Reversing an opinion it issued in March, a three-judge panel of the Ninth Circuit Court of Appeals has decided that the Social Security Act's anti-alienation provisions do not prevent a bank from intercepting incoming deposits of Social Security or SSI checks to reimburse itself for bank fees or to recover for overdrafts. Lopez v. Washington Mutual (U.S. App., 9th Cir., No. 01-15303, August 6, 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. Two of the plaintiffs had their entire monthly benefit seized while they were in the hospital and one of them lost her home as a direct result of the bank taking her entire Social Security benefit.
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.
In a March 2002 ruling, a three-judge panel of the Ninth Circuit reversed in part, ruling 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. Lopez v. Washington Mutual, FA, 284 F.3d 990 (9th Cir. 2002). The court ruled that the plaintiffs did not give meaningful consent to the use of their benefits to pay the overdrafts.
The court's new opinion, which makes no reference to the earlier one, holds that the account agreement signed by the plaintiffs amounted to a consent to use the Social Security or SSI benefits to meet overdraft obligations to the bank. The court rules that the bank's seizure of the incoming Social Security deposits constitutes voluntary payment of a debt and thus does not violate the statute. The court also rules that the state law claims are preempted by federal regulations.
The bank's request for a rehearing was supported by the U.S. Justice Department, which submitted a brief on behalf of SSA taking the position that the term 'other legal process' in § 407(a) is limited to a process emanating from a court. 'This view, if adopted, would overrule the case law in the Ninth Circuit and elsewhere,' according to the National Senior Citizens Law Center's Washington Weekly.
To download the full text of this decision in PDF format, go to the following link: https://www.findlaw.com/casecode/courts/9th.html.
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