Banks may charge fees on accounts containing public benefit money.

Miller v. Bank of America, 46 CA4th 630 (2009)
Court of Appeal of the State of California
First Appellate District
Division Three

In this class action lawsuit, class representative Miller was a recipient of Supplemental Security Income (SSI) and other public benefit money which was directly deposited in his Bank of America account. In January 1998, Bank of America erroneously deposited $1,799.83 into Miller's account. Upon realizing its error in April 1998, Bank of America debited Miller's account for the $1,799.83, leaving a negative balance in Miller's account. The bank took funds from Miller's May SSI direct deposit to settle the negative balance, leaving Miller unable to pay his rent and other living expenses.

When Miller objected to Bank of America's actions, the bank opened a second account for Miller's SSI direct deposit, and credited the new account for the May SSI payment it previously captured, but also informed him that Miller he was still responsible for the first account's negative balance. In June and July, Bank of America again seized and later restored SSI funds from Miller's second account to satisfy the negative balance in his first account. Bank of America also charged Miller's second account with Non-Sufficient Funds (NSF) fees related to overdrafts caused by fund seizures.

Miller sued Bank of America in 1998 bringing a host of allegations, including violation of the Consumers Legal Remedies Act (CLRA). Relying upon Kruger v. Wells Fargo Bank, 11 CA3d 352 (1974), the jury awarded $75 million in compenatory damages to Miller and the other class members on a finding that Bank of America violated CLRA by falsely representing the right to use public benefit money to pay overdraft fees.

On an appeal upheld by the Supreme Court of California, Kruger was found to not apply to debits of overdrafts and charging NSF fees because the instant case was distinguished from Kruger in that Miller's debt was not a past debt but arose from activity in a single account. Further, under California Financial Code 864, "debt" is defined to exclude "charge for bank services or...for an overdraft of an account."

This case is a victory for businesses in California. It is hard to believe Miller "did not notice" almost $1,800 extra in his account while he required SSI pay his rent and living expenses. That he did not call the extra money in his account to the attention of his banker is one thing, but that he spent the money and then complained when Bank of America corrected the error is another. When banks take losses on deadbeat accounts, the true victims are the account holders with positive balances who pay higher fees fees and earn less interest to offset the bank's loss.