BofA Can Be Sued in State Court, Judge Says

Bank of America Corp. can be sued in state court for charging fees to cash paychecks drawn on its accounts, a federal judge has ruled, dealing a setback to big national banks in their battle to escape state banking laws.

U.S. District Judge S. James Otero rejected Bank of America’s contention that it might be treated unfairly in Los Angeles County Superior Court because it was incorporated in Delaware and based in North Carolina.

In his ruling last week, Otero also rejected a claim that federal law exempted national banks from being sued under a state law governing unfair business practices. He sent the case back to Superior Court.

A 1911 California law requires employers to provide a location where employees can cash paychecks for full face value.

Lawsuits filed in April demanded that Bank of America and Wells Fargo & Co. stop charging the paycheck-cashing fees to workers who don’t have accounts at the banks, and return millions of dollars in already collected fees.

Bank of America, which had sought to transfer the lawsuit to federal court, is disappointed by the ruling and considering its options, spokeswoman Shirley Norton said Tuesday.

Nicholas Roxborough, the Los Angeles attorney who filed the suits, is seeking to have them certified by the court as class actions on behalf of people throughout the state.

He called Otero’s ruling “a major victory” because it rejected “one of the bank’s key arguments in this case -- primarily, that they can do anything they want in California because federal law protects them.”

The lead plaintiff in the Bank of America suit is Karis House, a Visalia, Calif., shelter for wayward teen-agers.

James King, controller for the shelter, said the bank never informed him when it began charging $5 check-cashing fees two years ago to employees without accounts at Bank of America.

He said he found out about the practice when an employee mentioned that it had cost her $5 to cash a $13 check he had given her as reimbursement for a business expense.

“Our employees make an average of $8.70 an hour, so a $5 charge means the bank is taking three-quarters of an hour out of their checks,” King said.

King said he complained to the vice president at the branch where Karis House had accounts totaling $150,000. The reply, he said, was that cashing non-customers’ checks interfered with the bank’s ability to serve people with accounts.

“It was like they were telling us our employees were a nuisance,” King said.

“It was an insult, really, to them.”

Bank of America spokesman Harvey Radin said employees could avoid paying the $5 fee by opening an account with the bank.

Customer satisfaction surveys, he added, have improved since the bank began charging the fees.

Said King: “That approach amounts to extortion in my mind. What about the kids working part-time at McDonald’s? Are you going to force them to open an account or have the bank take an hour’s pay out of their check for the 10 hours a week that they work?”

Consumer groups welcomed the ruling, which followed a series of rejections of attempts to enforce California laws against national banks.

Federal courts have ruled that state and local statutes such as Santa Monica’s ban on certain automated teller machine fees and a California law requiring better disclosure of credit card interest can’t be applied to banks operating under a national charter.

In his ruling, Otero noted that Bank of America was founded 100 years ago in San Francisco, has more offices and deposits than any other bank in California, and boasts on its website that it financed the Golden Gate Bridge during the Great Depression and loaned Walt Disney the funds to build Disneyland.

“In other words, of all the banks in the world, Bank of America is the most visible bank in California,” Otero said. “Yet Bank of America suggests it will somehow be unfairly treated in California because it is a foreign corporation. The court does not agree.”

The 1911 California Labor Code law requires employers to provide a location where employees can cash paychecks “without discount,” meaning a deduction or fee.

The lawsuit doesn’t directly challenge the banks’ authority to charge the fees. Instead, it contends that they violated the unfair business practices law by imposing the fees without alerting the employers.

That put the companies issuing paychecks in violation of the state law and gave them no chance to switch banks, or at least warn their employees.

State Sen. Dean Florez (D-Shafter), who chairs the Senate Banking Committee, said he expected the Legislature to pass a bill barring banks in California from imposing fees to cash paychecks drawn on their accounts.

“We are ecstatic over the judge’s ruling,” he said. “He is saying that Bank of America, which has more branches, more customers, owns more property and has more employees in California than any other bank, should be treated like every other California bank.”