Miller Reversed
You can exhale. On November 20, a California appellate court reversed a judgment against Bank of America in Miller v. Bank of America. The trial court had held that a bank may not cover debits owing for overdrafts and overdraft fees against credits held in
checking accounts that include direct-deposited Social Security and other public benefit payments. Bankers everywhere had
reason for concern because compliance—short of flat out prohibiting direct deposits of government benefit payments—would be
nearly impossible.
The appellate court reversed. In Kruger v. Wells Fargo Bank, 11 Cal.3d 352 (1974), the California Supreme Court had prohibited banks from utilizing the banker’s right to setoff against
public benefits to recover on an account holder’s delinquent but separate credit card account. In this case, by contrast, the bank had applied overdrafts, collected NSF fees, and corrected bank errors
from the same account, which happened to include (as many accounts do) direct-deposited payments of Social Security and other government
benefit funds. But maintaining a deposit account, especially one with overdraft protection, involves ongoing adjustment and
that it is “common knowledge” that the account consists of debit and credit entries, said the Miller court. Collecting a debt unrelated to the bank account, as was done in Kruger, does not implicate the internal balancing of a single bank account.
For more information, contact Arturo González at agonzalez@mofo.com.
Anti-Money Laundering
The Delaware Supreme Court held on November 6 that corporate directors have no oversight liability under Delaware law and
affirmed dismissal of a shareholder’s derivative action against 15 present and former directors of AmSouth Bancorporation.
(Stone v. Ritter, ___ A.2d ___, 2006 WL 3169168 (Del. Nov. 6, 2006).) This came despite admitted lapses in the board’s oversight of its anti-money
laundering program, which resulted in $50 million in fines.
For more information, contact Henry Fields hfields@mofo.com.
Verbal Abuse
Another “wrongful verb” case died this quarter. These are class action cases brought against ATM operators for placing a sticker
on their ATM machines warning that non-account holders “may”—as opposed to “will”—be charged a cash withdrawal fee. The district
court in Brown v. Bank of America, ___ F.Supp.2d ___, 2006 WL 2989031 (D. Mass. Oct. 17, 2006) gave deference to the January 2006 revisions to the Federal
Reserve Board’s Regulation E.
For more information, contact Will Stern at wstern@mofo.com.
New Model Privacy Forms
Try writing a privacy notice that anyone can understand. Soon, the federal banking agencies, FTC, NCUA, and the SEC will get
their chance. Surveys show that consumers find privacy policies important but tend not to read them. So, as part of the regulatory
relief legislation, Congress mandated that these federal agencies will need to prescribe model forms to be used by financial
institutions. For consumers, it’s an opportunity for a slam dunk… another crumpled paper ball for the wastebasket.
For more information, contact Tom Scanlon at tscanlon@mofo.com.
SAR Confidentiality
Last year, we reported on BizCapital Bus. & Indus. Dev. Corp. v. OCC, 406 F.Supp.2d 688 (E.D. La. 2005). There, the district court ordered the OCC to turn over to a private litigant various
confidential Suspicious Activity Reports (SARs) the bank had filed with its regulator. In October, the Fifth Circuit reversed that controversial decision.
In BizCapital Business & Industrial Development Corp. v. OCC, ___ F.3d ___, 2006 WL 2882766 (5th Cir., Oct. 11, 2006) a bank customer claimed that the OCC provided insufficient justification
when it denied the firm’s request to disclose SAR information the customer needed to establish the bank’s knowledge of a check-kiting
scheme. The appellate court reversed the ruling, finding that banks are prohibited from disclosing a SAR, but the OCC is not
under a similar prohibition, holding that the agency has the authority to disclose the information.
For more information, contact Henry Fields at hfields@mofo.com.
