## Facts

- A bank customer filed a putative class action on behalf of checking-account holders, including a subclass that paid nonsufficient funds (NSF) charges.
- Customers opened accounts by signing a signature card that included small-print language making the account subject to the bank’s “present and future rules, regulations, practices and charges.”
- Customers allegedly were not given the bank’s rules or a schedule of charges, and did not receive meaningful notice of fee changes.
- The bank imposed a per-item NSF charge when a check was presented against insufficient funds, whether the item was paid (overdraft) or returned unpaid.
- The complaint alleged the bank unilaterally increased NSF charges without objective criteria or explanation.
- At filing, the bank charged $6 per NSF item, while the alleged processing cost was approximately $0.30.
- The complaint asserted, among other theories, unconscionable and bad-faith pricing, unfair or deceptive practices related to the signature card and notice, an unlawful penalty theory, and lack of federal preemption.
- The trial court sustained the bank’s general demurrer to all causes of action without leave to amend and entered judgment for the bank.

## Issues

1. Whether the signature card formed a contract authorizing NSF charges and changes to those charges.
2. Whether allegations of a gross disparity between NSF fees and processing cost, coupled with unilateral unexplained increases, stated claims based on the implied covenant of good faith and unconscionability.
3. Whether the allegations supported (or could be amended to state) an unfair or deceptive business practices claim based on concealment or mischaracterization of material account terms and inadequate notice of fees.
4. Whether NSF charges were unenforceable penalties under California law.
5. Whether federal banking law preempted application of California contract and consumer-protection doctrines to NSF charges.

## Decision

- The court held the signature card was part of the checking-account contract and that NSF charges functioned as a contractual price term.
- The court ruled that a bank’s unilateral discretion to set or change such charges is constrained by the implied covenant of good faith and fair dealing.
- The court held the pleadings sufficiently alleged unconscionability and lack of good faith to survive demurrer and warranted factual development.
- The court concluded the pleadings justified leave to amend to assert an unfair/deceptive practices theory with greater specificity.
- The court held the NSF charges were not penalties because customers did not breach a contractual promise by writing NSF checks; the charges were characterized as fees for handling NSF items, not liquidated damages.
- The court rejected federal preemption, finding no comprehensive or conflicting federal regulation that displaced state contract and consumer-protection rules in this context.
- The judgment was affirmed in part and reversed in part, with reinstated claims remanded for further proceedings.

## Legal Principles

- A checking-account signature card can constitute a binding contract governing account terms, including bank charges referenced in the agreement.
- Fees for handling NSF items may be treated as contract price terms rather than liquidated damages, even if challenged as excessive.
- When a contract grants one party unilateral power to set or change a variable price term, that discretion is subject to the implied covenant of good faith and fair dealing.
- Allegations that a consumer fee is grossly disproportionate to the service cost, and was increased unilaterally without objective criteria or justification, can state a claim for substantive unconscionability and for breach of the implied covenant at the pleading stage.
- A charge is not an unlawful penalty absent a contractual obligation whose breach triggers damages; service-fee structures are analyzed under contract and unconscionability doctrines instead of penalty doctrine.
- State contract and consumer-protection doctrines may apply to bank fee practices absent clear federal displacement or direct conflict.

## Conclusion

The court treated NSF charges as contractual price terms within a checking-account agreement, subject to judicial review for good faith and unconscionability and potentially actionable as unfair or deceptive practices, while rejecting characterization of the fees as unlawful penalties and finding no federal preemption of the state-law claims.


Perdue v. Crocker Nat’l Bank, 702 P.2d 503 (Cal. 1985)