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Only.
UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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10
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IN RE WASHINGTON MUTUAL
OVERDRAFT PROTECTION
LITIGATION,
12
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CASE NO.: CV 03-2566 ABC (RCx)
ORDER RE: DEFENDANT'S MOTION TO
DISMISS PLAINTIFF'S COMPLAINT;
PLAINTIFFS' MOTION FOR LEAVE TO
FILE SECOND CONSOLIDATED
COMPLAINT
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15
16
17
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Pending b e f o r e the Court are Defendant's motion t o d i s m i s s
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P l a i n t i f f s ' c o m p l a i n t and P l a i n t i f f s ' motion f o r leave t o f i l e a
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second c o n s o l i d a t e d amended c o m p l a i n t .
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f o r h e a r i n g on A p r i l 26, 2004.
22
of t h e p a r t i e s , the case f i l e ,
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Defendant's motion i s hereby GRANTED.
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I.
25
The motions came on r e g u l a r l y
Upon c o n s i d e r a t i o n o f t h e submissions
and the arguments o f c o u n s e l ,
P l a i n t i f f s ' motion i s DENIED.
FACTUAL AND PROCEDURAL HISTORY
On October 20, 2003, P l a i n t i f f s f i l e d a C o n s o l i d a t e d Class A c t i o n
26
Complaint
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("Washington M u t u a l " ) , a l l e g i n g v i o l a t i o n s o f t h e T r u t h i n Lending
28
Act,
("Complaint") a g a i n s t Defendant Washington Mutual Bank, FA
15 U.S.C. §§ 1601, e t seq., t h e Home Owners' Loan A c t , 12 U.S.C.
§§ 1461, e t seq., and v a r i o u s Washington and C a l i f o r n i a s t a t e laws.
1
Li
This i s a c l a s s a c t i o n brought by bank customers who contend that'
Washington Mutual extended c r e d i t t o i t s customers
" i n the disguised
r/,
form o f ' O v e r d r a f t P r o t e c t i o n . ' "
(Compl. a t 2:3.)
P l a i n t i f f s contend
t h a t Washington Mutual encourages customers t o r o u t i n e l y
overdraw
t h e i r accounts so t h a t a s u b s t a n t i a l charge i s i n c u r r e d even though
t h e r e are many o t h e r , l e s s expensive sources o f c r e d i t a v a i l a b l e t o
(Compl. H 16.)
them.
I n 2 001,
Washington Mutual issued p r o m o t i o n a l m a t e r i a l s f o r an
o v e r d r a f t p r o t e c t i o n f e a t u r e f o r i t s new and e x i s t i n g d e p o s i t
accounts,
(Compl. \ 6.) P l a i n t i f f s a l l e g e t h a t Washington
Mutual
agreed i n these p r o m o t i o n a l m a t e r i a l s t o a u t o m a t i c a l l y "cover" a l l
overdrawn items (checks, d e b i t card purchases, and ATM w i t h d r a w a l s )
w i t h i n t h e assigned l i m i t f o r the customer's account.
10.)
(Compl-. If If 8,
The m a t e r i a l s i n c l u d e d t h e f o l l o w i n g two phrases: "Don't worry,
w e ' l l cover you" and "Automatic P r o t e c t i o n . "
(Compl. 1f 10.)
P l a i n t i f f s f u r t h e r allege t h a t despite the promotional m a t e r i a l s '
assurances t h a t a l l overdraw items would be p a i d , Washington
Mutual
issued customer account statements which s t a t e d : "THE FEE FOR EACH
OVERDRAWN ITEM, WHETHER PAID OR RETURNED, IS $21.00."
(Compl. If 12 . )
With r e s p e c t t o t h e f e d e r a l law c l a i m s , P l a i n t i f f s contend t h a t
the
o v e r d r a f t fees are "finance charges" i n v i o l a t i o n o f t h e T r u t h i n
Lending Act ( f i r s t cause o f a c t i o n ) and " i n t e r e s t " i n v i o l a t i o n o f the
Home Owners' Loan Act (second cause o f a c t i o n ) .
Lastly,
Plaintiffs
a l l e g e t h a t Washington Mutual v i o l a t e d t h e T r u t h i n Lending Act by
1
The s t a t e c l a i m s i n c l u d e : Washington S t a t e U n f a i r Business
P r a c t i c e s A c t , u n j u s t enrichment, f r a u d by o m i s s i o n , and C a l i f o r n i a ' s
U n f a i r C o m p e t i t i o n s t a t u t e , Cal. Bus. & P r o f . Code § 17200.
2
i s s u i n g u n s o l i c i t e d ATM and d e b i t cards ( s i x t h cause o f a c t i o n ) .
On November 19, 2003, Washington Mutual f i l e d a motion t o dismiss
P l a i n t i f f s ' Complaint.
The Court r e c e i v e d P l a i n t i f f s ' o p p o s i t i o n on
January 23, 2004, and Washington Mutual's r e p l y on February 23, 2004.
On January 23, 2004, P l a i n t i f f s
a second c o n s o l i d a t e d c o m p l a i n t .
f i l e d a motion f o r leave t o f i l e
The Court r e c e i v e d Washington
Mutual's o p p o s i t i o n on February 24, 2004, and P l a i n t i f f s ' r e p l y on
March 1, 2004.
II.
LEGAL
STANDARD
A Rule 1 2 ( b ) ( 6 ) motion t e s t s t h e l e g a l s u f f i c i e n c y o f t h e claims
asserted i n the complaint.
See Fed. R. C i v . P. 1 2 ( b ) ( 6 ) .
Rule
1 2 ( b ) ( 6 ) must be read i n c o n j u n c t i o n w i t h Rule 8(a) which r e q u i r e s a
" s h o r t and p l a i n statement of t h e c l a i m showing t h a t t h e p l e a d e r i s
entitled
to relief."
5A Charles A. Wright & A r t h u r R. M i l l e r ,
P r a c t i c e and Procedure § 1356 (1990).
Federal
"The Rule 8 standard c o n t a i n s
'a p o w e r f u l presumption a g a i n s t r e j e c t i n g p l e a d i n g s f o r f a i l u r e t o
state a claim.'"
Cir.
1997).
G i l l i g a n v. Jamco Dev. Corp.. 108 F.3d 246, 249 ( 9 t h
A Rule 1 2 { b ) ( 6 ) d i s m i s s a l i s p r o p e r o n l y where t h e r e i s
e i t h e r a " l a c k o f a c o g n i z a b l e l e g a l t h e o r y " o r " t h e absence o f
sufficient
f a c t s a l l e g e d under a c o g n i z a b l e l e g a l t h e o r y . "
Ealistreri
v. P a c i f i c a P o l i c e Dept., 901 F.2d 969, 699 ( 9 t h C i r . 1988); accord
G i l l i g a n , 108 F.3d a t 249 ("A complaint should n o t be dismissed
'unless i t appears beyond doubt t h a t t h e p l a i n t i f f can prove no s e t o f
f a c t s i n support o f h i s c l a i m which would e n t i t l e him t o r e l i e f " ) .
The Court must accept as t r u e a l l m a t e r i a l a l l e g a t i o n s i n t h e
complaint, as w e l l as reasonable i n f e r e n c e s t o be drawn from them.
See Pareto v. F.D.I.C., 139 F.3d 696, 699 { 9 t h C i r . 1998).
the
Moreover,
complaint must be read i n t h e l i g h t most f a v o r a b l e t o p l a i n t i f f .
1
See i d .
2
i n f e r e n c e s , unwarranted
3
a l l e g a t i o n s cast i n t h e form o f f a c t u a l a l l e g a t i o n s .
4
W e s t e r n M i n i n g C o u n c i l v . Watt. 643 F.2d 618, 624 ( 9 t h C i r .
5
However, t h e C o u r t need n o t a c c e p t
as t r u e any u n r e a s o n a b l e
d e d u c t i o n s o f fact,
and/or c o n c l u s o r y
Moreover, i n r u l i n g o n a 1 2 ( b ) ( 6 ) m o t i o n ,
See, e.g. ,^
1981),
a court generally
6
cannot c o n s i d e r m a t e r i a l o u t s i d e o f t h e complaint
7
presented
8
v. T u n n e l l , 14 F.3d 449, 453 ( 9 t h C i r . 1 9 9 4 ) .
9
consider e x h i b i t s submitted with t h e complaint.
i nbriefs,
legal
(e.g., those
a f f i d a v i t s , o r discovery materials).
facts
See B r a n c h
A c o u r t may, however,
See i d . a t 453-54.
10
A l s o , a c o u r t may c o n s i d e r documents w h i c h
11
t o t h e c o m p l a i n t b u t "whose c o n t e n t s a r e a l l e g e d i n [ t h e ] c o m p l a i n t
12
and whose a u t h e n t i c i t y no p a r t y q u e s t i o n s . "
13
i s proper
14
pursuant
15
Mary H o s p i t a l . 844 F.2d 646, 649 ( 9 t h C i r .
t o F e d e r a l Rule o f E v i d e n c e 2 0 1 .
I I I .
18
A.
I d . a t 454.
Further,
i t
Truth
i n Lending
M i r , M.D. v . L i t t l e Co. o f
1988).
DISCUSSION
Act
P l a i n t i f f s a l l e g e t h a t Washington Mutual v i o l a t e d t h e T r u t h i n
19
Lending
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w i t h i t s d i s c l o s u r e requirements
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cards and f a i l i n g t o d i s c l o s e t h e annual percentage
22
d i s c u s s e d below, t h e Court
23
t o s t a t e a c l a i m upon w h i c h r e l i e f c a n be g r a n t e d u n d e r TILA.
A c t ("TILA"),
15 U.S.C. § 1601 e t s e a . , b y f a i l i n g t o comply
and b y i s s u i n g u n s o l i c i t e d
1.
25
The
26
c r e d i t terms
27
u n f a i r c r e d i t b i l l i n g and c r e d i t c a r d p r a c t i c e s . "
(2003) .
TILA's
Disclosure
rate.
credit
As
f i n d s t h a t both o f these a l l e g a t i o n s
24
28
attached
f o r the court t o consider matters subject t o j u d i c i a l n o t i c e
16
17
are not physically
Requirements
p u r p o s e o f TILA i s t o "assure
Are
fail
Inapplicable
a meaningful
disclosure of
. . . a n d t o p r o t e c t t h e consumer a g a i n s t i n a c c u r a t e and
15 U.S.C. § 1601(a)
To implement TILA t h e B o a r d o f G o v e r n o r s o f t h e F e d e r a l
4
Reserve System i s s u e d a r e g u l a t i o n known as R e g u l a t i o n
Z.
12 C.F.R. §
ill
226.1(a).
Among o t h e r t h i n g s , R e g u l a t i o n
Z g o v e r n s t h e required;;
d i s c l o s u r e s c r e d i t o r s must make t o consumers.
1
Under R e g u l a t i o n s , t h e
o b l i g a t i o n t o d e l i v e r d i s c l o s u r e s i s a p p l i c a b l e o n l y t o a c r e d i t o r who
r e g u l a r l y e x t e n d s consumer c r e d i t t h a t i s e i t h e r s u b j e c t t o a f i n a n c e
c h a r g e o r p a y a b l e b y w r i t t e n agreement i n more t h a n f o u r i n s t a l l m e n t s .
12 C.F.R. § 226.2 (a) (17) ( i ) .
Because t h e o v e r d r a f t c h a r g e s a t i s s u e
h e r e a r e n o t p a y a b l e i n more t h a n f o u r i n s t a l l m e n t s , t h e C o u r t ' s
discussion
focuses on whether t h e o v e r d r a f t charges a r e " f i n a n c e
charges."
I f t h e r e i s no " f i n a n c e c h a r g e " w i t h i n t h e meaning o f
Regulation
Z, t h e n t h e f i n a n c i a l
i n s t i t u t i o n t h a t covers an i t e m
c r e a t i n g t h e o v e r d r a f t i s n o t subject t o t h e d i s c l o s u r e requirements
and
a would-be TILA p l a i n t i f f
lacks a cognizable
claim.
I n t h i s c a s e , t h e C o u r t c o n c l u d e s t h a t P l a i n t i f f s have f a i l e d t o
a l l e g e t h a t t h e o v e r d r a f t fees are "finance charges."
Regulation
Z d e f i n e t h e term
Both
" f i n a n c e c h a r g e " as a c h a r g e
TILA
and
"payable
d i r e c t l y o r i n d i r e c t l y b y t h e p e r s o n t o whom t h e c r e d i t i s e x t e n d e d ,
and
imposed d i r e c t l y o r i n d i r e c t l y b y t h e c r e d i t o r as a n i n c i d e n t t o
the extension
Section
of credit."
226.4(b)(2)
15 U.S.C. § 1 6 0 5 ( a ) ;
o f Regulation
imposed o n a c h e c k i n g
12 C.F.R. § 2 2 6 . 4 ( a ) .
Z f u r t h e r s t a t e s t h a t "any c h a r g e
a c c o u n t " i s deemed a f i n a n c e c h a r g e o n l y i f i t
"exceeds t h e c h a r g e f o r a s i m i l a r a c c o u n t w i t h o u t a c r e d i t f e a t u r e . "
I n o t h e r words, " [ i ] f
a charge f o r an account w i t h a c r e d i t
feature
does n o t e x c e e d t h e c h a r g e f o r an a c c o u n t w i t h o u t a c r e d i t f e a t u r e ,
the charge i s n o t a f i n a n c e charge under § 2 2 6 . 4 ( b ) ( 2 ) . "
226.4, Supp. 1 , ^4 ( b ) ( 2 ) .
12 C.F.R. §
Here, P l a i n t i f f s concede t h a t W a s h i n g t o n
M u t u a l ' s o v e r d r a f t f e e i s t h e same amount f o r a c c o u n t s w i t h o r w i t h o u t
5
the c r e d i t f e a t u r e .
2
(See Opp'n at 1 0 : 1 - 3 . )
Thus,
R e g u l a t i o n Z,
11 (
Section 226.4(b) (2),
compels the c o n c l u s i o n t h a t the o v e r d r a f t fee
not a f i n a n c e c h a r g e .
3
is
^
An a d d i t i o n a l r e a s o n s u p p o r t s the c o n c l u s i o n t h a t the
overdraft
f e e s a r e not f i n a n c e c h a r g e s : P l a i n t i f f s f a i l e d to s u f f i c i e n t l y
allege
t h a t the p a r t i e s agreed i n w r i t i n g to payment of the i t e m s c r e a t i n g
the o v e r d r a f t .
4
"Unless payment of such items and the i m p o s i t i o n of
the charge were p r e v i o u s l y agreed upon i n w r i t i n g , " the charge i s
not
2
However, P l a i n t i f f s argue t h a t the f e e s a r e not the "same"
s i m p l y because t h e y a r e the same i n d o l l a r amount.
(See Opp'n a t
9:22:24-10:1-3.)
The Court f i n d s P l a i n t i f f s ' argument i m p o s s i b l e to
r e c o n c i l e w i t h R e g u l a t i o n Z ' s p l a i n language and the examples p r o v i d e d
i n S e c t i o n 2 2 6 . 4 , Supp. 1, fl4 ( b ) ( 2 ) .
As d i s c u s s e d above, R e g u l a t i o n Z
d e f i n e s a f i n a n c e charge a s a charge which "exceeds" the charge f o r a
s i m i l a r account.
See 12 C . F . R . § 2 2 6 . 4 ( b ) ( 2 ) .
By u s i n g the term
"exceed," t h e p r o v i s i o n i s undoubtedly r e f e r r i n g t o the c h a r g e ' s
d o l l a r amount.
The Court cannot c o n c e i v e of a n o t h e r q u a l i t a t i v e
f a c t o r which R e g u l a t i o n Z c o u l d be a l l u d i n g t o , and P l a i n t i f f s have
p r o v i d e d none.
F u r t h e r m o r e , the examples i n the Supplement compare
d o l l a r amounts and n o t h i n g e l s e when g i v i n g examples of f i n a n c e
charges:
"To i l l u s t r a t e :
i.
A $5 s e r v i c e charge i s imposed on an account w i t h an
o v e r d r a f t l i n e of c r e d i t (where the i n s t i t u t i o n has a g r e e d i n w r i t i n g
to pay the o v e r d r a f t ) , w h i l e a $3 s e r v i c e charge i s imposed on an
account w i t h o u t a c r e d i t f e a t u r e ; the $2 d i f f e r e n c e i s a f i n a n c e
charge . . .
ii.
A $5 s e r v i c e charge i s imposed f o r each i t e m t h a t r e s u l t s i n
an o v e r d r a f t on an account w i t h an o v e r d r a f t l i n e of c r e d i t , w h i l e a
$25 s e r v i c e charge i s imposed f o r p a y i n g o r r e t u r n i n g e a c h item on a
s i m i l a r account w i t h o u t a c r e d i t f e a t u r e ; the $5 c h a r g e i s not a
finance charge,"
12 C . F . R . § 2 2 6 . 4 , Supp. 1, 114(b)(2).
3
Because the f a c t s u n d e r l y i n g the C o u r t ' s l e g a l a n a l y s i s a r e
u n d i s p u t e d , the Court d i s m i s s e s t h i s c l a i m w i t h p r e j u d i c e .
4
I n t h i s r e s p e c t , the Court s t r o n g l y d i s a g r e e s w i t h D e f e n d a n t ' s
c o n t e n t i o n t h a t "whether [Washington Mutual] committed t o pay a l l
o v e r d r a f t s up to the O v e r d r a f t L i m i t has no b e a r i n g on whether the
O v e r d r a f t Charge i s a ' f i n a n c e c h a r g e . ' " (Reply a t 6.-9-10.)
6
a "finance charge,"
5
12 C.F.R. § 2 2 6 . 4 ( c ) ( 3 ) .
Here, P l a i n t i f f s '
ft
1
a l l e g a t i o n s do not show t h a t the p a r t i e s had any such agreement.^
k
I n s t e a d , P l a i n t i f f s a l l e g e t h a t Washington Mutual "represented i n i t s
(.0
p r o m o t i o n a l m a t e r i a l s t h a t i t was agreeing
as a m a t t e r o f c o n t r a c t t o
be l e g a l l y o b l i g a t e d t o pay a l l o v e r d r a f t items up t o the
assigned t o the account."
(Compl. f 8.)
(emphasis added).
p r o m o t i o n a l m a t e r i a l s are not agreements.
Guar. N a t ' l Bank. 182 F.R.D. 226,
230 (S.D.
'limit'
However,
Cf. N i c o l a s v. Deposit
Miss. 1998)
(construing
d e p o s i t o r y agreement t o determine whether p a r t i e s agreed t o payment o f
items c r e a t i n g an o v e r d r a f t ) .
a l l conversations
In fact, i t i s well established that
and w r i t i n g s which occur p r i o r t o the e x e c u t i o n o f a
w r i t t e n agreement are i n a d m i s s i b l e t o change o r modify the terms o f
the agreement/
Cal.App.2d 356,
See Cal. Civ. Proc § 1856;
Maxwell v. Car Ion, 30
361 (1939).
Thus, t o the e x t e n t t h a t the p r o m o t i o n a l
materials d i r e c t l y
c o n t r a d i c t a subsequent d e p o s i t o r y agreement, they w i l l not
support
P l a i n t i f f s ' l e g a l c o n c l u s i o n t h a t the p a r t i e s agreed i n w r i t i n g t o
payment o f the o v e r d r a f t f e e s .
7
See C o n t i n e n t a l A i r l i n e s , I n c . v.
5
S e c t i o n 22 6.4(c) (3) p r o v i d e s , i n r e l e v a n t p a r t :
(c) Charges excluded from the f i n a n c e charge. The f o l l o w i n g
charges are not f i n a n c e charges . . .
(3) Charges imposed by a f i n a n c i a l i n s t i t u t i o n f o r paying items
t h a t overdraw an account, unless the payment o f such items and the
i m p o s i t i o n o f the charge were p r e v i o u s l y agreed upon i n w r i t i n g .
6
The w r i t t e n agreement "may be e x p l a i n e d o r supplemented by
evidence o f c o n s i s t e n t a d d i t i o n a l terms." Cal. Civ. Pro. § 1856(b)
(emphasis added). Here, P l a i n t i f f s ' complaint does not mention the
account agreement, but P l a i n t i f f s admit t h a t the p r o m o t i o n a l m a t e r i a l s
and t h e i r bank statements are i n c o n s i s t e n t . (Compl. U 12.)
7
However, p r e c o n t r a c t p r o m o t i o n a l m a t e r i a l s o r brochures can
form the b a s i s f o r a f r a u d c l a i m i n c e r t a i n circumstances.
See
(continued...)
7
McDonnell Douglas Corp., 216 Cal.App.3d 388, 418-420 (1990).
P l a i n t i f f s admit t h a t t h e i r bank statements i n c l u d e d t h e f o l l o w i n g
sentence which i n d i c a t e d t h a t t h e payment o f an i t e m t h a t c r e a t e d an
o v e r d r a f t was d i s c r e t i o n a r y : THE FEE FOR EACH OVERDRAWN ITEM, WHETHER
PAID OR RETURNED, IS $21.00. (Compl. <[ 12.) P l a i n t i f f s a l s o admit
t h a t , by t h i s statement, Washington Mutual i n t e n d e d t o " r e t a i n [ ] t h e
o p t i o n o f r e j e c t i n g payment o f any p a r t i c u l a r o v e r d r a f t i t e m . "
(Compl. f 12.) Because P l a i n t i f f s have n o t s u f f i c i e n t l y a l l e g e d t h a t
Washington Mutual agreed i n w r i t i n g t o t h e payment o f t h e items
c r e a t i n g an o v e r d r a f t , P l a i n t i f f s have n o t s u f f i c i e n t l y a l l e g e d t h a t
the o v e r d r a f t fees a r e f i n a n c e charges w i t h i n t h e meaning o f TILA.
2.
TILA's
Solicitation
and P e r i o d i c
Statement
Provisions
Are
Inapplicable
P l a i n t i f f s a l s o a l l e g e t h a t Washington Mutual v i o l a t e d TILA by
i s s u i n g u n s o l i c i t e d ATM and d e b i t cards and f a i l i n g t o d i s c l o s e t h e
annual percentage r a t e i n p e r i o d i c statements.
Plaintiffs'
claim
succeeds o r f a i l s on t h e s t r e n g t h o f i t s premise t h a t ATM cards and
d e b i t cards a r e s u b j e c t t o R e g u l a t i o n Z's d i s c l o s u r e requirements f o r
c r e d i t cards.
Under R e g u l a t i o n Z, 12 C.F.R. § 226.5a, a c r e d i t c a r d
i s s u e r must make c e r t a i n d i s c l o s u r e s when i t s o l i c i t s an a p p l i c a t i o n
t o open a c r e d i t c a r d account.
However, s e c t i o n 226.5a (a) (3)
e x p r e s s l y excludes " o v e r d r a f t l i n e s o f c r e d i t t i e d t o asset accounts
accessed by check-guarantee cards o r by d e b i t c a r d s ; o r l i n e s o f
c r e d i t accessed by check-guarantee cards o r by d e b i t cards t h a t can be
used.only a t automated t e l l e r machines."
I n a d d i t i o n , because t h e
o v e r d r a f t fees a r e not " f i n a n c e charges," R e g u l a t i o n Z does not
7
(...continued)
C o n t i n e n t a l A i r l i n e s , 216 Cal.App.3d a t 419,
8
r e q u i r e Washington Mutual to d i s c l o s e an a n n u a l p e r c e n t a g e r a t e .
12 C.F.R. § 226.7(g)
3
See
( r e q u i r i n g d i s c l o s u r e of annual p e r c e n t a g e :rate
"ST
" [w] hen
a f i n a n c e charge i s imposed d u r i n g
the b i l l i n g c y c l e " ) . [jThus,
P l a i n t i f f s have f a i l e d to s t a t e a c l a i m under T I L A b a s e d upon t h e s e
allegations.
B.
Home O w n e r s ' L o a n
Plaintiffs'
Act
second cause of a c t i o n a l l e g e s t h a t the
f e e s c o n s t i t u t e " i n t e r e s t " i n e x c e s s of t h a t p e r m i t t e d
Owners' Loan Act
("HOLA").
lenders are allowed
by the Home
Under HOLA, 12 U.S.C. § 1 4 6 3 ( g ) ( 1 ) ,
to charge i n t e r e s t a t e i t h e r one
Federal Reserve discount
overdraft
percent
above the
r a t e on 90-day commercial paper o r the r a t e
allowed
by the s t a t e i n which the l e n d e r i s l o c a t e d , w h i c h e v e r i s
greater.
9
a r e not
I n Washington Mutual's view, however, the o v e r d r a f t
" i n t e r e s t " w i t h i n the scope of § 1 4 6 3 ( g ) .
For
fees
reasons
a r t i c u l a t e d below, the Court agrees w i t h Washington Mutual.
Washington Mutual c i t e s t h r e e c a s e s i n which the c o u r t s h e l d t h a t
the term " i n t e r e s t " does not encompass o v e r d r a f t
I n c . v. NationsBank, N.A.,
33 F. Supp.2d 1041,
fees:
1050
(1) Video
(S.D.
Trax,
F l a . 1998),
s
The Court r e j e c t s P l a i n t i f f s ' c o n t e n t i o n t h a t R e g u l a t i o n Z
r e q u i r e s c a r d i s s u e r s t o make annual p e r c e n t a g e r a t e d i s c l o s u r e s
whether o r not t h e r e i s a f i n a n c e charge imposed.
I n making t h i s
argument, P l a i n t i f f s c i t e a p r o v i s i o n d e f i n i n g " c r e d i t o r , " which does
not a d d r e s s the c i r c u m s t a n c e s i n which c r e d i t o r s must i s s u e p e r i o d i c
s t a t e m e n t s and a n n u a l p e r c e n t a g e r a t e s . See 12 C.F.R. §
226.2 (a) (17) ( i i i ) .
9
HOLA, 12 U.S.C. §1463(g)(1), p r o v i d e s :
" N o t w i t h s t a n d i n g any S t a t e law, a s a v i n g s a s s o c i a t i o n may charge
i n t e r e s t on any e x t e n s i o n of c r e d i t a t a r a t e of not more than 1
p e r c e n t i n e x c e s s of the d i s c o u n t r a t e on 90-day commercial paper i n
e f f e c t a t the F e d e r a l R e s e r v e bank i n the F e d e r a l R e s e r v e d i s t r i c t i n
which such s a v i n g s a s s o c i a t i o n i s l o c a t e d or a t the r a t e a l l o w e d by
the laws of the S t a t e i n which such s a v i n g s a s s o c i a t i o n i s l o c a t e d ,
whichever i s g r e a t e r . "
9
f
1
a f f d p e r curiam, 205 F.3d 1358
(11th C i r . 2000);
2
Hancock Bank, 7 F. Supp.2d 812,
816 (S.D.
3 N i c o l a s , supra, 182 F.R.D. a t 231.
4
(2) T e r r e l l v.
Miss. 1998); and (3)
Although the cases
^
construed^the
N a t i o n a l Bank Act r a t h e r than HOLA, the Court f i n d s the o p i n i o n s
5 persuasive a u t h o r i t y because HOLA and t h e N a t i o n a l Bank Act have
6 v i r t u a l l y i d e n t i c a l language.
10
Because o f t h e s t a t u t e s '
similarity
7
i n language and g o a l s , c o u r t s have concluded
8
" i n t e r p r e t e d so as t o remain c o n s i s t e n t w i t h t h e N a t i o n a l Bank Act."
9 Ament v. PNC N a t ' l Bank. 849 F. Supp. 1015,
1021 (W.D. Pa. 1994),
10
a f f ' d per curiam, 9 F.3d 1170
11
Properties/762 v. F i r s t Fina. Sav. & Loan Ass'n, 845 F.2d 519, 521
12
(5th C i r . 1988)); accord C a p p a l l i v. Nordstrom, 155 F. Supp.2d 339,
13
342 n.3 (E.D.
14
goals o f the N a t i o n a l Bank Act and HOLA, I c o n s i d e r them t o be in
15
materia. ")
16
11
Pa. 2001)
(3d C i r . 1996)
t h a t HOLA must be
( c i t i n g Gavev
("Due t o the s i m i l a r i t y o f t h e language and
pari
.
Thus, due t o the d e a r t h o f cases c o n s t r u i n g t h e term
"interest"
17
i n HOLA, the Court n e c e s s a r i l y t u r n s t o cases c o n s t r u i n g t h e i d e n t i c a l
18
term i n t h e N a t i o n a l Bank Act.
19
o p i n i o n s i n Video Trax, T e r r e l l , and N i c o l a s are p a r a l l e l .
A review o f the cases r e v e a l s t h a t the
Each o f
20
10
21
22
23
24
25
26
27
The key language o f b o t h s t a t u t e s a l l o w s a l e n d e r t o charge
i n t e r e s t a t e i t h e r one percent above the Federal Reserve d i s c o u n t r a t e
or the r a t e a l l o w e d by s t a t e law where the l e n d e r i s l o c a t e d . The
N a t i o n a l Bank Act, 12 U.S.C. § 85, p r o v i d e s , i n r e l e v a n t p a r t :
"Any a s s o c i a t i o n may t a k e , r e c e i v e , r e s e r v e , and charge on any
l o a n o r d i s c o u n t made, o r upon any notes, b i l l s o f exchange, o r o t h e r
evidences o f debt, i n t e r e s t a t the r a t e a l l o w e d by t h e laws o f the
S t a t e , T e r r i t o r y , o r D i s t r i c t where the bank i s l o c a t e d , o r a t a r a t e
of 1 per centum i n excess o f t h e d i s c o u n t r a t e on n i n e t y - d a y
commercial paper i n e f f e c t a t the Federal r e s e r v e bank i n the Federal
reserve d i s t r i c t where the bank i s l o c a t e d , whichever may be t h e
greater[.]"
11
28
materia
I t i s a canon o f c o n s t r u c t i o n t h a t s t a t u t e s t h a t are in
may be construed t o g e t h e r .
10
pari
t h e c o u r t s began by
citing
the
definition
of
"interest"
under
the
i _i
t \!
N a t i o n a l Bank A c t :
•
(a) D e f i n i t i o n .
includes
any
creditor
f o r an
line
The
term
"interest"
e x t e n s i o n of c r e d i t ,
of c r e d i t ,
o r any
things, the
extension
fees,
d e f a u l t or breach
when
availability:
not
drawn
insufficient
fees,
c a s h advance f e e s ,
C.F.R. § 7.4001 (a) (2004)
credit
charges
12
funds,
and
(emphasis
were not
with
a debt
c o n t r o l l e d by
12
from t h e
added).
13
imposed
Video Trax,
12
The c o u r t s r e l i e d on t h e 1997
not i n c l u d e the u n d e r l i n e d language.
does not a l t e r the a n a l y s i s .
13
fees
with
fees,
a
annual
I n the c o u r t s ' view,
terms of t h e d e p o s i t o r y
C.F.R. § 7 . 4 0 0 2 .
late
fees.
i n connection
t r a n s a c t i o n as r e q u i r e d under § 7.4001(a),
arising
a
credit
on
overlimit
interest
a
I t i n c l u d e s , among
(NSF)
membership
of
a borrower of
funds
payment
85^
or prospective
periodic rates,
sufficient
tenders
check
the o v e r d r a f t charges
by
extended.
numerical
a borrower
on
was
U.S.C.
making a v a i l a b l e
f o l l o w i n g f e e s connected
creditor-imposed
charged
12
or
i n 12
payment c o m p e n s a t i n g a c r e d i t o r
c o n d i t i o n upon w h i c h c r e d i t
other
as used
~
but
with
a
were i n s t e a d
agreement
and
thus
3 3 F. S u p p . 2 d a t
v e r s i o n o f § 7.4001, w h i c h d i d
However, t h e a d d i t i o n a l l a n g u a g e
S e c t i o n 7.4002 p r o v i d e s , i n r e l e v a n t p a r t :
(a) A u t h o r i t y t o i m p o s e c h a r g e s and f e e s . A n a t i o n a l b a n k may
charge
i t s c u s t o m e r s n o n - i n t e r e s t c h a r g e s and f e e s , i n c l u d i n g d e p o s i t a c c o u n t
s e r v i c e charges.
(b) C o n s i d e r a t i o n s .
(1) A l l c h a r g e s and f e e s s h o u l d be a r r i v e d a t b y e a c h b a n k on a
c o m p e t i t i v e b a s i s a n d n o t on t h e b a s i s o f a n y a g r e e m e n t , a r r a n g e m e n t ,
undertaking, understanding, or d i s c u s s i o n w i t h o t h e r banks or t h e i r
officers.
(2) The e s t a b l i s h m e n t o f n o n - i n t e r e s t c h a r g e s and f e e s , t h e i r amounts,
a n d t h e method o f c a l c u l a t i n g them a r e b u s i n e s s d e c i s i o n s t o be made
b y e a c h bank, i n i t s d i s c r e t i o n , a c c o r d i n g t o s o u n d b a n k i n g j u d g m e n t
(continued...)
11
1050; T e r r e l l ,
7 F . Supp.2d a t 816; N i c o l a s ,
182 F . R . D .
at
231.
o
N i c o l a s p r o v i d e s the most p e r s u a s i v e r e a s o n i n g f o r
conclusion.
The N i c o l a s Court r e l i e d on an amicus
this
curiae
brief'riled
{
by the O f f i c e of the C o m p t r o l l e r of the C u r r e n c y
("OCC"),
e x c l u s i v e s u p e r v i s o r y agency of n a t i o n a l b a n k s .
See 12 U . S . C .
,
which i s
the
§ 21.
The Supreme Court has h e l d t h a t OCC i n t e r p r e t a t i o n s of the N a t i o n a l
Bank A c t m e r i t s u b s t a n t i a l d e f e r e n c e .
U.S.
735,
739
Annuity L i f e
(1996)
I n s . , 531 U . S . 251,
i s not
256-257
(1995)).
517
Variable
A c c o r d i n g to
the
i f the bank charges the fee w i t h o u t r e g a r d to whether
as noted above,
the fee
Nicolas,
i s a deposit
182 F . R . D .
at
it
231.
account s e r v i c e charge
a r i s i n g from the terms of the d e p o s i t o r y agreement.
case,
N.A.,
"interest" i n connection with c r e d i t
pays the i t e m c r e a t i n g the o v e r d r a f t .
Instead,
Citibank,
(quoting NationsBank of N . C . , N.A. v .
OCC, the o v e r d r a f t fee
extension
Smiley v.
Id.
In this
P l a i n t i f f s concede t h a t Washington Mutual i n t e n d s to charge an
overdraft
unpaid.
fee
r e g a r d l e s s of whether a check i s honored o r r e t u r n e d
(See Compl. 1 1 2 . )
I n l i g h t of the f o r e g o i n g
Court c o n c l u d e s t h a t the o v e r d r a f t c h a r g e s a r e not
authority,
"interest"
i n c o n n e c t i o n w i t h c r e d i t e x t e n s i o n under HOLA, § 12 U . S . C .
1463(g)(1).
Therefore, P l a i n t i f f s '
1 3
the
imposed
§
second c a u s e of a c t i o n f a i l s
to
(. . . continued)
and s a f e and sound banking p r i n c i p l e s . A n a t i o n a l bank e s t a b l i s h e s
n o n - i n t e r e s t c h a r g e s and f e e s i n a c c o r d a n c e w i t h s a f e and sound
banking p r i n c i p l e s i f the bank employs a d e c i s i o n - m a k i n g p r o c e s s
through which i t c o n s i d e r s the f o l l o w i n g f a c t o r s , among o t h e r s :
( i ) The c o s t i n c u r r e d by the bank i n p r o v i d i n g the s e r v i c e ;
( i i ) The d e t e r r e n c e of misuse by customers of banking s e r v i c e s ;
( i i i ) The enhancement of the c o m p e t i t i v e p o s i t i o n of the bank i n
a c c o r d a n c e w i t h the b a n k ' s b u s i n e s s p l a n and m a r k e t i n g s t r a t e g y ; and
( i v ) The maintenance of the s a f e t y and soundness of the i n s t i t u t i o n ,
(c) I n t e r e s t . Charges and f e e s t h a t a r e " i n t e r e s t " w i t h i n the meaning
of 12 U . S . C . 85 a r e governed by § 7.4001 and not by t h i s s e c t i o n .
12
state a cognizable
C.
State
Law
Claims
Plaintiffs'
federal
claim.
^
r e m a i n i n g c l a i m s a r i s e out of s t a t e l a w .
c l a i m s a r e d i s p o s e d of w e l l b e f o r e
f o r pendent
trial,
s t a t e c l a i m s to be d i s m i s s e d as w e l l .
1367(c)(3).
As s u c h ,
supplemental
j u r i s d i c t i o n and d i s m i s s P l a i n t i f f s '
without p r e j u d i c e .
the Court e x e r c i s e s
its
it
is
1 4
Where
appropriate
28 U . S . C .
d i s c r e t i o n to
§
decline
s t a t e law c l a i m s
1 5
1 4
P l a i n t i f f s concede t h a t t h e i r s t a t e c l a i m s based on Washington
law a r e p r o p e r l y d i s m i s s e d because Washington Mutual i s l o c a t e d i n
C a l i f o r n i a , not Washington.
(See Opp'n a t 2 : 4 - 7 . )
However,
P l a i n t i f f s seek l e a v e to amend t h e i r Complaint to a l l e g e c l a i m s based
on C a l i f o r n i a l a w .
Because t h i s Order d i s m i s s e s a l l of P l a i n t i f f s '
f e d e r a l c l a i m s and d e c l i n e s supplemental j u r i s d i c t i o n o v e r any s t a t e
c l a i m s , the Court DENIES P l a i n t i f f s ' motion f o r l e a v e to f i l e a second
consolidated complaint.
1 5
While Washington Mutual argues t h a t the s t a t e law c l a i m s a r e
preempted by i m p l i c a t i o n o r " f i e l d p r e e m p t i o n , " Washington Mutual does
not contend t h a t the Court has o r i g i n a l j u r i s d i c t i o n o v e r the s t a t e
law c l a i m s ( t h a t i s , t h a t the "complete preemption" d o c t r i n e a p p l i e s ) .
(See Mot. a t 1 2 : 1 0 - 1 2 ; R e p l y at 1 1 : 2 - 1 0 . )
Thus, the s t a t e law c l a i m s
are p r o p e r l y d i s m i s s e d p u r s u a n t to 28 U . S . C . § 1367 (c) ( 3 ) .
13
IV.
CONCLUSION
For the foregoing reasons,
Plaintiffs'
Accordingly,
PREJUDICE.
Defendant's
motion to d i s m i s s
C o n s o l i d a t e d C l a s s A c t i o n Complaint i s
Plaintiffs'
Plaintiffs'
federal
^
GRANTED.
law c l a i m s a r e DISMISSED
s t a t e law c l a i m s a r e DISMISSED
WITH
WITHOUT
PREJUDICE.
In addition,
consolidated
SO
Plaintiffs'
complaint
is
motion f o r l e a v e
to f i l e
a
second
DENIED.
ORDERED.
DATED:
dp*
I
t£o«
U
AGu^
AUDREY
UNITED
14
B.
STATES
COLLINS
DISTRICT
JUDGE