Does Your Deposit Agreement Contain an Arbitration Clause?

March 15, 2021 at 8:57 am Leave a comment

If your answer to that question is no, then my next question is why not?  Let’s face it, the world is changing.  Members are more willing to sue you than they were just 15 years ago; more lawyers have become skilled at cost effectively bringing class action lawsuits over alleged violations of consumer banking orders; and, as credit unions grow, they also become bigger litigation targets.

In many ways, now is an ideal time to be considering the issue.  The law now firmly establishes the right of credit unions and banks to include arbitration provisions in their account agreements.  For instance, just last week a court upheld the legality of a credit union’s amendment to its deposit agreement stipulating that members agree to arbitrate disputes arising under the agreement and to waive participation in class action lawsuits.  The credit union’s victory reflects increasingly settled law in this area.  I just popped in the words arbitration agreement/class action/credit union into Westlaw and it came back with 85 cases, many of which have been decided within the past year.  Secondly, a rule promulgated by the CFPB banning class action arbitration charges was repealed by Congress and President Trump, albeit after a 50-50 vote in the Senate.

Equally as important, the Supreme Court has made it quite clear that state courts have very narrow grounds upon which to invalidate arbitration clauses.  “Simply put, even though contract law is governed by state law, the Federal Arbitration Act demonstrates a strong federal commitment to ensuring that individuals have the right to arbitrate disagreements.” DIRECTV, Inc. v Imburgia, 577 US 47, 136 S Ct 463, 193 L Ed 2d 365 [2015]

Those of you who decide to go forward with these clauses shouldn’t just run a Google search and cut and paste language into your agreement.  Many arbitration clauses give your members a certain number of days to opt out of the class action ban and always clearly explain precisely what these agreements do.  Otherwise, you are engaging in precisely the type of activity which the courts will find the contracts unenforceable. 

Last, but not least, arbitration agreements and account agreements are only valid to the extent that members were given adequate notice of the language.  Your attorney should review cases in which courts found that members received adequate notice.  One more thought, some credit unions are reluctant to incorporate arbitration agreements because it just doesn’t seem like a credit union-y thing to do (hey, I just invented an adjective).  But remember, suing the credit union isn’t a particularly credit union-y thing to do, either, but with potentially millions of dollars at stake, there are going to be plenty of members willing to do so on issues ranging from NSF fees to overdraft disclosures.  Why wouldn’t you take basic steps to cut them off at the pass?

Entry filed under: Federal Legislation, Legal Watch. 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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