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National Bank Act Class Action Defense Cases–NNDJ v. National City Bank: Michigan Federal Court Dismisses Class Action Against National Banks Holding Class Action Claims Challenging Fees Banks Charged To Cash Official Checks Preempted By Federal Law

As Matter of First Impression, Class Action Complaint Against National Banks must be Dismissed because Class Action Claims Challenging Bank Fees Charged Non-Accountholders to Cash “Official Checks” were Preempted by the National Bank Act which Authorizes Banks to Charge such Fees Michigan Federal Court Holds

Plaintiffs filed a putative class action against National City Bank, Comerica, JPMorgan Chase, and Fifth Thirds Bank for violations of the Uniform Commercial Code (UCC), as enacted by Michigan; specifically, the class action complaint alleged that defendants issued “official checks” – i.e., cashier’s checks or teller’s checks – and then charged fees to non-accountholders to cash them. NNDJ, INC. v. National City Bank, 540 F.Supp.2d 851, 851 (E.D. Mich. 2008). Defense attorneys for National City Bank and JPMorgan Chase, federally chartered banks created under and governed by the National Bank Act (the “National Banks”), moved to dismiss the class action complaint on the grounds that the class action claims were preempted by the National Bank Act, id. The district court granted the motion and dismissed the class action against the National Banks.

The class action complaint alleged that the National Banks issue cashier’s checks and teller’s checks. NNDJ, at 851. Under the UCC, a cashier’s check is “a draft with respect to which the drawer and the drawee are the same bank or branches of the same bank,” and a teller’s check is “a draft drawn by a bank (I) on another bank, or (ii) payable at or through a bank.” Id. (citations omitted). The class action alleged that the National Banks charged a non-accountholders a fee to cash the official checks that “the National Banks themselves have issued,” and that this violated the UCC. Id., at 8511-52. Defense attorneys argued that the UCC does not prohibit the National Banks from charging such fees, but further that if the UCC did prohibit such fees then it was preempted by the National Bank Act. Id., at 852. The district court explained that the National Banks’ motion presented two issues of first impression: (1) whether Michigan’s UCC “prohibit[s] banks from issuing official checks and subsequently charging non-accountholders a fee to cash them”; and (2) if so, whether those portions of Michigan’s UCC are preempted by the National Bank Act. Id. The federal court found it necessary to discuss only the preemption issue.

The question directly presented was whether a state law prohibiting national banks from charging non-accountholders a fee to cash official checks is in “direct conflict with powers granted to the National Banks” by the National Bank Act. NNDJ, at 853. The district court noted that the opinion of the Office of the Comptroller of the Currency is entitled to “great weight” with respect to “any reasonable construction of a regulatory statute adopted by the agency charged with the enforcement of that statute.” Id. (quoting NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256-57, (1995)). This proved important because after briefing but before oral argument, JPMorgan Chase asked the OCC to confirm that it was authorized under the National Bank Act “to establish and charge a fee to a non-accountholder customer for the service of cashing an official check”; the OCC, by letter dated February 27, 2008, “confirm[ed] that the Bank may establish and charge an official check cashing fee to a non-accountholder customer” and that “the authority of the Bank to charge particular fees is not conditioned on obtaining an individual confirmation opinion from the OCC; national banks are authorized to charge non-interest fees and charges as an inherent element of their authority to conduct the business of banking.” Id. And in response to a letter from plaintiff’s lawyer to the OCC that suggested its opinion was “not official,” the OCC wrote that its prior letter “is a formal legal opinion of the OCC’s most senior legal officer.” Id., at 854.

The federal court therefore ruled that the National Bank Act gives national banks the power to charge customers the fees underlying the class action claims against the National Banks. Accordingly, it preempts any interpretation of Michigan’s UCC that would prohibit the National Banks from charging such fees. NNDJ, at 854. The district court therefore granted the defense motion to dismiss the class action complaint as to the National Banks for failure to state a claim upon which relief may be granted. Id.

NOTE: Because the district court agreed with defense attorneys that the National Bank Act preempted the UCC, it did not reach the question of whether the UCC prohibited banks from charging fees to cash official checks. See NNDJ, at 854.

Download PDF file of NNDJ v. National City Bank