Now that the Obama administration is a shareholder in Bank of America, will it protect the interests of the bailed-out bank or those of customers targeted by its predatory practices? It's a difficult calculation, and one the administration soon has to make as a class action suit against BoA lands in a state supreme court.

When President Obama assumed the reins of the federal government on January 20, one of the many unpleasant tasks he inherited was defending the Bush administration's position in court in pending litigation. It's one of the usual problems that come with every presidential transition. But this time around, thanks to extraordinary circumstances -- such as the federal bailout of the nation's financial system -- the legal conflicts for Obama are more dicey than usual. A prime example is the pending BoA case.

In February 2004, a San Francisco jury hit the bank with an enormous verdict in a class action, Miller v. Bank of America. California seniors and disabled people had sued the bank after it raided their Social Security and federal disability benefit accounts to cover overdraft and other fees, in violation of California law. The verdict threatened to top a billion dollars and bring a change to the way banks everywhere do business.

Bank of America, like many banks, processes checks so they bounce more often, using software that changes the order in which checks clear. The result: Instead of one big check bouncing, lots of little checks will. This maximizes the number of penalties the bank can levy on its customers. When collecting these sorts of fees, banks don't have to abide by any of the debt-collection laws that apply to other businesses. Because they've already got your money, they just take it. But the accounts in the Miller case contained Social Security and federal disability benefits automatically deposited by the government. California state law prohibits banks from seizing money from these protected funds, and the California class action threatened to put the brakes on some of these practices.

But nickel-and-diming customers like this is a $17.5 billion a year business for the nation's banks. That's why the industry has fought the California verdict tooth and nail. To that end, in 2004, BoA sought help from its friends in the Bush administration, primarily in the Office of the Comptroller of the Currency, a banking regulator funded by banks themselves. The OCC is notorious for its long legacy of helping big banks squash state efforts to crack down on predatory lending over the past decade -- efforts that could have helped head off the current financial meltdown. Not surprisingly, the agency was happy to help BoA fend off the class action. On behalf of the OCC, the Justice Department filed a brief in support of BoA's appeal arguing that federal bank regulations enforced by the OCC preempted California's consumer protection laws.

The gambit worked, and in November 2006 a California appeals court overturned the verdict entirely. Now, the Miller case is headed to the California Supreme Court for oral arguments on April 7. But this time, it will be the Obama Justice Department carrying water for the bank, and not just in a brief. The Justice Department's civil division filed an application last week to present oral arguments in the case during time allotted to the bank.