A Manhattan Commercial Division judge has allowed to go forward a proposed class action lawsuit against HSBC Bank over the way it handles overdraft fees for retail customers.
Justice Eileen Bransten ruled on June 26 in Levin v. HSBC, 650562/11, that the three plaintiffs, all customers of HSBC, had stated state law claims and that those claims were not preempted by federal law.
According to the suit, HSBC charges $35 for overdrafts. Rather than debiting customers’ accounts in the order that transactions occur, the bank posts all transactions that occur within a short time period from high to low. That means that if a customer has $100 in an account and makes two $20 purchases, followed by a $110 purchase, HSBC will post the $110 purchase first and all three purchases will be overdrafts, triggering a $35 fee for each. If the transactions were posted in the order they occurred, there would be only one overdraft.
The plaintiffs are alleging breach of contract, unjust enrichment, conversion and deceptive business practices under New York’s General Business Law.
HSBC moved to dismiss the claims on the grounds that they are preempted by federal law, specifically the National Bank Act and rules promulgated by the Office of the Comptroller of the Currency. The bank cited an advisory letter from the comptroller’s office indicating that high-to-low posting is permitted.
Bransten ruled that the bank had not established grounds for a finding of preemption because there was no conflict between obeying state and federal law.
“In contrast to findings of federal preemption in cases involving specific state regulations that conflict with the NBA, causes of action sounding in contract, consumer protection statutes and tort have repeatedly been found by federal courts [and the U.S. Supreme Court] not to be preempted,” she wrote, quoting Baldanzi v. WFC Holdings, 2008 U.S. Dist. LEXIS 95727, at *5 (S.D.N.Y. 2008).
“The New York contract, tort and consumer protection laws upon which Plaintiffs base their claims do not prohibit any behavior required by the NBA or the OCC regulations,” she wrote. “Nor do such state laws require national banks to do anything prohibited by federal law. National banks can thus simultaneously comply with the state and federal laws at issue in this case.”
“Additionally, Plaintiffs’ state law claims do not conflict with, or more than incidentally affect, the powers relegated to national banks by the NBA, OCC regulations and the OCC’s interpretive letters,” the judge wrote. “HSBC asserts that OCC regulations and interpretive letters explicitly grant HSBC the power to charge overdraft fees as part of its deposit-taking powers. HSBC further argues that Plaintiffs’ claims would significantly curtail that power. Plaintiffs, however, do not question HSBC’s ability to charge overdraft fees or to determine the amount of those fees. Plaintiffs challenge only HSBC’s allegedly deceptive implementation of its overdraft program.”
HSBC also moved to dismiss the plaintiffs’ breach of contract claim on substantive grounds, saying there was no contract between it and the plaintiffs prohibiting the high-to-low posting.
Bransten agreed, but said that the plaintiffs had simply mislabeled a breach of the implied covenant of good faith and fair dealing as a breach of contract claim, and allowed it to go forward.
The judge did rule that two of the claims, for conversion and unjust enrichment, as pleaded were duplicative of that claim, and dismissed them, though she left room to replead.
“We are very pleased with Justice Bransten’s decision and look forward to proceeding with the case that is very important to HSBC consumers,” said solo practitioner Brian Cohen, who represented the plaintiffs along with Timothy MacFall of Rigrodsky & Long.
Joseph Strauss of Stroock & Stroock & Lavan, who represents HSBC, could not be reached. A spokesman for the bank said that it would have no comment.
Brendan Pierson is a reporter for the New York Law Journal, a Legal affiliate. •