Reversal of Lopez Case on Social Security Offsets
by Mary Beth Guard
THEY DID IT! The banking industry owes an enormous debt of gratitude to Washington Mutual Bank, FA and the associations which filed a friend of the court brief (California Bankers Association, American Bankers Association, America's Community Bankers, Consumer Bankers Association, Independent Community Bankers of America, and Financial Services Roundtable). In a stunning reversall, the 9th Circuit Court of Appeals has granted the Petition for Rehearing, withdrawn its previous decision, and issued a new opinion in the case of Lopez v. Washington Mutual Bank, FA.
Here is the crucial part of the Court's new opinion:
"In this case, the plaintiffs voluntarily opened an account with the bank and executed an account holder agreement which outlined the terms and conditions of the bank's overdraft policies. They also established a direct deposit for their benefits (an agreement to which Washington Mutual was not a party). The plaintiffs remained free at all times to close their account or change their direct deposit instructions. Because they did not do so, Washington Mutual argues, each deposit to the account after an overdraft should be treated as a voluntary payment of a debt incurred. We agree."
The opinion goes on to discuss the plaintiff's argument that a more explicit consent to the offsent must be given, citing a prior case of Crawford v. Gould, where the court had held that an entity had failed to obtain a "meaningful consent" before making deductions to Social Security benefits. The Court here finds several bases upon which to distinguish the Crawford case, including the fact that there the plaintiffs were involuntarily committed to a state hospital and were not free to terminate their dealings with the state and were incompetent to handle their personal affairs. In the Lopez case, by contrast, the customers had voluntarily opened their accounts and made arrangements to have their SSI benefits deposited to the accounts. Two of the plaintiffs indicated they understood the bank's overdraft policies and expected their next deposit of SSI benefits would cover those costs.
The Court also distinguished the Lopez case from the Nelson case, which involved accounts of prison inmates established with a prison.
The bottom line is that although there is still some "tension", as the Court calls it, between the revised Lopez decision and a prior 10th Circuit opinion in Tom v. First American Credit Union (see Court Watch for details), with the revision of this opinion there is no longer any outstanding circuit court level opinion that bars a financial institution's use of the right of setoff against Social Security and SSI benefits to cover overdrafts incurred on the customer's account. Overdraft protection can once again be a reality for these customers without a nagging cloud of doubt hanging over the heads of bank management.
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