Continue and Pay the Fee: the Ninth Circuit Correctly Determined the National Bank Act Preempts Municipal Atm Surcharge Bans in Bank of America v. City of San Francisco

• Publication year: 2022

37 Creighton L. Rev. 915. CONTINUE AND PAY THE FEE: THE NINTH CIRCUIT CORRECTLY DETERMINED THE NATIONAL BANK ACT PREEMPTS MUNICIPAL ATM SURCHARGE BANS IN BANK OF AMERICA V. CITY OF SAN FRANCISCO

Creighton Law Review

Vol. 37

INTRODUCTION

The National Bank Act ("NBA") provides a comprehensive system for the establishment and regulation of national banks.(fn1) In addition to several enumerated powers, the NBA authorizes national banks to "exercise . . . all such incidental powers as shall be necessary to carry on the business of banking . . . ."(fn2) Financial institutions first began using automated teller machines ("ATMs") to provide deposit and lending services to consumers in 1969.(fn3) Prior to 1996, financial institutions generally charged only two types of fees in an ATM transaction.(fn4) These fees were the "foreign fee" and the "interchange fee."(fn5) In 1996, financial institutions began assessing a separate fee, called a "surcharge," to non-depositor customers using their ATMs.(fn6)

In Bank of America v. City and County of San Francisco,(fn7) the United States Court of Appeals for the Ninth Circuit examined powers the NBA granted to national banks and the Office of the Comptroller of Currency ("OCC") regulations made in pursuance of the NBA, in relation to the proscription of ATM surcharges contained in the cities' of Santa Monica and San Francisco's ("Cities") newly enacted ordinances ("Ordinances").(fn8) The Ninth Circuit also examined the scope of federal savings association regulation by the Home Owner's Loan Act ("HOLA"), the Office of Thrift Supervision ("OTS") regulations made in pursuance of the HOLA, and the preemptive impact of this scope on the validity of the Ordinances.(fn9) Additionally, the Ninth Circuit addressed the impact of the antipreemption provision of the Electronic Funds Transfer Act ("EFTA") on the preemptive effect of the NBA.(fn10) The Ninth Circuit determined the NBA granted national banks authority to offer services through ATMs and charge fees for those services.(fn11) Accordingly, the Ninth Circuit held the NBA and OCC regulations preempted any state law attempting to ban national banks from charging fees to non-depositors for use of the banks' ATMs.(fn12) The Ninth Circuit also determined the EFTA antipreemption provision was limited to the provisions contained within the other sections of the EFTA, and thus ineffective to preclude the Ordinances from preemption by the NBA.(fn13)

This Note will discuss the Ninth Circuit's holding in Bank of America with respect to the incidental powers of national banks, preemption of the Ordinances, and the antipreemption provision of the EFTA.(fn14) First, this Note will review the facts and holding of Bank of America.(fn15) Second, this Note will review relevant case law regarding the incidental powers of national banks, conflict preemption and the NBA, and the antipreemption provision of the EFTA.(fn16) Next, this Note will demonstrate the Bank of America court correctly determined offering ATM services and charging fees for those services were within the incidental powers of national banks.(fn17) Next, this Note will show the Bank of America court properly held the NBA and OCC regulations preempted the Ordinances.(fn18) Then, this Note will demonstrate the Bank of America court's decision in regards to the limited effectiveness of the anti-preemption provision of the EFTA was correct.(fn19) Finally, this Note will conclude by commenting on the impact of the Bank of America decision in regards to municipalities and states seeking to ban certain types of ATM fees.(fn20)

FACTS AND HOLDING

On October 12, 1999, the city of Santa Monica enacted an ordinance prohibiting banks from charging fees to non-accountholders who use the banks' automated teller machines ("ATMs").(fn21) This ordinance provided in pertinent part, "A financial institution may not impose a fee of any kind on a user for accessing an ATM of that financial institution located in the City of Santa Monica with an access device not issued by that financial institution."(fn22) The voters of the city of San Francisco approved an initiative mandating the enactment of a substantively similar ordinance into the San Francisco Municipal Code on November 2, 1999.(fn23) The stated purposes of the Santa Monica ordinance and the San Francisco ordinance ("Ordinances") was to protect consumers from excessive fees and to safeguard against anticompetitive business practices to protect local banks and credit unions.(fn24) Under the ordinances, a financial institution that violated the ordinances by charging a separate fee to non-accountholders for the use of the financial institution's ATM could be held liable to the non-accountholder for actual damages, reasonable attorney's fees and in some cases, punitive damages up to $5,000 per violation.(fn25) Neither of the Ordinances appeared to prohibit the foreign fee a customer's bank charges the customer for using an ATM a different bank owned nor to prohibit the interchange fee the customer's home bank pays to the bank that owns the ATM.(fn26) The Ordinances merely prohibited banks from charging a fee to customers not holding an account with the banks who own the ATMs.(fn27)

On October 13, 1999, Bank of America and Wells Fargo Bank ("Banks"), two banks chartered under the National Bank Act ("NBA"), submitted letters to the Office of the Comptroller of the Currency ("OCC"), the agency charged with administration and enforcement of the NBA, seeking confirmation of national banks' authority to charge non-depositors ATM fees.(fn28) The OCC responded on October 25, 1999 with an interpretive letter confirming that national banks have the authority, under the NBA and OCC regulations, to charge non-depositors ATM fees for ATM use.(fn29) Subsequently, the Banks filed suit in the United States District Court of the Northern District of California, alleging the NBA preempted the Ordinances.(fn30) The Banks sought a declaratory judgment that the NBA preempted the Ordinances.(fn31) The Banks argued the NBA authorized national banks to charge ATM fees to non-depositors, thereby preempting the Ordinances.(fn32) The Banks also filed a motion asking the district court to preliminary enjoin Santa Monica and San Francisco ("Cities") from enforcing the Ordinances.(fn33)

The district court preliminarily enjoined the Cities from enforcing the Ordinances as the Ordinances applied to nationally chartered banks on November 15, 1999.(fn34) Judge Vaughn Walker, writing for the court, reasoned a preliminary injunction was appropriate because the NBA preempted the Ordinances and the Banks would suffer irreparable injury if the Cities enforced the Ordinances prior to the resolu-tion of the case.(fn35) The district court restated the terms of the injunction in an order issued on November, 29 1999.(fn36) The order stated: 1) the Banks could charge non-accountholders fees for using their ATMs on the condition that the banks place all of the fees in escrow accounts pending the result of the litigation; and 2) the district court enjoined the Cities from enforcing the Ordinances.(fn37)

After the court issued the preliminary injunction, California Federal Bank ("Cal Fed"), a federal savings institution organized under the Home Owner's Loan Act ("HOLA"), moved in the district court to intervene as a plaintiff in the action.(fn38) Cal Fed sought to enter the action as a plaintiff because the Ordinances' proscription on charging ATM fees to non-depositors applied to federal savings associations in the same way the Ordinances applied to national banks.(fn39) The district court granted Cal Fed's motion on January 20, 2000.(fn40) Cal Fed then filed a complaint seeking a declaratory judgment that the HOLA preempted the Ordinances when applied to federal savings associations.(fn41)

The Cities then appealed the grant of the preliminary injunction to the United States Court of Appeals for the Ninth Circuit.(fn42) The Ninth Circuit affirmed the district court's decision on March 31, 2000.(fn43) The Ninth Circuit noted the preliminary injunction would be in effect until the district court resolved the case.(fn44) The Ninth Circuit reasoned that in their limited review of the grant of the preliminary injunction, the Ninth Circuit could not determine the district court abused its discretion in granting the preliminary injunction against the Cities.(fn45)

Subsequently, the Banks, Cal Fed, and the Cities filed cross motions for summary judgment in the district court.(fn46) On June 30, 2000, the United States District Court of the Northern District of California granted the Banks' and Cal Fed's motions for summary judgment and permanently enjoined the Cities from enforcing the ordinances.(fn47) Judge Vaughn Walker, writing for the district court, recognized that, "Federal law will preempt state law when: (1) federal law expressly preempts state law; (2) federal law occupies the field of regulation; or (3) federal law conflicts with state law."(fn48)

First, the district court determined the HOLA and OTS regulations preempted the Ordinances as applied to federal savings associations because the HOLA and OTS regulations occupy the field of ATM regulation and the Ordinances directly conflict with the HOLA and OTS regulations.(fn49) The court stated Congress, through the HOLA, granted the OTS exclusive power to regulate the operations of federal savings...