Have banks lost the trust of courts?

Arevalo v. Bank of America Corp., 2011 WL 1195973 (N.D. Cal.)

This case caught my attention basically because of the individually significant amounts of money involved. Plaintiffs Arevalo and Sandow have credit cards with Bank of America logos. They discovered charges for “Credit Protection Plus” (CPP) on their statements. This is a plan that charges roughly 1% of credit card balances in exchange for allowing holders to defer their minimum payments under certain circumstances.

“Arevalo discussed CPP with a Bank of America salesperson in January 2010, and declined to enroll at that time. When he discovered CPP charges on his April 2010 credit card statement, he reviewed previous statements and found CPP charges in February and March 2010. Bank of America allowed Arevalo to cancel CPP, but it refused to credit him the $712.50 he had paid for three months of CPP. Sandow had a similar experience.” Sandow also paid over $700 for three months; Bank of America said he enrolled over the phone, but the personal information he allegedly provided doesn’t match his own information. Seven hundred dollars is a big chunk of change for three months! Consider how much Bank of America is making off of people who don’t realize this is on their bills—and then add compound interest. In both cases, Bank of America stopped plaintiffs’ enrollment in the program, but refused to refund the earlier charges.

Plaintiffs sued on behalf of all California residents who paid for CPP during the relevant time period who either (a) were involuntarily enrolled in CPP, or (b) enrolled in CPP voluntarily but were unable to use CPP due to the program's exclusions. Though plaintiffs alleged that the exclusions made the promises of protection in tough times illusory (among other things, Bank of America sold the program to retirees, self-employed people, and people collecting unemployment insurance, all of whom were ineligible for benefits by the terms of the program), the court determined that these plaintiffs didn’t have standing to represent that subclass, whose claims relate to the worth of the product compared to representations made about it, whereas these plaintiffs never signed up. Had the plaintiffs articulated a better account of the relatedness of the classes, the court would have been inclined to defer questions of relatedness to the class certification stage, but just paying for CPP wasn’t enough to create standing to represent both groups.  [ETA: A little bird points out that the standing issue--when a class representative can represent people who haven't suffered the exact same injury, and how broadly we define that injury--is really, really important; this is reflected in the treatment the court gives it, but I have not summarized the court's analysis and discussion of various precedents pointing in different directions.]

The breach of contract and breach of the covenant of good faith and fair dealing claims were dismissed for failure to plead facts showing what promises Bank of America breached or how plaintiffs’ rights to the benefits of the contract were frustrated. Because of the failure of standing for subclass (b), the intentional misrepresentation claims were also dismissed, because they related only to claims made in selling CPP to voluntary purchasers. And there’s no separate cause of action for unjust enrichment under California law, so that claim was also dismissed.

The court largely rejected Bank of America’s other arguments. It claimed it wasn’t a proper defendant because FIA Card Services, N.A. was the issuer who sold CPP. FIA is a wholly-owned subsidiary of Bank of America. Plaintiffs alleged several facts bringing Bank of America in: it was a Bank of America rep who contacted Sandow regarding his enrollment; Sandow’s credit card agreement says “©2007 Bank of America Corporation”; plaintiffs’ credit card statements with the CPP charges didn’t mention FIA; and Bank of America advertised CPP on its website. This was enough to make plaintiffs’ claims against Bank of America facially plausible.

Plaintiffs also sufficiently pled CLRA, FAL, and UCL violations, the UCL under the “unlawful” prong, borrowing from the CLRA violation: Bank of America’s alleged failure to disclose that they were being enrolled in CPP, causing harm. The court specifically noted that intentional failure to disclose information could be actionable under the FAL.

Bank of America claimed preemption by the National Bank Act (NBA). Under Supreme Court precedent, "States are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank's or the national bank regulator's exercise of its powers." Courts are divided whether all kinds of preemption apply to state consumer protection laws. The court here held there was no field preemption of banking law.

It was less sure whether OCC regulations may expressly preempt state consumer protection laws, but, regardless, there was no express preemption. The parties agreed that CPP is a debt cancellation contract under OCC regulations. Such contracts, OCC regs say, are governed by federal law and not by state law. Disagreeing with some other decisions, the court held that this was not express preemption of consumer protection law. The NBA itself sets out procedures the OCC must follow to issue a rule preempting state consumer protection law. The OCC must publish notice in the Federal Register, including a description of each state law at issue; give interested parties time to comment; and consider any comments received. Previous cases finding express preemption of consumer protection laws didn’t analyze whether OCC followed this procedure. “Thus while the OCC regulations might well expressly preempt some state laws, Bank of America has failed to show that they preempt state consumer protection laws such as the CLRA, UCL, and FAL.”

I wonder whether this greater attention to detail, which is consistent with a recent trend against finding preemption, is also related to a generally increased distrust of banks, also being demonstrated by courts’ greater demands on banks to produce proof that they actually own the mortgages on which they are foreclosing—proof that used to be presumed. Have banks finally exhausted the patience of, and lost the presumption of good faith extended to them by, federal judges?

There was also no conflict preemption. Plaintiffs challenged their involuntary enrollment in CPP and Bank of America’s misleading conduct regarding that involuntary enrollment. The court was not persuaded that the OCC regulations created any duties in conflict with the duties imposed by California consumer protection law here. The regs require a customer’s written affirmative election to purchase a DCC unless there’s a voluntary enrollment over the phone. The regs govern how national banks must record a voluntary enrollment, not how they must handle involuntary enrollments. Likewise, regs governing refunds to DCC customers aren’t in conflict because they govern fees “paid for the contract.” Plaintiffs’ claims were premised on the fact that they didn’t agree to a contract. Because of the dismissal of the other subclass, there was no conflict with other regs governing required disclosures and eligibility requirements for DCCs.