## Facts

- HSBC Bank, USA, N.A. (HSBC) issued debit cards to its checking-account customers for purchases and ATM withdrawals.
- HSBC offered an overdraft-protection program under which it would authorize and pay debit-card transactions even when the customer lacked sufficient funds, instead of declining the transaction.
- For each overdraft transaction, HSBC charged a $35 overdraft fee.
- Plaintiffs alleged HSBC could determine, at the time of authorization, whether an account had sufficient funds, but HSBC did not notify customers when a transaction would overdraw the account.
- Plaintiffs further alleged HSBC posted debit-card transactions in a nonchronological order—listing debits from largest to smallest—rather than in chronological order.
- Plaintiffs alleged the high-to-low posting practice increased the number of overdraft transactions and overdraft fees customers incurred compared with chronological or low-to-high posting.
- Putative classes of customers sued HSBC under the laws of several states, alleging HSBC operated its overdraft program unlawfully.
- HSBC argued the state-law claims were barred because federal banking law and Office of the Comptroller of the Currency (OCC) regulations preempted the asserted state-law theories.

## Issues

1. Whether the National Bank Act and OCC regulations preempt state-law claims challenging HSBC’s debit-card overdraft practices, including alleged failure to provide real-time overdraft notice and the alleged high-to-low posting order.
2. Whether the complaint plausibly stated state-law causes of action concerning HSBC’s overdraft program sufficient to proceed past a motion to dismiss.

## Decision

- The court declined to dismiss the action on the ground that federal banking law and OCC regulations categorically preempted plaintiffs’ state-law overdraft claims.
- The court held that, at the pleading stage, plaintiffs’ state-law theories could proceed notwithstanding HSBC’s preemption arguments.

## Legal Principles

- Federal banking preemption for national banks is assessed by asking whether the state law prevents or significantly interferes with a national bank’s exercise of its federally granted powers.
- OCC regulations recognize that certain state laws of general application—such as contract, tort, and consumer-protection laws—may apply to national banks when they do not function as direct regulation of a bank’s federally authorized powers.
- A bank’s authority to offer deposit-account services and impose account-related fees does not, by itself, eliminate all state-law claims tied to how the bank describes, implements, or carries out those services.
- Preemption analysis is applied in a claim-specific way; courts consider the nature of the state-law duty asserted and whether the claim would operate as a direct restraint on federally authorized banking activity.

## Conclusion

In this consolidated overdraft-fee litigation, plaintiffs alleged HSBC increased overdraft fees through a high-to-low posting order and by not warning customers at authorization even though HSBC could identify insufficient funds in real time; the court held that federal banking law and OCC regulations did not, at the pleading stage, require dismissal of the state-law claims on preemption grounds, allowing the case to go forward.


In re HSBC Bank, USA, N.A., Debit Card Overdraft Litigation, 1 F. Supp. 3d 34 (2014)