The US Court of Appeals for the Ninth Circuit affirmed the block of a customer’s challenge to a bounced check fee imposed by the Navy Federal Credit Union (NFCU).

In its decision, the court found that federal law preempts state law in the regulation of federal credit unions. Specifically, the court reasoned that 12 C.F.R. § 701.35(c), which is enforced by the National Federal Credit Union Administration, preempts California law.  The section says that state laws regulating bank fees do not apply to federal credit unions.

The customer, Andrew King, had attempted to deposit a check at an NFCU branch in California.  The deposit failed, through no fault of King’s, according to the court, but the credit union charged him a $15 bounced check fee.

In response, King sued NCFU in state court under California’s Unfair Competition Law (UCL), alleging that the fee was an unfair or fraudulent business act or practice.  NCFU removed the complaint to federal court, which ruled against him. King appealed.

King had tried to argue that federal law prohibited the $15 fee. The court, for purposes of the case, assumed that to be true. However, King went on to argue that because the fee was illegal, the preemption clause did not apply. Therefore, the federal court could apply California’s law and rule that the fee was unfair.

The court took issue with King’s analysis, leading it to affirm the district court’s ruling:

Although King offers an Olympic level of verbal gymnastics to argue that the UCL transcends § 701.35(c)’s preemption clause, we agree with the district court —and every other court to confront this issue—that all state laws that regulate account fees—general, specific, or otherwise—have no application to federal credit unions.