Garnishment Statutes Cannot Attempt To Regulate Amount Of Fees National Banks May Charge For Processing Garnishment

The Sixth Circuit recently held that the National Bank Act pre-empts an Ohio garnishment statute to the extent that it could be interpreted to regulate the fees a national bank may charge for processing a garnishment.

Under the facts of Monroe Retail, Inc. v. RBS Citizens, N.A., 589 F.3d 274 (6th Cir. 2009), several garnishors who regularly obtained judgments against debtors and often collected the judgment by garnishing the debtors’ bank accounts brought suit against several national banks for extracting garnishment service fees from the garnished funds (when the garnished account did not have sufficient funds to satisfy both the garnishment order and the bank’s fees) before releasing the remainder of the funds to the garnishors. The garnishors alleged that by deducting these fees, ranging from $25 to $80, the banks were illegally converting funds belonging to the garnishors for their own use in violation of an Ohio garnishment statute requiring a garnishee to pay to a garnishor “all money . . . of the judgment debtor in the garnishee’s possession or under the garnishee’s control . . . at the time the garnishee is served with the [garnishment] order”. The banks argued that the National Bank Act permitted them to charge service fees and pre-empted any claim attempting to assert otherwise.

The court recognized that the National Bank Act authorizes national banks to exercise any “incidental power” necessary to carry on the business of banking and that the Officer of the Comptroller of the Currency (“OCC”), which has regulatory and supervisory power over national banks, has specifically defined the ability to charge fees (including the authority and discretion to determine the amount and method of charging the fees) as an incidental power of a national bank. Thus, stated the court, interpreting the Ohio statute as requiring that banks freeze accounts immediately upon receipt of a garnishment order and not charge a fee for processing the garnishment order would impose a requirement that would be unduly burdensome on national banks and would significantly interfere with the fundamental national bank function of determining the amount and method of charging fees. Such an interpretation would therefore be pre-empted by the National Bank Act. The court thus affirmed the trial court’s dismissal of the garnishors’ claims against the Banks.

Posted by: LeAnders L. Jones

Categories: Bankruptcy & Banking Law