|
|
|
Firm News |
Hood, et al. v. Santa Barbara Bank & Trust et al.California Court of Appeal Rejects Banks’ Argument That it Is Immune from State Law in Seizing Consumer Tax Refunds
September 29, 2006
CALIFORNIA COURT OF APPEAL REJECTS BANKS’ ARGUMENT THAT IT IS IMMUNE FROM STATE LAW IN SEIZING CONSUMER TAX REFUNDS
VENTURA, CA – In a consumer rights victory of national significance, the California Second District Court of Appeal just issued a strongly worded opinion rejecting the claims of national banks that they are immune from state prosecution for their practices of seizing consumers’ tax refunds to pay debts allegedly owed to other banks. In Hood et al. v. Santa Barbara Bank & Trust et al., the Court held that federal law does not preempt – i.e. wipe out – plaintiffs’ California claims for misrepresentation, unlawful debt collection and unfair business practices.
The claims arise from Santa Barbara Bank & Trust’s (SBBT) practice of offering Refund Anticipation Loans (RAL) to consumers, denying those loans because another bank claims the consumer owes money for a preexisting RAL, and then seizing the consumers’ tax refunds to pay the other bank.
“This is an enormous victory for consumers nationwide who have been subjected to the illegal seizure of their tax refunds by national banks like Santa Barbara Bank & Trust and Household Bank,” said plaintiffs’ counsel Jim Sturdevant of The Sturdevant Law Firm in San Francisco.
The Court’s ruling clears the way for this proposed class action to go forward. The Court found that plaintiffs’ claims under California’s consumer protection laws “do not impose any substantial limitations upon” a bank’s traditional activities of lending money and accepting deposits.
The Court also rejected the banks’ argument that the case was an encroachment upon their rights under federal law. “[W]hile the state cannot dictate to respondents how they can or cannot operate, it can insist that, however respondents choose to operate, they do so without violating debt collection laws and using deceptive business practices,” the Court’s majority opinion stated. One member of the panel disagreed, finding that federal laws should protect the bank from suit.
Stuart Rossman, Litigation Director with the National Consumer Law Center and co-counsel in the case also praised the decision. “The Court’s decision sends a clear message that national banks cannot hide under the veil of federal law when they engage in practices that violate general state consumer protection laws,” Rossman said.
Canieva Hood sued SBBT in 2003 after it denied her a loan and seized her 2002 federal tax refund of over $2,000 to pay back an alleged 7-year-old debt to Household Bank. SBBT seized Hood’s tax refund after Hood signed an application for a refund anticipation loan at a branch of Jackson Hewitt, a commercial tax preparation chain. Unbeknownst to Hood, the application contained a clause permitting SBBT to take Hood’s refund to pay back any debts allegedly owed, not only to SBBT itself, but to any lender that makes refund anticipation loans, including Household Bank. Jackson Hewitt is also named as a defendant in Hood’s lawsuit.
SBBT is one of a number of banks nationwide that make RALs through tax preparers such as Jackson Hewitt. RALs are high cost, high risk loans secured by a consumer’s anticipated tax refund. Typical fees for a RAL range from about $30 to $100, with effective annualized interest rates ranging anywhere from about 60% to over 700%. RALs target the working poor who receive the Earned Income Tax Credit, and have been the subject of several recent reports by the National Consumer Law Center, the Consumer Federation of America and the Brookings Institution, all of which found that RALs cost taxpayers hundreds of millions of dollars per year. The banks that make RALs agree to collect each others’ debts for preexisting RALs using the subterfuge of making consumer loans.
After the trial court denied SBBT’s first attempt to have the case dismissed, SBBT filed a cross-complaint against all of the other banks with whom it has agreed to collect debts. The banks then collectively asked the trial court for judgment on the basis that all of the state law claims were preempted by federal regulations that govern national banks. The Court of Appeal decision sends the case back to the trial court to be resolved on the merits.
“We look forward to exposing the banks’ unlawful debt collection scheme and obtaining justice for consumers nationwide,” Sturdevant stated.
The Court of Appeal Decision is available here.
###
The National Consumer Law Center, with offices in Boston and Washington, D.C., is a national research and advocacy organization focusing on the legal needs of consumers, especially low income and elderly consumers. For over 30 years the National Consumer Law Center has been the consumer law resource center to which legal services and private lawyers, state and federal consumer protection officials, public policy makers, consumer and business reporters, and consumer and low-income community organizations across the nation have turned for legal answers, policy analysis, and technical and legal support.
The Sturdevant Law Firm, based in San Francisco, California, specializes in complex and class litigation on behalf of plaintiffs involving unlawful, unfair and fraudulent business practices and consumer protection. The founder of the firm, James C. Sturdevant, has been engaged in the practice of law for more than 26 years. He has tried or settled many class actions, unlawful business practices cases, and civil rights cases. The firm litigates in the substantive areas of consumer protection, civil rights, employment issues, and misleading advertising and misrepresentations in consumer contracts involving consumer goods and services.
| |
|
