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Partial Victory in Debit Card Overdraft Case

The federal  Ninth Circuit Court of Appeal reversed in part and affirmed in part the District Court’s decision in Gutierrez v. Wells Fargo Bank. This is one of the key cases in a raft of law suits brought against banks nationwide based on the use of high-to-low posting order on debit card transactions. 

In the Gutierrez case, the bank was held to have violated the unlawful prong of Business & Professions Code Section 17200 (the state’s Unfair Competition Law) by posting items in a manner intended solely to enhance revenue (this policy is expressed in footnote 7 to California Commercial Code Section 4303(b)), and the unfairness prong by misleading customers that it processes items in the order received. On appeal, the court held that the National Bank Act prohibits the state’s unfair competition from dictating what posting order that a national bank employs. Also, whether the bank followed federal regulatory decision making processes in setting its posting order is a matter within the exclusive authority of the OCC, not the courts.  

The District Court may not apply state law in a way that interferes with the enumerated and incidental power of national banks. However, the Court of Appeal also held that state laws of general application which require all businesses to refrain from fraudulent, unfair, or illegal behavior, do not necessarily impair a bank’s ability to exercise its powers. Here, the court affirmed the District Court’s findings that the bank mislead its customers into believing that transactions are processed in chronological order. 

CBA filed an amicus brief in the case.

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