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Oral arguments delivered in direct deposit case
WASHINGTON (4/9/09)—The California Supreme Court this week heard oral arguments in Miller v Bank of America (BofA), a case to determine whether overdraft fees can be assessed in California by federally chartered depository institutions against Social Security (SS) funds in a checking account. The lawsuit has broad implications for California credit unions, credit unions doing business in the state, and for direct deposits. Oral arguments were presented on April 7th and the court should issue a decision within 90 days. The case has been winding its way through the California courts for years, and ended up before the state supreme court under appeal by the plaintiff. BofA has argued that federal law and regulation preempt a California law that prohibits tapping SS money in an account. However, in December 2004 a judge for the Superior Court of San Francisco upheld an over-$1 billion-dollar jury award against BofA for violating state law. That court found that the bank's practice of using customers' funds from accounts that may contain SS funds to pay checking account overdrafts and insufficient funds fees violated the California Unfair Business Practices Act. However, in November 2006, a California Court of Appeals reversed the lower court's ruling and award, and decided in favor of BofA. The plaintiff, Paul Miller, then filed an appeal with the California Supreme Court, which agreed to hear the case. During the oral arguments this week, a U.S. Justice Department attorney made a statement on behalf of the Office of the Comptroller of the Currency (OCC), U.S. Treasury Department, and the Social Security Administration. The government lawyer reiterated that a decision in favor of the plaintiff, Miller, would threaten federal policy by making banks less willing to extend banking privileges to recipients of directly deposited public benefits. The government attorney emphasized the additional cost the government would incur if it had to provide benefits by mailed checks instead of by direct deposit. He also argued in favor of preemption under the OCC regulations, stating that “account balancing” is not the same as “debt collection” and, therefore, not within the savings clause of the regulation. The Credit Union National Association and banking associations joined the case in 2007 through amicus briefs that argued banks and federal credit unions are not subject to the court's ruling because of the prevention provisions in the National Bank Act, Office of the Comptroller of the Currency (OCC) regulations, and the Federal Credit Union Act.

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