In re TD Bank, N.A. Debit Card Overdraft Fee Litigation (Lawyers Weekly No. 002-006-16, 86 pp.) (Bruce Howe Hendricks, J.) 6:15-mn-02613; D.S.C.
Holding: Since federal regulations and the discretion afforded to banks under the National Bank Act permit banks to post debits in order from the highest amount to the lowest amount, plaintiffs’ state-law claims based on high-to-low posting order are preempted by federal law.
Defendants’ motion to dismiss is granted in part and denied in part.
Plaintiffs’ state-law claims are also preempted to the extent they rely on allegations that the defendant-banks intentionally honor debit transactions into overdraft without notice to customers. As to these preemption matters, the court follows the reasoning of Gutierrez v. Wells Fargo Bank, N.A., 704 F.3d 712 (9th Cir. 2012).
However, Gutierrez did not consider a claim like plaintiffs’ claim that defendant TD Bank violates state law when it assesses overdrafts when there are sufficient funds in the account. This theory claims that TD Bank “systematically assesses and collects overdraft fees for transactions that do not actually overdraw the account, as there is actually enough money in the account to cover the transaction.” Plaintiffs highlight the distinction between “actual balance,” which they define as “the actual amount of funds held in a demand account” (including checking accounts), and “available balance,” which they define as “the actual balance minus ‘pending’ credits and debit transactions, which may not settle or be paid for several days (and may not settle for the authorized amount or at all).”
To the extent plaintiffs’ allegations are true, their claim would not prevent TD Bank from exercising its deposit-taking powers, or any of the attendant discretion that comes along with those powers, to require that the bank refrain from assessing overdraft fees when the relevant account contains enough money to cover the transaction in question.
Neither would it significantly interfere with the bank’s exercise of those powers and that discretion, because there is no indication that requiring it to refrain from such a practice would stand as an obstacle to the accomplishment of the full purposes and objectives of Congress or the Office of the Comptroller of the Currency. Accordingly, plaintiffs’ “available balance” claims are not preempted.
Plaintiffs also state claims against state banks that later merged with TD Bank. It makes no conceptual sense to say that a state bank’s liability for pre-merger conduct is erased merely by virtue of being “swallowed up” into a national bank. So long as the dates of these claims precede the merger date, the claims are not preempted.
As for the claims that are not preempted, defendants move to dismiss under Fed. R. Civ. P. 12(b)(6).
With regard to plaintiffs’ breach of contract claim, there are outstanding factual questions as to when TD Bank actually “advanced funds,” whether imprecise use of the terms “negative balance” and “negative available balance” created a duty on the bank’s part to only assess overdraft fees when the “actual balance” was negative, and the like.
However, to the extent the breach of contract claim incorporates the high-to-low posting theory of liability, that portion of the claim is dismissed. The court finds that the “PROCESSING” section of the Personal Deposit Account Agreement lays out the bank’s posting practices in great detail, with explicit reference to “debit card transactions” as among the types of items that are posted to accounts via the high-to-low method. There is no plausible interpretation of the relevant contractual language that a reasonable reader could interpret otherwise.
Therefore, the breach of contract claim survives only in part.
The court declines to dismiss plaintiffs’ claim that defendants breached the implied covenant of good faith and fair dealing. Plaintiffs’ allegations raise legitimate questions as to whether TD Bank exercised its contractual discretion reasonably.
However, unconscionability is not a cause of action, so plaintiffs’ unconscionability claim is dismissed.
Plaintiffs have stated a claim for conversion. Most federal courts that have addressed this question in the context of overdraft fees have found that plaintiffs may bring a conversion claim for fees that are alleged to have been wrongfully assessed, and the courts have permitted such claims to proceed past the motion to dismiss stage.
The court is not persuaded by the bank’s argument based on the parties’ debtor/creditor relationship. The court is not sure the traditional view of the debtor/creditor relationship between bank and customer properly applies to the overdraft fee scenario because that relationship appears to be inverted when the account is in a negative balance. The plaintiffs’ claim is not that TD Bank has wrongfully refused to pay funds owed to the customer, but rather that the bank has improperly relieved itself of its debtor obligations and imposed a debtor status on the customer by debiting funds from the account that it had no business debiting.
The court is also unpersuaded by the bank’s argument that the economic loss doctrine prevents an action in tort. The claimed losses are associated with actions on the part of the bank that plaintiffs contend exceeded the bounds of the contract. In other words, plaintiffs allege that TD Bank wrongfully deducted funds from their accounts in ways and in situations not contemplated by the contract. The motion to dismiss the conversion claim is denied to the extent the claim is not preempted.
Since part of plaintiff’s theory of the case is that TD Bank’s overdraft fee policy in practice exceeded the bounds of what the express terms of the contract allowed, plaintiffs’ unjust enrichment claim is potentially an alternative theory of relief, should plaintiffs’ contractual claim fail. The court denies the motion to dismiss plaintiffs’ unjust enrichment claim to the extent that it is not preempted.
In this multidistrict litigation, several states’ unfair trade practices statutes are the bases for claims. Defendants’ motion to dismiss these claims is granted as to some state statutes and denied as to others.
In particular, the South Carolina Unfair Trade Practices Act unambiguously states that it may not form the basis of a class action lawsuit. This outcome is not changed by Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010). SCUTPA is importantly different from the state procedural law at issue in Shady Grove because the New York law at issue there had no substantive component. In contrast, the prohibitions against class actions ingrained in the very text of SCUTPA are substantive portions of South Carolina law and are not trumped by Fed. R. Civ. P. 23.
Plaintiffs’ representative SCUTPA claims are dismissed. However, plaintiffs may maintain their SCUTPA claims in their individual capacities.
Finally, in addition to its original overdraft fee, TD Bank charges a “sustained” overdraft fee if a customer’s account maintains a negative balance for 10 consecutive business days. Contrary to plaintiffs’ argument, the sustained overdraft fee is not “interest” within the meaning of 12 U.S.C. § 85 and 12 C.F.R. § 7.4001. As such, plaintiffs’ claim of usury and violation of 12 U.S.C. §§ 85 and 86 is dismissed.
Motion granted in part, denied in part.