Time for the Arbitration Talk

September 3, 2019 at 9:46 am Leave a comment

It’s time to sit everyone down and have “The Talk.”

I’m bringing this to your attention because of an article in the American Banker (subscription required) detailing the travails of a New Jersey pastor who was falsely accused of passing fraudulent checks by- who else- Wells Fargo. The misidentification of the pastor was quickly resolved, but when he went to sue the bank, he discovered that he would have to arbitrate his dispute.

While I empathize with the pastor’s plight, everyone reading this blog has an obligation to balance consumer needs against fiscal and legal realities. I have been doing my annual review of cases in preparation for next week’s legal and compliance conference (again, shameless plug) and, whereas the difficulty used to be finding enough cases to talk about, now the challenge is deciding what cases to exclude. The leading culprit in this explosion in litigation against credit unions is class action lawsuits claiming violations of account agreement disclosures. Another factor fueling the rise in litigation is that employees seem much more willing to sue their employers than they used to be, particularly in a state like New York, which adds so many protections to the federal baseline.

Given this reality, it’s time to call up your outside counsel and have a discussion about the costs and benefits of integrating an arbitration clause into your account agreement, and even into your employee handbook. Both Congress and the courts have given employers and financial institutions the green light to use arbitration clauses. Congress took the unusual step of voting to repeal CFPB regulations banning arbitration clauses, which banned class action lawsuits. And last year, the Supreme Court issued the latest in a string of cases emphasizing that the Federal Arbitration Act should be expansively interpreted, and understood as preempting state laws which try to limit its impact. Lamps Plus Inc. v. Varela upheld the enforceability of an arbitration clause in an employee handbook against a challenge that it was too vaguely written to be enforced.

To be clear, arbitration clauses don’t make sense for all credit unions. For example, if you’re more likely to be sued in small claims court than you are to be made subject to a class action, then including an arbitration clause in your account agreement may actually increase the amount of member litigation you have to deal with. In addition, your employees may not respond well to having to agree to arbitration clauses as a condition of employment. But given the state of the law, your credit union should at least be having a conversation. From a strictly legal standpoint, arbitration makes an awful lot of sense.

New York extends Wild Card provisions for another five years

                Legislation extending existing law is the lobbying equivalent of getting a new roof on the house; it’s something that has to be done, but it does not generate all that much excitement. Nevertheless, let’s not underestimate the importance of news that Governor Cuomo has extended New York’s Wild Card provisions for another five years.

The Wild Card law permits state chartered financial institutions to apply to the State’s Department of Financial Services for permission to exercise a power which a federally chartered institution has, but which state charters do not. It was originally passed in 1996 to aid banks, and was extended to credit unions in 2007. In recent years, it has played a crucial role in enticing federally chartered credit unions to look at the state charter. Aside from some of the specific powers which have been authorized under the legislation, it signals to federally chartered institutions that New York wants their business, and is willing to talk to them about minimizing the paint points of a conversion.

On another note, the Governor has approved legislation dealing with the creation of a state task force to provide the Governor and Legislature with information on the “effects of the widespread use of cyber currencies” in New York State. The task force will have a year to submit its findings. A great place for it to start would be to review the findings of a multiday hearing that the DFS held several years ago, examining cyber currencies. It was this hearing which led to the creation of New York’s cyber security licensing framework.

Entry filed under: HR, Legal Watch, New York State, technology. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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