WASHINGTON — After an appeal by Paul Miller of an appellate court ruling in favor of Bank of America, the California Supreme Court has agreed to offer its opinion in the case involving the coverage of an overdraft using Social Security benefit funds.
After erroneously depositing funds into Miller's account, Bank of America took them back causing Miller's account to be overdrawn. When his Social Security benefits were deposited, they were used to cover the loss. The plaintiff is claiming the benefits are protected by federal law from garnishment or levy while Bank of America has argued that the overdrawing of the account is not a separate debt, but a function of the same deposit account.
CUNA filed an amicus brief in conjunction with a number of banking organizations on the matter. Treasury, which administers federal benefits, filed a separate brief stating concerns for its GoDirect direct deposit program.
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CUNA Assistant General Counsel and Senior Compliance Counsel Mike McLain explained that the trial court initially ruled in favor of Miller, awarding $1.3 billion in damages, restitution, and awards to class action plaintiffs. The appellate court overturned that decision. According to McLain, the original decision was founded on faulty case law, Kruger v. Wells Fargo Bank, in which federal benefits funds were taken to pay a separate debt.
"Hopefully, the California Supreme Court will uphold the decision [of the appellate court]," McLain said.
If not, he added, "It could potentially seriously disrupt banking operations through the United States." Institutions might think twice about offering services to those receiving federal benefits or, on the other hand, consumers receiving benefits could intentionally overdraw accounts, knowing it could not be collected from their benefits.
For now, McLain is advising credit unions to make sure they have a signature from members that it is OK to cover overdrawn accounts with their federal benefits.
The California Supreme Court announced its decision to review the case March 21. McLain explained that Miller has 30 days to file his brief and Bank of America has 30 days after that. No deadline has been set for amicus briefs, but he estimated probably about 90 days from the announcement. –[email protected]
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