WASHINGTON (6/2/09)-- The California Supreme Court Monday backed Bank of America’s (BoA) position and ruled that state law permits BoA and other depository institutions in California to cover overdrafts and overdraft fees from Social Security funds and other protected public benefit deposits. The state supreme court, ruling on an appeal in Miller v. Bank of America, said the practice did not violate the California Unfair Business Practices Act. Credit unions have been watching this case for years as it has moved through the California court system. The decision affects a broad swath of financial institutions, including California credit unions and credit unions doing business in the state. The Credit Union National Association (CUNA), the California CU League, banking trade associations, and the U.S. government filed amicus briefs in the appellate court in support of BoA's position. Many of the same parties, including CUNA, filed an amicus brief with the California Supreme Court. The implications of the case are important to consumers as well. For instance, CUNA General Counsel Eric Richard said Monday that the ruling helps to assure access to checking accounts for those receiving protected federal benefit funds . “If a financial institution’s ability to recoup losses and fees caused by overdrafts was invalidated because an account was funded in part or fully by protected federal benefit deposits such as Social Security funds , it could have the unfavorable result of making it harder for those consumers to have checking accounts and other services such as ATM cards ,” he said. Throughout the case, BofA had argued that federal law and regulation preempt a California law that prohibits tapping SS money in an account. However, in December 2004 a judge for the Superior Court of San Francisco upheld an over-$1 billion-dollar jury award against BofA for violating state law. But in November 2006, a California Court of Appeals reversed the lower court's ruling and award, and decided in favor of BofA. The plaintiff, Paul Miller, then filed an appeal with the California Supreme Court. However, the Supreme Court, as noted, also sided with the bank’s position. In its decision, the court declared that the state financial code “expressly excludes overdrafts and bank charges from the statutes definition of debt.” The court concluded: “…Bank of America’s practice of recouping overdrafts and charging insufficient funds fees is permissible in light of the Legislature’s unequivocal statement in Financial Code section 864 that overdrafts and bank charges are not debts and are therefore not subject to the limitations placed on a bank’s right of setoff set forth in that statute. “ In a related story, The Wall Street Journal reported Monday that the U.S. Treasury Department is getting some heat from a bipartisan group of federal lawmakers to close a loophole relating to federal benefits. Federal law prohibits creditors from taking SS, disability, veterans' and children's survivor benefits to pay a debt. However, the law is silent on how money deposited directly into accounts are financial institutions should be handled. The article reported that the U.S. Treasury and Social Security Administration, along with banking regulators, drafted rules to close the loophole earlier this year, but they have not progressed beyond the proposal stage. Members of the Senate Special Committee on Aging, as well as some members of the House, including Financial Services Committee Chairman Barney Frank (D-Mass.), have urged Treasury Secretary Geithner to act on the plan.