Bank Fees and Preemption Problem 108 alludes to litigation surrounding the practice of high to low posting of checks

and debit card transactions. Problem 79 previously alluded to the practice of some drawee banks of charging non account holders a fee to cash checks presented over the counter for payment, and to the potential for litigation over that practice. The following supplemental materials trace the development of litigation, with a principal focus on whether and to what extent federal law preempts such claims. I. Fees for Over the Counter Presentment Fla. Stat. 655.85, not part of the UCC, forbids drawee banks from settling for checks otherwise than at par. Relying on the statute, several lawsuits challenged the fees some drawee banks charged non-account holders who cashed checks in person, asserting either that the statute itself makes the fee unlawful, or alternatively, that a drawee that charges a fee for cashing a check is liable for unjust enrichment. To make litigation over an individual fee of no more than ten dollars worthwhile, plaintiffs brought their claims as class actions. Baptista v. JPMorgan Chase Bank, NA 640 F. 3d 1194 (11th Cir.), cert. denied, 132 S. Ct. 253 (2011) DUBINA, Chief Judge: On or about October 1, 2009, one of Chase's account holders wrote Baptista a check for $262.48. Baptista was not an account holder at Chase. Baptista brought the check in person to Chase in order to cash it. Chase charged a $6.00 fee to provide cash immediately. In response, Baptista filed this class action on January 28, 2010, against Chase seeking damages on two counts. First, she alleged that Chase's charging of a check-cashing service fee violated Fla. Stat. 655.85. Second, she brought a claim for unjust enrichment. The Florida statute at issue specifically prohibits a bank from "settl[ing] any check drawn on it otherwise than at par." Fla. Stat. 655.85. The district court concluded that 655.85 was preempted by the National Bank Act, 12 U.S.C. 21 et. seq., specifically citing two provisions. First, it cited 12 U.S.C. 24, which allows banks to "exercise . . . all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt." Second, it cited a regulation promulgated by the Office of Comptroller of the Currency ("OCC"), the agency empowered by the NBA to supervise and regulate federally chartered banks in accordance with the act, which states that a national bank may "charge its customers non-interest charges and fees, including deposit account service charges." 12 C.F.R. 7.4002(a). The OCC interprets "customer" to include "any person who presents a check for payment." Wells Fargo Bank of Tex. N.A. v. James, 321 F.3d 488, 490 & n.2 (5th Cir. 2003) (citing three interpretive letters sent by the OCC). The Supreme Court has identified three types of preemption: express preemption, field preemption, and conflict preemption. Wis. Pub. Intervenor v. Mortier, 501 U.S. 597, 604-05 (1991). 1

Baptista and Chase both make much ado about which type of preemption is applicable to the NBA, ignoring the fact that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act") amended the NBA's preemption section to address this very issue. Section 5136(b)(1)(B) of the Dodd-Frank Act amended the NBA to state the following: State consumer financial laws are preempted, only if . . . in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996), the State consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers . . . . 12 U.S.C. 25b(1). Barnett Bank of Marion County, N. A. v. Nelson addressed a Florida statute that prohibited national banks from offering insurance coverage in small towns. In determining whether there was an "irreconcilable conflict" between the state statute and the NBA, the Court found the controlling question to be whether the state statute "forbid[s], or . . . impair[s] significantly, the exercise of a power that Congress explicitly granted." 517 U.S. 25, 33 (1996). Thus it is clear that under the Dodd-Frank Act, the proper preemption test asks whether there is a significant conflict between the state and federal statutesthat is, the test for conflict preemption. Few cases have discussed the effect of the NBA and its regulations on so-called "par value" statutes. In fact, only one of our sister circuits has addressed the question head on. In Wells Fargo Bank of Texas N.A. v. James, the Fifth Circuit addressed a par value statute almost identical to the one at issue here. This statute prevented all banks operating in Texas from charging fees to non-account-holding payees cashing checks at those banks. Specifically, the statute stated, "a payor bank shall pay a check drawn on it against an account with a sufficient balance at par, without regard to whether the payee holds an account at the bank." Id. at 490. The Fifth Circuit determined that because Congress did not express a specific intent to displace state banking laws, conflict preemption applied. Applying the standard announced in Barnett Bank, it found the par value statute was in "irreconcilable conflict" with the NBA because the NBA "expressly authorize[d] an activity which the state scheme disallows. In order to reach this result, the Fifth Circuit had to take three essential steps. First, it determined that the OCC had the authority to promulgate rules such as, and including, 12 C.F.R. 7.4002(a). Second, it determined that the OCC's interpretation of the word "customer" to include any person presenting a check for payment warranted deference under Auer v. Robbins, 519 U.S. 452 (1997)the standard applicable to an agency's interpretation of its own regulations. Finally, the Fifth Circuit found that a bar on a bank's ability to charge fees to persons presenting checks for payment would clearly and irreconcilably conflict with the OCC's allowance of the charging of such fees. We adopt the reasoning of the Fifth Circuit and hold that Fla. Stat. 655.85 is preempted by the OCC's regulations promulgated pursuant to the NBA. Congress clearly intended that the OCC be empowered to regulate banking and banking-related activities. It is not unreasonable to define "customer" as any person presenting a check for payment. And finally, there is a clear conflict here: the OCC specifically authorizes banks to charge fees to non-account-holders presenting checks for payment. The state's prohibition on charging fees to non-account-holders, which reduces the bank's

fee options by 50%, is in substantial conflict with federal authorization to charge such fees.2 Moreover, we conclude that because Baptista's unjust enrichment claim relies on identical facts as her claim under Fla. Stat. 655.85, it too is preempted.3 For the reasons discussed above, we affirm the judgment of dismissal. Notes 1. Britt v. Bank of America, N.A., 52 So. 3d 809 (Fla. App. 5th DCA 2011) similarly held

At oral argument Baptista argued that Williamson v. Mazda Motor Corp. of Am., 562 U.S. ___, 131 S. Ct. 1131 (2011), governs this case. We disagree. That case addressed whether a federal regulation requiring shoulder belts for all exterior seats but allowing the manufacturer the choice of installing either lap or shoulder belts for all interior seats would preempt a tort claim arising out of a manufacturer's use of a lap belt. The Court held that because "providing manufacturers with this seatbelt choice [was] not a significant objective of the federal regulation," the tort suit was not barred. Id. at ___, 131 S. Ct. at 1133. The objective of that regulation was to regulate the safety of motor vehicles. Here the significant objective of 12 C.F.R. 7.4002 is to allow national banks to charge fees and to allow banks latitude to decide how to charge them. It states that "the establishment of non-interest charges and fees, their amounts, and the method of calculating them are business decisions to be made by each bank, in its discretion, according to sound banking judgment and safe and sound banking principles." Id. Because allowing the banks the option of how to charge fees was a significant objective of the NBA and regulations promulgated thereunder, Williamson is inapposite to this case.

We would also conclude that Baptista's unjust enrichment claim fails as a matter of law because Baptista cannot prove each element of the claim. See Della Ratta v. Della Ratta, 927 So.2d 1055, 1059 (Fla. Dist. Ct. App. 2006) (To state a claim for unjust enrichment, a plaintiff must plead the following elements: 1) the plaintiff has conferred a benefit on the defendant; 2) the defendant has knowledge of the benefit; 3) the defendant has accepted or retained the benefit conferred; and 4) the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying fair value for it.). When a defendant has given adequate consideration to someone for the benefit conferred, a claim of unjust enrichment fails. Am. Safety Ins. Serv., Inc. v. Griggs, 959 So.2d 322, 33132 (Fla. Dist. Ct. App. 2007). Here, Baptista requested to have the check cashed immediately upon presentment to Chase, and in return, Chase requested a $6.00 fee. Baptista agreed to the fee. If Baptista had chosen to deposit the check in her own account and wait for processing, no fee would have been levied. The fee was only levied because Chase conferred an additional benefit on Baptista, that is, immediate payment of the check. Because Baptista cannot show that Chase failed to give consideration for her $6.00, her claim for unjust enrichment fails as a matter of law. 3

655.85 preempted as applied to federally chartered banks. OCC revised its preemption regulation, 12 CFR 7.4007 in 2011, citing Baptista as correctly applying conflict preemption. 76 FR 43549-01 (July 21, 2011). But Baptista, Britt, and the National Banking Act only protect from state regulation the power of federally chartered banks to charge a fee for cashing a check. States also charter banks; 12 U.S.C. 1831a(j)(1) states: The laws of a host State, including laws regarding community reinvestment, consumer protection, fair lending, and establishment of intrastate branches, shall apply to any branch in the host State of an out-of-State State bank to the same extent as such State laws apply to a branch in the host State of an out-of-State national bank. To the extent host State law is inapplicable to a branch of an out-of-State State bank in such host State pursuant to the preceding sentence, home State law shall apply to such branch. Does 12 U.S.C. 1831a(j)(1) preempt 655.85 as applied to out of state state chartered banks? Pereira v. Regions Bank, 918 F. Supp. 2d 1275 (M.D. Fla. 2013) and Baptista v. PNC Bank, N.A., 91 So. 3d 230 (Fla. 5th DCA 2012), cert. denied, 133 S. Ct. 895 (2013) both answer that question, but the decisions irreconcilably conflict. Pereira held 12 U.S.C. 1831a(j)(1) preempts Florida law by offering state chartered banks the same protection as federally chartered banks. PNC Bank held the same statute does not preempt Florida law as applied to state chartered banks. 2. It is axiomatic that 1) Florida state court decisions construing federal law (PNC Bank) do not bind federal courts, and that 2) Federal trial and court of appeal decisions construing federal law (Pereira) do not bind state courts. For the moment, then, the forum in which claims against state chartered banks are litigated is outcome determinative; plaintiffs will win those cases in state court and lose them in federal court until and unless SCOTUS resolves the conflict. 3. With that thought firmly in mind, think back to Civil Procedure. Plaintiff payees who seek to recover the fee paid for cashing a check at the drawee bank assert claims based on state law to which defendant banks assert preemption as a defense. Plaintiffs understandably will file those claims in state court; defendants understandably will seek to remove them to federal court. Is a federal question defense sufficient to authorize a defendant to remove a claim based on state law to federal court? If not, then under what circumstances will a defendant be able to remove? 4. Now, recalling the many ways in which lawyers may represent their clients, consider an alternative solution. House Bill 673, currently before the Florida Legislature, would amend 655.85 to add this language: The term "at par" applies only to the settlement of checks between collecting and paying or remitting institutions and does not apply to, or prohibit an institution from, deducting from the face amount of the check drawn on it a fee for paying the check if the check is presented to the institution by the payee in person. The proposed legislation also would create this provision: The Legislature intends that the amendment made by this act to 655.85, Florida Statutes, shall be used to clarify the relevant portions of the financial institutions codes as defined in 4

 655.005, Florida Statutes, relating to fees imposed by a financial institution for the payment of checks presented in person without requiring further amendment. Identical proposed legislation died during the 2013 legislative session. I will keep you apprised of the progress of the proposed legislation. 5. The OCC has broad rulemaking authority over federally chartered banks, so 12 C.F.R. 7.4002(a), which empowers such banks to charge fees to customers is unquestionably a valid rule. But the rule does not define customer. 6. Had the OCC rule defined customer to include any person who presents a check for payment, then Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) would have required courts to defer to the regulatory definition as long as it represented a permissible interpretation of the National Banking Act. Because the NBA empowered the exercise of regulatory authority, Chevron deference would have required acceptance of a regulatory definition that allowed banks to charge fees to non-account holding payees. 7. The difficult question is whether to defer to OCCs interpretation of customer offered in opinion letters. OCC wrote those letters at the request of banks then involved in litigation over the practice of charging fees to non-account holders. As the court of appeals notes, Auer v. Robbins, 519 U.S. 452 (1997) requires deference to that interpretation unless it is clearly erroneous. 8. In the cited Wells Fargo litigation, the fifth circuit characterized the OCC interpretation of the word customer this way: Certainly this is not the only reasonable interpretation of 7.4002(a), and it is perhaps not even the most natural reading of "customer." For example, one might easily understand "customer" to be include primarily those individuals with whom the Banks exchange services and remunerations, rather than payees seeking payment for executory negotiable instruments. Nevertheless, we find it neither unwarranted nor unreasonable to define customer as anyone who seeks payment for a check from the bank. In doing so, the payee avails himself of the servants and services of the bank. 9. Absent Auer deference, courts would have been tasked with defining customer, and as the excerpt from Wells Fargo suggests, courts likely would have held that customers did not include non-account holders who present checks for payment, and therefore that statutes prohibiting the charging of fees were not preempted. II. High to Low Posting of Checks As the casebook notes in the discussion accompanying problem 108, claims that high to low posting of checks have uniformly failed, with most cases relying on UCC 4-303(b) to conclude that the practice cannot be said to be a bad faith or unconscionable practice, or an unfair trade practice. Assuming a bank does not fraudulently misrepresent its posting practices, then it should continue to be free to post checks high to low to maximize its overdraft fees until and unless binding legislation or regulation directs otherwise. I am unaware of any state that has sought to override 5

UCC 4-403(b) and through state law to forbid high to low posting. As the later materials suggest, if such legislation were enacted, it would raise preemption questions. Although the Consumer Financial Protection Bureau has federal regulatory authority, it has so far not proposed exercising it to regulate high to low posting of checks. III. High to Low Posting of Debit Card Transactions Because UCC 4-403(b) does not apply to debit card transactions, it offers banks less protection from consumer protection claims attacking high to low posting of debit card transactions than check transactions. In response, banks have argued that courts should apply the UCC by analogy to debit card transactions. Rejecting that argument, the misleadingly named In re Checking Account Overdraft Litigation, 694 F. Supp. 1302 (S.D. Fla. 2010) held in consolidiated multidistrict panel litigation involving many banks that plaintiffs stated claims for relief by pleading that high to low posting of debit card transactions violated the duty of good faith, was both procedurally and substantively unconscionable, and constituted an unfair and deceptive trade practice: [Plaintiffs] argue that there is a fundamental difference between check and electronic transactions, and that the UCC's endorsement of high-to-low posting for checks should not be extended to cover debit card transactions. Plaintiffs submit that the instantaneous nature of debit card transactions, carries with it much less risk to the merchant than the risk involved when accepting a check, where there is usually a few days gap in between when the check is issued and when the check is presented to the bank for payment. With the faster debit card transaction, the risk to the merchant is much less significant since the bank can choose to decline the purchase before the buyer leaves the store with the goods. Defendants' suggested analysis of applying the UCC's endorsement of high-to-low posting in check transactions to debit card transactions does not logically follow. If they were the same, there would be one body of law addressing both. The UCC's generally accepted principles when dealing with checks cannot be broadly applied to debit card transactions. To do so would be to ignore the fundamental differences between the two. ***** Although the Court recognizes that the UCC commentary suggests that courts may apply the UCC provisions by analogy, this is the exact set of circumstances in which the analogy breaks down. With paper checks, the customer gives a check to the merchant and leaves with the merchandise. The merchant then, at some unspecified time in the future, takes the check to his or her bank, which then presents the check to the customer's bank for payment. This guaranteed time lapse increases the risk to the bank, the merchant, and the customer that, in the intervening time period, there will not be sufficient funds in the account to cover the check. Thus, banks are far more justified in adopting a specific check posting order, providing overdraft services, and charging the customer an overdraft fee to account for the risk of insufficient funds. With electronic debit cards, however, the banks can know, at least in many circumstances, instantly whether there are sufficient funds and can decline the transaction immediately, decreasing the risk to all parties and obviating the need to hold the debit transactions for a period of time and then post them in a specific order. Thus, Defendants' reliance on UCC section 4303(b) to defeat substantive unconscionability is 6

misplaced. The court carefully noted that it merely held that the complaint stated a claim for relief, not that defendants would ultimately be found liable. It also rejected defense claims that the National Banking Act preempted the state law claims. After the Eleventh Circuit decided Baptista, the court refused to reconsider its preemption ruling or authorize an interlocutory appeal under 28 U.S.C. 1292(b). In Re Checking Account Overdraft Litigation, 797 F. Supp. 1312 (S.D. Fla. 2011). Thus, the Eleventh Circuit has not yet considered whether federal law preempts state law claims based on the implied covenant of good faith or unconscionability or on statutes prohibiting unfair or deceptive trade practices. The first trial from the consolidated cases should begin within the next two months. Gutierrez v. Wells Fargo Bank, NA 704 F.3d 712 (9th Cir. 2012) McKEOWN, Circuit Judge: Bank fees, like taxes, are ubiquitous. And, like taxes, bank fees are unlikely to go away any time soon. The question we consider here is the extent to which overdraft fees imposed by a national bank [for debit card withdrawals] are subject to state regulation. At issue is a bookkeeping device, known as high-to-low posting, which has the potential to multiply overdraft fees, turning a single overdraft into many such overdrafts. The revenue from overdraft fees is massive. Between 2005 and 2007, Wells Fargo Bank (Wells Fargo) assessed over $1.4 billion in overdraft fees. Disturbed by the number of overdrafts caused by small, everyday debit-card purchases, Veronica Gutierrez and Erin Walker (collectively Gutierrez) sued Wells Fargo under California state law for engaging in unfair business practices by imposing overdraft fees based on the high-to-low posting order and for engaging in fraudulent business practices by misleading clients as to the actual posting order used by the bank. The district court found that the bank's dominant, indeed sole, motive for choosing high-to-low posting was to maximize the number of overdrafts and squeeze as much as possible out of what it called its ODRI customers' (overdraft/returned item). The district court also found that Wells Fargo had affirmatively reinforced the expectation that transactions were covered in the sequence [the purchases were] made while obfuscating its contrary practice of posting transactions in high-to-low order to maximize the number of overdrafts assessed on customers. On appeal, Wells Fargo seeks refuge from state law on the ground of federal preemption. It also challenges the district court's factual and legal findings. We conclude that federal law preempts state regulation of the posting order as well as any obligation to make specific, affirmative disclosures to bank customers. Federal law does not, however, preempt California consumer law with respect to fraudulent or misleading representations concerning posting. As a consequence, we affirm in part, reverse in part, and remand for further proceedings. Posting is the procedure banks use to process debit items presented for payment against accounts. During the wee hours after midnight, the posting process takes all debit items presented for payment during the preceding business day and subtracts them from the account balance. These items are typically debit-card transactions and checks. If the account balance is sufficient to cover 7

all items presented for payment, there will be no overdrafts, regardless of the bookkeeping method used. If, however, the account balance is insufficient to cover every debit item, then the account will be overdrawn. When an account is overdrawn, the posting sequence can have a dramatic effect on the number of overdrafts incurred by the account (even though the total sum overdrawn will be exactly the same). The number of overdrafts drives the amount of overdraft fees. Before April 2001, Wells Fargo used a low-to-high posting order. Under this system, the bank posted settlement items from lowest-to-highest dollar amount. Low-to-high posting paid as many items as the account balance could cover and thus minimized the number of overdrafts. Beginning in April of 2001, Wells Fargo did an about-face in California and began posting debit-card purchases in order of highest-to-lowest dollar amount. This system had the immediate effect of maximizing the number of overdrafts. The customer's account was now depleted more rapidly than would be the case if the bank posted transactions in low-to-high order or, in some cases, chronological order. As an illustration, consider a customer with $100 in his account who uses his debit-card to buy ten small items totaling $99, followed by one large item for $100, all of which are presented to the bank for payment on the same day. Under chronological posting or low-to-high posting, only one overdraft would occur because the ten small items totaling $99 would post first, leaving $1 in the account. The $100 charge would then post, causing the sole overdraft. Using high-to-low sequencing, however, these purchases would lead to ten overdraft events because the largest item, $100, would be posted firstdepleting the entire account balancefollowed by the ten transactions totaling $99. Overdraft fees are based on the number of withdrawals that exceed the balance in the account, not on the amount of the overdraft. When high-to-low sequencing is used, the fees charged by the bank for the overdrafts can dramatically exceed the amount by which the account was actually overdrawn. For example, Gutierrez incurred $143 in overdraft fees as a consequence of a $49 overdraft, and Erin Walker incurred $506 in overdraft fees for exceeding her account balance by $120. Gutierrez claims that Wells Fargo made the switch to high-to-low processing in order to increase the amount of overdraft fees by maximizing the number of overdrafts. California's Unfair Competition Law allows individual plaintiffs to bring claims for unfair, unlawful, or fraudulent business practices. The district court certified a class of all Wells Fargo customers from November 15, 2004 to June 30, 2008, who incurred overdraft fees on debit-card transactions as a result of the bank's practice of sequencing transactions from highest to lowest. After a two-week bench trial, the district court issued a comprehensive 90page decision and found that Wells Fargo's decision to post debit-card transactions in high-to-low order was made for the sole purpose of maximizing the number of overdrafts assessed on its customers. The court also concluded that Wells Fargo led customers to expect that the actual posting order of their debit-card purchases would mirror the order in which they were transacted while hiding its actual practice of posting transactions in high-to-low order so that the bank could maximiz[e] the number of overdrafts assessed on customers. The district court rejected Wells Fargo's federal preemption [defense], and held Wells Fargo's actions to be both unfair and fraudulent under the Unfair Competition Law. As a remedy, the court entered a permanent injunction requiring Wells Fargo to cease its practice of posting in high-to-low 8

order for all debit-card transactions and either reinstate a low-to-high posting method or use a chronological posting method (or some combination of the two methods) for debit-card transactions. It also imposed various related disclosure requirements. In addition to injunctive relief, the district court ordered Wells Fargo to pay $203 million in restitution. Analysis [I] [The court held Wells Fargo waived its right to enforce its deposit contract arbitration clause by failing to timely seek arbitration.] II. Federal Preemption We next consider whether the National Bank Act of 1864, 13 Stat. 99 (codified at 12 U.S.C. 1 et seq.), preempts application of California's Unfair Competition Law. In analyzing preemption, we ask whether the state law prevent[s] or significantly interfere[s] with the national bank's exercise of its powers. Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 33 (1996). Although states cannot exercise visitorial oversight over national banks, state laws of general application continue to apply to national banks when doing so does not prevent or significantly interfere with the national bank's exercise of its powers. Id. at 33; see also Watters v. Wachovia Bank, N.A., 550 U.S. 1, 11 (2007) (Federally chartered banks are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or purposes of the NBA.). As the Supreme Court explained in Cuomo v. Clearing House Ass'n, LLC, 557 U.S. 519, 530 (2009), this balance of authority preserves a regime of exclusive administrative oversight by the Comptroller while honoring in fact rather than merely in theory Congress's decision not to pre-empt substantive state law. This system echoes many other mixed state/federal regimes in which the Federal Government exercises general oversight while leaving state substantive law in place. Indeed, [s]tates ... have always enforced their general laws against national banks. Id. at 534, 129 S.Ct. 2710. Against the framework of extensive federal statutory and regulatory oversight of national banks, the question is whether Wells Fargo's implementation of high-to-low posting is subject to California's Unfair Competition Law, a consumer protection statute of general applicability. A. Unfair Business Practices and HightoLow Posting The district court deemed Wells Fargo's high-to-low posting method an unfair practice in violation of the Unfair Competition Law because it was imposed in bad faith, in contravention of the policy reflected in California Commercial Code 4303(b). The appeal of this claim turns on whether state law can dictate Wells Fargo's choice of posting method. We hold that it cannot. Under the National Bank Act, key powers of national banks include the authority to receive deposits, as well as all such incidental powers as shall be necessary to carry on the business of banking. 12 U.S.C. 24 (Seventh). The deposit and withdrawal of funds are services provided by

banks since the days of their creation. Indeed, such activities define the business of banking.6 Bank of Am. v. City and Cnty. of San Francisco, 309 F.3d 551, 563 (9th Cir.2002). Both the business of banking and the power to receiv[e] deposits necessarily include the power to post transactions i.e., tally deposits and withdrawalsto determine the balance in the customer's account. See 12 U.S.C. 24 (Seventh). The ability to choose a method of posting transactions is not only a useful, but also a necessary, component of a posting process that is integrally related to the receipt of deposits. Designation of a posting method falls within the type of overarching federal banking regulatory power that is not normally limited by, but rather ordinarily pre-empt[s], contrary state law. Watters, 550 U.S. at 12, 127 S.Ct. 1559 (quotation marks omitted). In addition to the broad power vested by statute, federal banking regulations adopted by the OCC specifically delegate to banks the method of calculating fees. 12 C.F.R. 7.4002(b). As the agency charged with administering the National Bank Act, the OCC has primary responsibility for the surveillance of the business of banking authorized by the National Bank Act. The OCC is authorized to define the incidental powers of national banks beyond those specifically enumerated. See 12 U.S.C. 93a (authorizing the OCC to prescribe rules and regulations to carry out the responsibilities of the office). The OCC has interpreted these incidental powers to include the power to set account terms and the power to charge customers non-interest charges and fees, such as the overdraft fees at issue here. 12 C.F.R. 7.4002(a).7 More specifically, the OCC has determined that [t]he establishment of non-interest charges and fees, their amounts, and the method of calculating them are business decisions to be made by each bank, in its discretion, according to sound banking judgment and safe and sound banking principles. 12 C.F.R. 7.4002(b)(2) (emphasis added). OCC letters interpreting 7.4002 specifically consider high-to-low posting and associated overdraft fees to be a pricing decision authorized by Federal law within the power of a national bank. The OCC has opined that a bank's authorization to establish fees pursuant to 12 C.F.R. 7.4002(a) necessarily includes the authorization to decide how they are computed. Accordingly, the OCC has determined that a national bank may establish a given order of posting as a pricing decision pursuant to section 24 (seventh) and section 7.4002. In sum, federal law authorizes national banks to establish a posting order as part and parcel of setting fees, which is a pricing decision.

The incidental powers reserved for national banks are not limited to activities deemed essential to the exercise of enumerated powers but include activities closely related to banking and useful in carrying out the business of banking. Bank of Am. v. City and Cnty. of San Francisco, 309 F.3d 551, 562 (9th Cir.2002); see also 12 C.F.R. 7.4007(a) (A national bank may receive deposits and engage in any activity incidental to receiving deposits.). Section 7.4002(a) provides that a national bank may charge its customers non-interest charges and fees, including deposit account service charges. 12 C.F.R. 7.4002(a). 10
7

The district court held that the bank's determination of posting order did not constitute a pricing decision because Wells Fargo did not follow the four factor decision making process for safe and sound banking principles mandated by the OCC. 12 C.F.R. 7.4002(b).8 The National Bank Act gives to the OCC the exclusive authority to exercise visitorial oversight over national banks, and it entrusts the OCC with the supervision of national banks' activities that are authorized by federal law. Whether Wells Fargo's internal decision-making processes regarding posting orders complied with the safe and sound banking principles under 7.4002(b)(2) is an inquiry that falls squarely within the OCC's supervisory powers. The district court's findings with regard to Wells Fargo's compliance with the OCC regulation, then, are both inapposite to the issue of preemption and fruitless. Wells Fargo's decision to resequence the posting order falls within the OCC's definition of a pricing decision authorized by federal law. The district court is not free to disregard the OCC's determinations of what constitutes a legitimate pricing decision, nor can it apply state law in a way that interferes with this enumerated and incidental power of national banks. The restriction that the district court imposed on posting is akin to the fee restriction addressed in the Eleventh Circuit's recent preemption ruling. See Baptista v. JPMorgan Chase Bank, N.A., 640 F.3d 1194, 1197 (11th Cir.2011). The court in Baptista held that a state statute that disallowed banks from charging non-customers for cashing a check was preempted because it significantly reduced the banks' latitude in deciding how to charge fees. The same logic applies here. We hold that a good faith limitation applied through California's Unfair Competition Law is preempted when applied in a manner that prevents or significantly interferes with a national bank's federally authorized power to choose a posting order. The federal court cannot mandate the order in which Wells Fargo posts its transactions. B. Fraudulent Business Practices and Wells Fargo's Representations The district court found not only a violation of the unfair prong of the Unfair Competition Law with regard to the posting order, but also a violation of the fraudulent prong of the Unfair Competition Law with regard to Wells Fargo's representations about posting. The Unfair Competition Law authorizes injunctive relief and restitution as remedies against a person or entity engaging in fraudulent business practices. The district court faulted Wells Fargo both for its failure to disclose the effects of high-to-low posting and for its misleading statements. The district court concluded that Wells Fargo did not tell customers that frequent use of a debit-card for small-valued purchases could result in an avalanche of overdraft fees for each of those purchases due to the

Section 7.4002(b) provides that: [a] national bank establishes non-interest charges and fees in accordance with safe and sound banking principles if the bank employs a decision-making process through which it considers the following factors, among others: (i) The cost incurred by the bank in providing the service; (ii) The deterrence of misuse by customers of banking services; (iii) The enhancement of the competitive position of the bank in accordance with the bank's business plan and marketing strategy; and (iv) The maintenance of the safety and soundness of the institution. 11

high-to-low posting order. Instead, Wells Fargo directed misleading propaganda at the class that likely led class members to expect that the actual posting order of their debit-card purchases would mirror the order in which they were transacted. The requirement to make particular disclosures falls squarely within the purview of federal banking regulation and is expressly preempted: A national bank may exercise its deposit-taking powers without regard to state law limitations concerning, among other things, disclosure requirements. 12 C.F.R. 7.4007(b)(3). [T]he Unfair Competition Law cannot impose liability simply based on the bank's failure to disclose its chosen posting method. Imposing liability for the bank's failure to sufficiently disclose its posting method leads to the same result as mandating specific disclosures. Both remedies are tantamount to state regulation of disclosure requirements. We turn now to the different question of state law liability based on Wells Fargo's misleading statements about its posting method. Notably, the Unfair Competition Law itself does not impose disclosure requirements but merely prohibits statements that are likely to mislead the public. As a non-discriminating state law of general applicability that does not conflict with federal law, frustrate the purposes of the National Bank Act, or impair the efficiency of national banks to discharge their duties, the Unfair Competition Law's prohibition on misleading statements under the fraudulent prong of the statute is not preempted by the National Bank Act. Wells Fargo's positionthat 7.4007(b)(2) dictates preemptionis conclusively undercut by the OCC itself, which, far from concluding that the Unfair Competition Law is expressly preempted under its regulations, has specifically cited [California's Unfair Competition Law] in an advisory letter cautioning banks that they may be subject to such laws that prohibit unfair or deceptive acts or practices. The advisory letter warns that the consequences of engaging in practices that may be unfair or deceptive under federal or state law can include litigation, enforcement actions, monetary judgments, and harm to the institution's reputation. OCC Advisory Letter, Guidance on Unfair or Deceptive Acts or Practices, 2002 WL 521380, at *1 (Mar. 22, 2002). The OCC recognizes that state laws that withstand preemption typically do not regulate the manner or content of the business of banking authorized for national banks, but rather establish the legal infrastructure that makes practicable the conduct of that business. Bank Activities and Operations, 69 Fed.Reg.1904, 1913 (Jan. 13, 2004). By prohibiting fraudulent business practices, the Unfair Competition Law does exactly thatit establishes a legal infrastructure. Although Wells Fargo insists that a state law prohibiting misleading statements necessarily touches on checking accounts, such an expansive interpretationwith no limiting principlewould swallow all laws. We recently declined a bank's invitation to interpret the term lending operations expansively because every action by the bank, due to the nature of its business, affects its ability to attract, manage, and disburse capital, and could be said to affect its lending operations. California's prohibition of misleading statements does not significantly interfere with the bank's ability to offer checking account services, choose a posting method, or calculate fees. Nor does the Unfair Competition Law mandate the content of any nonmisleading and nonfraudulent statements in the banking arena. On the flip side, the National Bank Act and other OCC provisions do not aid Wells Fargo, as neither source regulates deceptive statements vis-a-vis the bank's chosen posting method. Where, as here, federal laws do not cover a bank's actions, states are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere 12

with the national bank's or the national bank regulator's exercise of its powers. Watters, 550 U.S. at 12; see also Gibson v. World Sav. & Loan Ass'n, 103 Cal.App.4th 1291, 1299, 128 Cal.Rptr.2d 19 (2002) (the state cannot dictate to the Bank how it can or cannot operate, but it can insist that, however the Bank chooses to operate, it do so free from fraud and other deceptive business practices). Other than an argument regarding the cost of modifying its published materials, Wells Fargo does not articulate how abiding by the Unfair Competition Law's prohibition of misleading statements would prevent or significantly interfere with its ability to engage in the business of banking. Wells Fargo's inability to demonstrate a significant interference is unsurprisingthe district court found that when it chose to, the bank could accurately explain the posting process to customers: Wells Fargo provided its tellers and phone-bank employees with a clear script to respond to customers who protested after receiving multiple overdraft fees caused by high-to-low resequencing. These explanations were in plain English. The limitation on fraudulent representations in California's Unfair Competition Law does not subject Wells Fargo's ability to receive deposits, to set account terms, to implement a posting method, or to calculate fees to surveillance under a rival oversight regime, nor does it stand as an obstacle to the accomplishment of the National Bank Act's purposes. Accordingly, we hold that Gutierrez's claim for violation of the fraudulent prong of the Unfair Competition Law by making misleading misrepresentations with regard to its posting method is not preempted, and we affirm the district court's finding to this extent. Consistent with the foregoing, the district court may provide injunctive relief and restitution against Wells Fargo. Although the court cannot issue an injunction requiring the bank to use a particular system of posting or requiring the bank to make specific disclosures, it can enjoin the bank from making fraudulent or misleading representations about its system of posting in the future. Restitution is available for past misleading representations. We make no judgment as to whether it is warranted here. On remand, the district court will be in a position to determine whether, subject to the limitations in this opinion, restitution is justified by the pleadings and the evidence in this case. III. Remaining Issues To establish standing to seek class-wide relief for fraud-based Unfair Competition Law claims, the named plaintiffs must prove actual reliance on the misleading statements. The district court found that Gutierrez and Walker read portions of the Welcome Jacket, which stated that [e]ach purchase is automatically deducted from your primary checking account. The district court next found that Gutierrez and Walker each relied upon the bank's misleading marketing materials that reinforced her natural assumption that debit-card transactions would post chronologically. The district court determined that both Gutierrez and Walker were misled by Wells Fargo's statements because the extent of the falsity of the statements was not known to either of them until they incurred hefty fees for having overdrawn their checking accounts. These findings are well supported by the evidence and are not clearly erroneous. Next, class certification under Fed.R.Civ.P. 23(b)(3) requires that questions of law or fact common to class members predominate over any questions affecting only individual members. With respect to marketing materials, the district court found that: A Wells Fargo marketing theme was that debit-card purchases were immediately or 13

automatically deducted from an account. This likely led the class to believe: (1) that the funds would be deducted from their checking accounts in the order transacted, and (2) that the purchase would not be approved if they lacked sufficient available funds to cover the transaction. This language was present on Wells Fargo's website (TX 129), on Wells Fargo's Checking, Savings and More brochures from 2001 and 2005 (TX 88, 89), and Wells Fargo's New Account Welcome Jacket from 2004 (TX 82). The pervasive nature of Wells Fargo's misleading marketing materials amply demonstrates that class members, like the named plaintiffs, were exposed to the materials and likely relied on them. In addition, the district court found that Wells Fargo knew that new accounts generate the bulk of OD [overdraft] revenue. Wells Fargo's speculationthat some class members would have engaged in the same conduct irrespective of the alleged misrepresentationdoes not meet its burden of demonstrating that individual reliance issues predominate. Finally, the district court's finding that Wells Fargo made misleading statements is amply supported by the court's factual findings. Wells Fargo told customers that [c]heck card and ATM transactions generally reduce the balance in your account immediately and that the money comes right out of your checking account the minute you use your debit-card. The bank also misleadingly admonished customers to [r]emember that whenever you use your debit-card, the money is immediately withdrawn from your checking account. If you don't have enough money in your account to cover the withdrawal, your purchase won't be approved. According to the district court, the account activity information provided to customers through online bankinga service made available to all Wells Fargo depositorsdisplayed pending debit-card transactions in chronological order ( i.e., the order in which the transactions were authorized by Wells Fargo). When it came time to post them during the settlement process, however, the same transactions were not posted in chronological order but were posted in high-to-low order. The findings go on: Misleading marketing materials promoted the same theme of chronological subtraction. A number of Wells Fargo marketing materials, including the Wells Fargo Welcome Jacket that was customarily provided to all customers who opened a consumer checking account, contained misleading representations regarding how debit-card transactions were processed. Specifically, these various materialscovered in detail in the findings of factcommunicated that debit-card POS purchases were deducted immediately or automatically from the user's checking account.... Such representations would lead reasonable consumers to believe that the transactions would be deducted from their checking accounts in the sequence transacted. Based on these findings, the district court concluded that Wells Fargo affirmatively reinforced the expectation that transactions were covered in the sequence made while obfuscating its contrary practice of posting transactions in high-to-low order to maximize the number of overdrafts assessed on customers. Wells Fargo's alternate interpretation of the word automatically is insufficient to render the district court's findings clearly erroneous. Accordingly, the district court's holding that Wells Fargo violated the Unfair Competition Law by making misleading statements 14

likely to deceive its customers is affirmed. Notes and Comments 1. Wells Fargo easily could have avoided its losses had it timely demanded arbitration as authorized by its deposit contract. It did not do so in part because its arbitration clause contained a waiver of the right to bring a class action in arbitration proceedings, and Californias courts had held class action waivers unconscionable whether imposed as part of an arbitration agreement or any other other consumer contract. Discover Bank v. Superior Court, 36 Cal.4th 148, 16263, 30 Cal.Rptr.3d 76, 113 P.3d 1100 (2005). Discover Bank rested on decades of Supreme Court precedent holding that the Federal Arbitration Act (FAA) preempts state law that disfavors arbitration agreements, but does not preempt state contract law defenses asserted to defeat an arbitration agreement if those defenses are generally available against and applicable to all contracts and not just arbitration agreements. Because the Discover Bank rule applied the general law of unconscionability to hold all contractual consumer class action waivers unconscionable, it appeared consistent with the FAA. AT&T Mobility LLC v. Concepcion, U.S. , 131 S.Ct. 1740 (2011) overruled Discover Bank and for the first time held that state contract law may not be neutrally applied to arbitration agreements when the effect of doing so is to frustrate the enforcement of private arbitration agreements, even when doing so deprives the complainant of the opportunity to bring a class action. Concepcion is representative of a trend; originally the FAA was construed to prevent states from treating arbitration clauses as the second class citizens of contract law, but now the court treats arbitration clauses as entitled to special protection from contract law. Thus, had Wells Fargo elected arbitration and enforced that election, its only exposure to Guitierrez would have been his overdraft fees, a matter it could have resolved by demanding arbitration and simultaneously tendering to Gutierrez the $143 it had charged in overdraft fees and to Walker the $506 it had charged in overdraft fees.

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