arbitration Preemption U.S. Supreme Court Federal Arbitration Act

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  • OCC amends 2020 assessment structure

    Federal Issues

    On August 7, the OCC released an amended fees and assessments structure for 2020 due to the Covid-19 pandemic. The announcement includes information on the OCC’s interim final rule (covered by InfoBytes here), which intended to lower assessments for supervised banks making assessments due on September 30 based on the December 31, 2019 Call Report for each institution, rather than the June 30 Call Report. Additionally, the OCC notes that for the 2020 assessment year, among other things, (i) there will be no inflation adjustment to assessment rates; (ii) new entrants to the federal banking system will be assessed on a prorated basis using call report information as of December 31 or June 30, depending on the entrance date; and (iii) the hourly fee for special examinations and investigations is increasing from $110 to $140.

    Federal Issues Covid-19 OCC Fees Assessments

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  • District court preliminarily approves $13 million settlement in ATM fee class action

    Courts

    On June 16, the U.S. District Court for the Southern District of California granted preliminary approval of a $13 million class action out-of-network (OON) ATM fee settlement. As previously covered by InfoBytes, the plaintiffs filed the action asserting that the bank charges its customers two OON fees when an account holder conducts a balance inquiry and then obtains a cash withdrawal at an OON ATM. The bank moved for summary judgment on the breach of contract claim, which the district court denied, concluding that there were ambiguities regarding the fee terms provided in the contract and on the on-screen ATM warnings. After participating in a private mediation, the plaintiffs filed an unopposed motion for preliminary approval of the settlement. The $13 million settlement covers a total of over 1.6 million class members—defined as all bank account holders in the U.S. who incurred at least one OON balance inquiry fee during varying time periods based on location— and provides for a $10,000 incentive award to each of the named plaintiffs and $3.9 million for plaintiffs’ counsel. In exchange for their share of the settlement funds, the class members will agree to release the bank from all claims relating to the action.

    Courts ATM Fees Class Action Settlement

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  • Arizona attorney general requests financial assistance for Arizona consumers

    State Issues

    On March 19, Arizona’s attorney general issued a request for financial and lending institutions to provide temporary relief to their Arizona customers. The governor’s requests for institutions included taking the following actions for at least 90 days: (ii) forbearing or deferring payments on mortgages, automobile loans, and consumer loans; (ii) postponing foreclosures and evictions; (iii) ceasing automobile repossessions; (iv) waiving late fees and default interest for late payments; and (v) halting negative credit reporting. 

    State Issues Arizona State Attorney General Consumer Finance Mortgages Foreclosure Repossession Fees Credit Report Covid-19

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  • District court dismisses class claims regarding out-of-network ATM fees

    Courts

    On March 4, the U.S. District Court for the Southern District of California issued an order granting five separate motions for dismissal filed by a national bank and several independent ATM operators (defendants) regarding allegations that the defendants (i) charged unwarranted fees for using out-of-network (OON) ATMs for balance inquiries; (ii) made deceptive and misleading representations on screens and on signs regarding those fees; and (iii) assessed fees in violation of governing account documents. The plaintiffs’ putative class action alleged 13 claims against the defendants for violations of California’s Unfair Competition Law (CUCL), California’s False Advertising Law (FAL), and the California Consumer Legal Remedies Act (CLRA), as well as for conversion, negligence, and breach of contract. The defendants premised their motions to dismiss on several bases, including a lack of subject matter jurisdiction, lack of personal jurisdiction, and the plaintiffs’ failure to plead the necessary elements of the claims.

    The court generally agreed with the arguments made by the defendants as to the court’s lack of subject matter and personal jurisdiction. In particular, the court held that the common law claims brought on behalf of the nationwide class should be dismissed for lack of Article III standing because the named plaintiffs failed to allege they were charged the relevant balance inquiry fees in states outside of California. In addition, the court agreed with an argument raised by one defendant that the plaintiffs lacked standing to file claims for injunctive relief for violations of the CUCL, FAL, and CLRA because they failed to allege a likelihood of actual or imminent future harm; specifically, they failed to allege they intended to use the ATMs in the future to make balance inquiries. The court thereafter assessed the plaintiffs’ remaining common law and statutory claims, and in each case, granted the defendants’ motions to dismiss the claims for various failures to establish the necessary elements of each of the alleged claims. Of the 13 dismissed claims, the court permitted plaintiffs leave to amend 10 of them. The court required any amended complaint address the standing issues related to claims brought on behalf of the California and nationwide classes.

    Courts Class Action Fees State Issues ATM

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  • NYDFS allows increased licensed check casher fee

    State Issues

    On February 28, NYDFS issued an industry letter to licensed check cashers in the state. Pursuant to Section 372.3 of the New York Banking Law and Part 400.11 of the Superintendent’s Regulations, the maximum fee that licensed check cashers may charge is increased to 2.23 percent of the face amount of the check, “except with respect to the cashing of checks, drafts, or money orders for payees of such checks, drafts, or money orders that are other than natural persons.” The increase takes effect March 2.

    State Issues State Regulators NYDFS Fees

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  • District court rejects bank’s bid to dismiss NSF suit

    Courts

    On February 19, the U.S. District Court for the Southern District of West Virginia denied a bank’s motion to dismiss a putative class action suit alleging the bank violated account agreements by routinely assessing more than one “non-sufficient funds fee [(NSF)] for a single attempted transaction.” According to the order, the plaintiff filed a lawsuit asserting various claims, including for breach of contract, unjust enrichment, and deceptive business practices in violation of the West Virginia Consumer Credit and Collection Act (WVCCCA) due to the bank’s alleged practice of charging multiple $36 NSF fees when customers try to make a purchase but are declined due to insufficient funds. The plaintiff claimed that the bank’s failure to clearly alert customers of its practice of charging more than one NSF fee “for a single transaction . . . is confusing or misleading conduct” and “an unlawful practice under the WVCCCA.” The bank moved to dismiss the claims, arguing among other things, that the plaintiff’s 2012 account agreement contained an arbitration clause and that federal law preempts the plaintiff’s state-law claims regarding fees imposed by national banks.

    The court first disagreed with the bank on the matter of arbitration, stating that the arbitration clause contained in the 2012 account agreement may have been erased by updates the bank made in 2017 to the plaintiff’s account terms, which provided that the account would “be governed by the following terms and conditions” but omitted any mention of arbitration. As for preemption, the court ruled that the plaintiff’s state-law claims “are precisely the sort of claims that are not preempted by federal law.” (Emphasis in the original.) According to the court, “the proposition that ‘state law claims challenging fees imposed by national banks are expressly preempted by federal law’ is as overbroad as it is incorrect.” Furthermore, the court noted that the plaintiff’s “own principal citation makes this point clearly, noting that ‘it is . . . well established that true breach of contract and affirmative misrepresentation claims’—both state law torts—‘are not federally preempted.’” In addition, the court determined that it is unclear whether the bank’s account agreement governing the bank’s relationship with the customer authorized it to charge successive NSF fees per transaction. The court also concluded that it was not clear that the NSF fees could legally constitute billing errors—a contention made by the bank in its argument that the case was time-barred because the plaintiff failed to dispute the additional NSF fees within the 60-day window to challenge a billing error as permitted under the Electronic Funds Transfer Act. Explaining its reasoning, the court noted that it “struggles to conceive of a scenario in which a fee could be justified by a contract and assessed as a regular business practice, yet still be considered an ‘error’ within any reasonable definition of the word.”

    Courts Class Action Arbitration Fees State Issues Breach of Contract

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  • ISP pays $15 million to settle with two more states on hidden fees and false advertising

    State Issues

    On January 9, the Minnesota attorney general announced that an internet service provider (ISP) agreed to pay nearly $9 million in order to resolve allegations that it overcharged customers for phone, internet and cable services. In a separate action, on December 10, the Washington attorney general’s office announced that it entered into a $6.1 million consent decree with the same ISP to resolve similar claims of deceptive acts and practices. As previously covered by InfoBytes, the ISP entered into settlements over the same alleged actions with the states of Colorado on December 19, and Oregon on December 31.

    State Issues Courts Advertisement Enforcement State Attorney General Settlement Consumer Protection Fraud Fees

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