Do your account agreements include arbitration agreements? Why not?

To arbitrate or not to arbitrate, that is the question.  Last week, the Supreme Court decided one of three cases in this year’s term which continue to uphold the scope of arbitration clauses against potential class action claims (Lamps Plus, Inc. v. Varela, #17, 988, April 24, 2019).  It is time for your credit union to consider integrating arbitration clauses into its account agreements, if it hasn’t done so already.  First, some background.

The Supreme Court has for several years now given businesses, including banks and credit unions, the ability to integrate arbitration clauses into their consumer agreements and employee handbooks.  For example, in 2011, the Supreme Court in AT & T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011), ruled that the California legislature could not pass a law barring class action bans in arbitration clauses as they were pre-empted and therefore not enforceable under the Federal Arbitration Act.  It was decisions like these that got consumer groups and the Cordray CFPB fired up enough to propose a framework which would have sharply reduced the use of arbitration clauses.  But this regulation was never finalized.

In the ensuing years a virtually unbroken string of cases has made clear that arbitration clauses are a legitimate means to keep both employee disputes and consumer complaints out of the court house and most importantly, for our purposes, allow business to contract their way out of facing class action litigation.  Last week’s decision is surprising only because the Court ruled that vaguely written arbitration clauses should be interpreted as banning class action arbitration.  Generally speaking, vagaries in contracts involving consumers are interpreted against the drafter of the contracts.

Against this backdrop, here’s the question your credit union should be grappling with.  Should our account agreements include clauses mandating that member disputes be settled through arbitration?  Arbitration is not without cost and for smaller credit unions that don’t face the threat of expensive litigation, arbitration clauses might not make sense.  But for larger credit unions, arbitration should certainly be a serious consideration.  As readers of this blog know, class action law suits alleging that credit unions have engaged in wrong doing from improperly disclosing overdraft requirements to not properly handling account restraints are becoming more and more common.  As members become willing to sue their own credit union, credit unions have an obligation to take the steps necessary to protect their resources.