To Settle Suit, BofA Extends Deposit Plan

Bank of America Corp. said Friday that it would provide free paycheck direct-deposit services to employees of its small business customers in California, settling a lawsuit that sought class-action status to represent every such business in the state.

The Charlotte, N.C., bank said it sent letters to about 350,000 small-business customers, offering to set up direct-deposit paycheck services for them free of charge for 12 months. After that promotional period, these California employers would be charged fees for the deposit service. As long as employers agree to pay those fees, their workers will continue to have free checking accounts with direct paycheck deposit and automated teller machine cards, said Eloise Hale, a bank spokeswoman.

Bank of America, which has the most branches of any bank in California, in 2002 began charging $5 to cash each paycheck issued on its small-business accounts to workers who did not have BofA accounts.

Karis House, a Visalia, Calif., shelter for wayward teenagers that has many low-wage, part-time workers, challenged the fees in Los Angeles County Superior Court. Its attorneys argued that by charging the fees, the bank would cause employers to violate a 1911 state law requiring businesses to provide a place where employees can cash paychecks for full face value.

Nick Pomerance of Roxborough, Pomerance & Nye, the Los Angeles law firm that filed the lawsuit, said the bank would pay Karis House $295,000 to cover its legal fees and other expenses. The settlement accomplishes two goals -- making sure employers are aware of the 1911 law and giving employees of small businesses a place to cash their checks free, Pomerance said.

A companion suit challenging similar fees charged by Wells Fargo & Co., the second-largest retail bank in California, is pending. Pomerance said Wells Fargo had shown no interest in negotiating a settlement.

Bank of America had challenged the suit on grounds that federal law exempts national banks from being sued under state laws governing unfair business practices. It also contended that it might be slighted in a Los Angeles court because it was incorporated in Delaware and based in South Carolina. However, a federal judge rejected those arguments in July.

Bank of America shares gained 49 cents, to $46.89, on the New York Stock Exchange.