If you live in California and you collect Social Security, it is time to pay better attention to your account balances – because Uncle Sam has decided that the overdraft fees you “owe” the bank can be taken directly from your Social Security deposits.

Last month, the California Supreme Court unanimously overturned a billion-dollar class-action award against Bank of America Corporation, ruling that banks can collect overdraft fees from financial accounts that government benefits intended for subsistence needs are directly deposited. The decision effectively reverses a 2004 verdict by a San Francisco jury that ruled that the bank violated state law by withdrawing fees for insufficient funds from accounts set up to receive Social Security benefits. Had the Miller versus Bank of America case not been successfully appealed this past month, they would be paying at least $284.4 million dollars in damages to over 1.1 million customers — possibly more if interest is added.

The issue at the center of interpretation involves the interpretation of California’s statutes on debt; according to CA law, overdraft charges are not considered a debt.  Federal law generally prohibits creditors from seizing Social Security or other government benefits to pay a debt. The CA supreme court, according a UCLA law professor, determined that a bank account is  “a running tally of debits and credits,” entitling banks to deduct overdraft charges.

Perhaps the title of this blog post should instead be “Banks to Get Even More Government Assistance at the Expense of Taxpayers”. Have we not provided all these banks with enough, already? Don’t we already have a useless program which provides unjustified billions of bailout money for banks, called TARP? Haven’t they used taxpayer’s money for enough lavish offsite employee conferences and bonuses for all the lazy upper management schmucks?

The consumer advocacy group The Center for Responsible Lending reports that individuals that are supported primarily by their Social Security income pay approximately $1 billion in insufficient funds fees annually. According to the center’s Washington office director, Eric Halperin, the majority of these fees result from debit card purchases that are only a few dollars.

So should all those with electronic deposit of Social Security benefits take extra precautions as far as their overdraft habits? Regardless of the state you live in, these fees are outrageous and unnecessary, and should be avoided at all costs. Of course, if we all handle our money responsibly and avoid getting overdraft fees altogether, the banks will have to find other ways to take your money. For some ideas on how to avoid getting overdraft fees, read this blog post.

Readers, particularly the California contingent, has anyone had any experiences with this ruling or been affected by it in any way? Please share your views with a comment if so!

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