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Appeals Court Reverses Part of Bank Overdraft Fee Decision

The U.S. Court of Appeals for the Ninth Circuit has reversed in part the lower district court’s order that would require Wells Fargo Bank to cease charging overdraft fees based on the high-to-low posting order for all debit-card transactions. The Appeals Court held that “federal law preempts state regulation of the posting order as well as any obligation to make specific, affirmative disclosures to bank customers” and that the Bank’s decision to post payments in a particular order is a “federally authorized pricing decision.” However, the Appeals Court held that federal law does not preempt California law regarding fraudulent or misleading representations on posting. Also, the lower court’s order regarding the $203 million in restitution that the Bank would have to pay to its customers was reversed. In August 2010, the district court found that the Bank’s overdraft fee practices based on the high-to-low posting order were unfair and fraudulent business practices under California law.