Alert May 06, 2008

Federal Court Rules Unwritten Overdraft Agreements Are Not Subject to TILA and Reg Z

The U.S. District Court for the Central District of California has ruled that the Truth in Lending Act and Regulation Z do not apply to “non-written-agreement overdraft programs.” Plaintiffs alleged a bank had violated TILA by providing ATM cards with overdraft protection features without giving certain TILA disclosures. Following a Ninth Circuit remand, the district court held that TILA did not apply. Because the written agreement between the parties gave the bank discretion not to pay overdrafts, i.e., there was no written agreement requiring the bank to pay them, the bank was not a “creditor” under TILA. The Court further found that promotional materials describing the overdraft protection as “automatic” were not part of the written agreement. The Court then deferred to the FRB’s position that TILA is not applicable to overdraft programs where there is no written agreement, even where plaintiffs can establish the bank had a practice of automatically paying all overdrafts. Finally, the Court dismissed the plaintiffs’ related state law claims because each state law claim relied on allegations concerning checking accounts, disclosure requirements, and service charges and fees, all areas preempted by the Home Owners’ Loan Act. Click here for a copy of In re: Washington Mutual Overdraft Protection Litigation, No. 03-2566 (C.D. Cal. March 17, 2008).