Court Orders Trial on Bad Check Fees

In a case that could cost banks millions of dollars, the California Supreme Court today revived a class action suit alleging that fees levied on customers who bounce checks are “unconscionable” and excessive.

In a unanimous opinion written by Justice Allen Broussard, the court reversed a San Francisco Superior Court judge who threw out the suit brought on behalf of attorney Paul Perdue against Crocker National Bank over its $6-per-rubber-check charge.

While the $6 charge by Crocker in 1978, the year the suit was brought, may not be exorbitant, the court said, “small charges applied to a large volume of transactions may yield a sizable sum.”

Noting that it cost the bank less than $1 to process bounced checks, the court said in ordering the case to go to trial, “such profit percentages may not be automatically unconscionable, but they indicate the need for further inquiry.”

‘Hundreds of Millions’ Involved

“We assume that hundreds of millions are involved,” said Stephen Kaus, one of Perdue’s lawyers.

In a similar case, lawyers for several banks called a motion asking a trial judge to throw out the suit a “billion-dollar motion,” said Kaus, whose father, Justice Otto Kaus, did not participate in today’s decision.

The bank contended that the signature card filled out when customers open accounts allow it to charge fees as it saw fit. But the court said the card does not indicate the amount of the charges, and added that the print “is so small that many could not read it.”

“In short, the bank structured a totally one-sided transaction,” the court said. “The absence of equality of bargaining power, open negotiation, full disclosure and a contract which fairly sets out the rights and duties of each party demonstrates that the transaction lacks those checks and balances which would inhibit the charging of unconscionable fees.”

Good Business

The California Bankers Assn., noting that state and federal law preclude banks from unsafe or unsound business practices, argued it is good business to discourage people from bouncing checks by charging several dollars.

The court responded by saying that “surely sound banking practices would rarely, if ever, require the enforcement of oppressive contracts.”

“We cannot presume, without evidence, that prohibiting a national bank from setting unreasonable prices or enforcing an unconscionable contract will render that bank less efficient, less competitive or less able to fulfill its function in a national banking system,” the court said.