Source: https://www.litigationandtrial.com/2012/12/articles/attorney/consumer-protection/bank-fraud-cfpb/
Timestamp: 2019-04-19 02:47:36+00:00

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A case decided last week by the Ninth Circuit Court of Appeals, Gutierrez v. Wells Fargo Bank, shows why the CFPB is so important, how its predecessor (the Office of the Comptroller of the Currency) failed the American public, and why we should view anyone opposed to the CFPB with deep suspicion.
As an illustration, consider a customer with $100 in his account who uses his debit-card to buy ten small items totaling $99, followed by one large item for $100, all of which are presented to the bank for payment on the same day. Under chronological posting or low-to-high posting, only one overdraft would occur because the ten small items totaling $99 would post first, leaving $1 in the account. The $100 charge would then post, causing the sole overdraft.
Using high-to-low sequencing, however, these purchases would lead to ten overdraft events because the largest item, $100, would be posted first—depleting the entire account balance—followed by the ten transactions totaling $99. Overdraft fees are based on the number of withdrawals that exceed the balance in the account, not on the amount of the overdraft.
When high-to-low sequencing is used, the fees charged by the bank for the overdrafts can dramatically exceed the amount by which the account was actually overdrawn. For example, Gutierrez incurred $143 in overdraft fees as a consequence of a $49 overdraft, and Erin Walker incurred $506 in overdraft fees for exceeding her account balance by $120.
If you or I lied about how we were handling someone else’s money so that we could tack on additional fees, we would be sued and prosecuted for fraud. But Wells Fargo is a national bank, and so the rules are different.
The rules that apply to banks, derived from the National Bank Act of 1864 (“NBA”), 12 U.S.C. § 1 et seq., are vague, creating an unfortunate ambiguity that national banks have exploited, by way of the Office of the Comptroller of the Currency (“OCC”), a federal agency they effectively controlled. As the Fourth Circuit recently explained in Epps v. JP Morgan Chase (a case in which JP Morgan violated Maryland law relating to the sale of repossessed cars, yet another instance of a national bank preying on the financially vulnerable), the NBA authorizes national banks to exercise “all such incidental powers as shall be necessary to carry on the business of banking.” 12 U.S.C. § 24. Congress also authorized the Office of the Comptroller of the Currency (“OCC”) to promulgate regulations implementing the NBA. See 12 U.S.C. § 93a.
It’s in the Office of the Comptroller of the Currency — which had most of the responsibility for these types of consumer finance issues prior to the creation of the CFPB — where the problem started. Instead of enacting regulations that protected consumers, the OCC enacted regulations that protected banks by “pre-empting” state consumer finance laws.
It didn’t matter if a state like California passed a law prohibiting fraudulent practices by banks; if someone, including a state attorney general, tried to sue the bank for violating those laws, the bank would cry “pre-emption,” and ask the Court to dismiss the case. (I’ve complained about pre-emption in other contexts, too; it is often a tool used to deny consumers legal relief.) In 2003, for example, the OCC claimed its dismal mortgage regulations “pre-empted” state predatory lending laws, and even sued to stop states from investigating or regulating the practice.
(a) Authority to impose charges and fees. A national bank may charge its customers non-interest charges and fees, including deposit account service charges.
(1) All charges and fees should be arrived at by each bank on a competitive basis and not on the basis of any agreement, arrangement, undertaking, understanding, or discussion with other banks or their officers.
(iv) The maintenance of the safety and soundness of the institution.
And then there’s this additional section of the regulation: “(d) State law. The OCC applies preemption principles derived from the United States Constitution, as interpreted through judicial precedent, when determining whether State laws apply that purport to limit or prohibit charges and fees described in this section.” That’s the provision the OCC, and the national banks, use to shut down state regulation and consumer fraud lawsuits.
In short, the most the OCC requires of banks is that they charge fees “in its discretion, according to sound banking judgment and safe and sound banking principles.” It’s a pathetic regulation to begin with, but one that at least implies the need for “sound banking judgment” and “sound banking principles,” which presumably don’t include the fraudulent practice of secretly pretending to change history just to charge consumers more, right?
OCC letters interpreting § 7.4002 specifically consider high-to-low posting and associated overdraft fees to be a “pricing decision authorized by Federal law” within the power of a national bank. OCC Interpretive Letter No. 916, at *2 (May 22, 2001); see also OCC Interpretive Letter No. 997, at *3 (Apr. 15, 2002); OCC Interpretive Letter No. 1082, at *2 (May 17, 2007). The OCC has opined that “a bank’s authorization to establish fees pursuant to 12 C.F.R. 7.4002(a) necessarily includes the authorization to decide how they are computed.” OCC Interpretive Letter No. 916, at *2 (May 22, 2001).
Accordingly, the OCC has determined that a national bank “may establish a given order of posting as a pricing decision pursuant to section 24 (seventh) and section 7.4002.” Id. In sum, federal law authorizes national banks to establish a posting order as part and parcel of setting fees, which is a pricing decision.
In other words, the OCC looked at this appalling high-to-low posting process — in which a bank falsifies a consumer’s transaction history to charge a higher fee — and said it was lawful, “sound,” appropriate, and that state laws couldn’t say otherwise. Notice the first date there, May 22, 2001, just a month after Wells Fargo changed its policies. Indeed, you can see OCC Interpretive Letter 916 yourself, which notes that it is in response to an inquiry from February 2001.
This was business as usual, the OCC and the national banks working hand in glove to cheat you.
Of course, Wells Fargo isn’t alone in dreaming up ways to prey upon the most financially insecure members of society. All the national banks are in the game, and it’s a huge profit center, nearly $20 billion a year in overdraft fees alone. TD Bank, for example, had a nice business going where it would freeze accounts for the benefit of creditors, charge customers for the privilege of freezing their accounts (while also charging overdraft fees), and then wouldn’t bother to follow federal and New York law relating to account freezes. That case was dismissed earlier this year.
Alas, Gutierrez might be one of the last consumer class action cases of its kind. The only reason the case was allowed to proceed in court and as a class action was because Wells Fargo had — perhaps tactically, perhaps inadvertently — waived its right to arbitration. Given the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), which gave preferential treatment to corporations trying to force arbitrations and preclude class actions, it seems unlikely any national bank will do anything other than force arbitration and preclude even class actions in arbitration, making them impossible to litigate, because the costs of the case exceed the potential value for each consumer.
Which means the CFPB is, most likely, our one and only hope to apply to national banks the same sort of basic principles of fairness and fair dealing that we expect and enforce in our own lives. The agency is in the process of taking over responsibility from the OCC for the regulation of the largest banks, and has already started preparing regulations for overdraft practices and filing enforcement actions against banks. Contact your Representative and Senators today and ask them which side they’re on.
Excellent analysis and beautifully written. You make it very clear why the Banks are legally allowed to rip us off. It makes me sick that we have allowed our Congressional leaders to be so corrupt – while they would encourage our beliefs that we were doing “the right” things to have a fair and just country. Boy, have we been learning our form of capitalism and democracy are not so very different from the Third World Countries we are supposedly helping.
What if it were like the wrestling match I paid a whole days newspaper money to see in the 60’s? The Good Guy (the Government) finally overcame the Bad Guy (the Banks). But the next day there they were, both drinking beer together at the local motel pool. It kinda looks like they will both work together on each others acts doesn’t it? Now if I wanted banks to make loans they felt they would lose money on (racial equality in all price ranges no matter what) I could make it up for them this way. Only thing is the economy tanked and too many more loans became losers and then the scheme fizzed. Food, medicine, medical care, and nursing home care are all examples of the government using businesses to get them money from you without adding even more to your tax bill and making you mad. They just charge you more for your part and the government less for theirs..
I thought I knew what you were getting at, then realized I did not. This process then repeated twice.

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