The Ninth Circuit Court of Appeals rules that a bank''s practice of using directly deposited Social Security and SSI benefits to cover overdrafts and fees violates both programs' anti-alienation provisions. Lopez, et al. v. Washington Mutual Bank (U.S. App., 9th Cir., No. 01-15303, March 14, 2002).
Luis Lopez and other named plaintiffs receive Social Security or SSI benefits, or both, and their benefits were directly deposited into their accounts at Washington Mutual. When the plaintiffs opened their accounts, they executed agreements that if they had insufficient funds to pay a check, the bank could pay the check and create an overdraft on their account accompanied by an overdraft fee. The plaintiffs agreed to immediately pay the overdraft amount to the bank. Each of the plaintiffs overdrew their accounts, and in each case the next deposit of Social Security or SSI benefits was used to satisfy the account deficiency.
The plaintiffs filed a complaint alleging that Washington Mutual''s practice was prohibited by Social Security's and SSI's anti-alienation provisions (42 U.S.C. §§ 407(a) and 1383(d)(1)). The complaint also alleged several state law claims, including a violation of the California Civil Procedure Code, the California Business and Professions Code, and the tort of conversion. The U.S. District Court for the Northern District of California granted Washington Mutual''s motion for summary judgment, finding that the bank''s practices did not violate federal law and that the state law claims were preempted.
The Ninth Circuit Court of Appeals reverses in part. The court rules that Washington Mutual''s overdraft setoff constitutes a seizure of protected benefits by "other legal process," which is prohibited under Social Security and SSI's anti-alienation provisions. The court rejects Washington Mutual's argument that the plaintiffs consented to the use of their benefits to repay the overdraft and fees. The court concludes that there was no meaningful consent to the use of the plaintiffs' benefits, pointing out that 'neither the initial account holder agreement nor any written overdraft notice notified the plaintiffs of their rights regarding their Social Security and SSI benefits, nor did the plaintiffs ever expressly agree to use such benefits to satisfy their obligations to the bank.' The court also rules that the plaintiffs' state law claims for violation of the California Business and Professions Code and conversion are not preempted.
For the full-text of this decision, go to: https://www.ca9.uscourts.gov/ca9/newopinions.nsf/349C18D74C141B4688256B7C000AF7EF/$file/0115303.pdf?openelement
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