Circuit Court decisions protect Credit Unions from ADA claims

A recent decision from the Court of Appeals for the 7th Circuit further closes the door on attempts to bring class action lawsuits against credit unions for alleged ADA violations involving their websites. I’m going to delve into the legal weeds on this one, because the decision does a good job of explaining why field of membership restrictions make it so difficult to bring these lawsuits against credit unions when it comes to ADA website compliance.

As readers of this blog know, credit unions across the country have either been sued or threatened with lawsuits in recent years claiming that their websites do not comply with the Americans with Disabilities Act. Many of these lawsuits have been brought by the same attorney based in California and typically involve a single vision impaired individual who alleges that he or she is unable to utilize the website even though software is available that allows them to do so.

 Although, similar lawsuits have been brought against other industries, this litigation raises unique issues for credit unions when it comes to the question of standing. I talked about this issue in previous blogs. It means that before someone can sue an individual in federal court, they must be able to demonstrate that they have been harmed by the allegedly illegal conduct. When attorneys first analyzed these lawsuits, the  obvious way of trying to get these cases dismissed was to point out that the plaintiffs who brought these cases typically did not qualify for membership in the credit union they were suing. This was the situation in Carello v. Aurora Policemen Credit Union recently decided by the 7th Circuit. As the court explained, the plaintiff “is not eligible for, nor has he expressed any interest in membership in the credit union.”

So was he just wasting the court’s time? No, because there was another potential way for him to establish standing. I have always felt that this alternative argument was the strongest one for the plaintiffs  which is why this decision is so significant. The plaintiff claimed that he is a “tester,” meaning he visits websites for testing compliance for the ADA. Tester standing has an important history in American jurisprudence; it has allowed plaintiffs to bring civil rights actions against discriminatory conduct based on the harm to a person’s dignity caused by a violation of the law. In this case, Carello claims that he suffered such harm by being unable to use the website to the same extent as non-disabled individuals.

 The court rejected this argument. It reasoned that field of membership restrictions placed on the credit union pursuant to state law once again saves the credit union from the lawsuit. In this case, the field of membership restrictions “erected a neutral legal barrier to the  plaintiff’s use of the credit union’s services. Although, the website may have frustrated him, non-disabled persons would also be denied standing to sue the credit union if they were not eligible for membership. The courts’ holding is similar to a recent decision of the 4th Circuit granting a motion to dismiss by the Department of Labor Federal Credit Union.

Neither of these decisions nor others that have addressed the issue of standing for the proposition that the ADA does not apply to websites. A vision impaired member of this credit union would presumably have standing to sue over an ADA violation. But on a practical level, these decisions make it impossible for plaintiffs’ attorneys to bring class action lawsuits. Meaning, that there isn’t all that much money to be made by threatening litigation.

Which brings us to my opinion and my opinion alone: Those of you who haven’t made your websites ADA compliant should take the time to do so, provided it can be done cost effectively. Sooner or later, you will have to do so as a matter of law or regulation. Besides, as your members age, it simply makes good business sense.

 

August 7, 2019 at 11:54 am Leave a comment

Will Your Credit Union be Providing Real Time Payments by 2024?

It’s Possible, just Possible, that yesterday marks a key development in how people send and receive payments. If I am correct then this is a change that will help all consumers and  all businesses, as well as all credit unions and community banks that will be able to compete with the banking behemoths in the years to come.

Yesterday, if all goes according to plan, the Federal Reserve committed itself to implementing a real time payment system by 2024. That’s right by 2024 all credit unions and banks irrespective of their size and location will be able to clear checks, debits and credits instantaneously. 7 days a week, 24 hours a day, and 365 days a year.

Why is this such a big deal? Do I really have to tell you? As the Fed put it yesterday in an FAQ and a Request for Comment accompanying its announcement “Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” said Federal Reserve Board Governor Lael Brainard. “FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.” The Fed also noted that even though it was using the term bank it intended to give credit unions  access to this platform.

Just as my kids examine  dilapidated phone booths as if they were  examining relics of an ancient  civilization   or look at me quizzically when I talk about buying CD’s to play music, I predict  that in about 8 years a younger generation will shriek at horror at the notion that you had to deposit a a $10.00 paper check from your grandmother and wait for it to clear, provided that you got it to the bank before it got stale dated. This is a grossly inefficient system which hampers liquidity, hampers the growth of small business and makes life that much more difficult for the sizable number of Americans living paycheck-to-paycheck.

The Feds announcement is also crucial to credit unions. The big guys have already joined together to create such a platform. The Feds commitment to a quasi-public platform will ensure that community banks and credit unions will be able to provide this game changing service to their members on a level playing field. This is why it is so important for credit unions and community banks to comment early and often on the Federal Reserve Request for Comment. In today’s American Banker the big guys are already grumbling that the Fed should stay in its lane and let the private sector continue to take the lead. Anyone who believes this line should reread The Three Little Pigs with their kids one night.

The announcement is also significant because it signals that the Federal Reserve is finally really committing itself to getting this country up-to speed when it comes to payments. This country is far behind other nations when it comes to harnessing technology to speed up our antiquated payment system. We are still trying to modernize a payment system that evolved at a time when the stage coach was cutting edge technology. In an era when companies like Apple have demonstrated for years how easy it is to facilitate electronic payments. In other words, the Feds announcement is way too late, but let’s hopes it actually leads to changes that help bring about a fundamental shift in the payment paradigm.

I actually think it will. A top priority for the industry should be to make sure that the FED makes yesterday’s announcement a reality as quickly as possible.

August 6, 2019 at 8:57 am Leave a comment

HUD to Propose Controversial Changes to Disparate Impact Regulations

HUD will shortly be proposing major revisions to a 2013 Obama administration regulation that would make it much more difficult for homebuyers to prove that mortgage lenders have discriminated against them. Don’t start changing your policies anytime soon the reality is that these changes will be hugely controversial and will be challenged in court quicker then Christina El Moussa from Flip or Flop can get divorced, find a new husband, and start another show. Trust me she’s quick.

The draft was provided to politico and has not been formally proposed in the federal register.

Title VII of the civil rights act prohibits discrimination in the sale or rental of housing on the basis of race, color, religion, sex, disability, familiar status or national origin.The Department of Housing and Urban Development has responsibility for promulgating regulations to enforce this statute. Under the statute, intentionally discriminating against someone is clearly illegal. So, for example a lending policy, under which a bank or credit union explicitly does not provide loans to African Americans who live in certain communities, would be a slam dunk case of intentional discrimination. But, what happens in the case of a lending policy or procedure which negatively impacts protected classes for  legitimate reasons. For example, if your credit union decides to raise the minimum credit scores for mortgage applicants it will by definition exclude individuals who would have otherwise qualify for a mortgage loan. It may even disproportionally impact minorities within your field of membership.

In 2013, HUD promulgated disparate impact regulations. Under the current approach the plaintiff must prove that a challenged practice caused or predictably will cause a discriminatory effect. If this burden is met the lender then has the burden of proving that the challenged practice is necessary to achieve one or more substantial and legitimate non-discriminatory purposes.

If HUD goes forward with this new proposal it will be more difficult for plaintiffs to prove discrimination based on the impact of a lenders practices. Under the proposed changes plaintiffs seeking to prove disparate impact discrimination will have to prove five elements. Plaintiffs would be obligated to prove that the challenged policy is “arbitrary artificial and unnecessary to achieve a valid interest or legitimate objective.” Only if this standard is met would a defendant have the obligation to demonstrate why the policy is legitimate. Second, the plaintiff would have to allege that there is a “robust causal link between the challenged policy or practice and the disparate impact;” thirdly plaintiffs would have to allege that the challenged policy or practice has an adverse effect on members of a protected class, presumably meaning that plaintiffs cannot prove discriminatory impact based on the experiences of a few individuals. Fourth, the plaintiffs would have to prove that the disparate impact is significant. Finally, plaintiffs would have to show that there is a direct plausible link between the alleged injury and the challenged practice.

 The bottom line is that if these regulations are implemented as proposed it will be extremely difficult for plaintiffs to bring discrimination claims on the disparate impact theory.

 

August 5, 2019 at 10:09 am Leave a comment

New York Flexes its Regulatory Muscle

Hardly a day goes by lately without New York flexing its regulatory muscle. Yesterday, the Department of Financial Services and the Attorney General sued Vision Property Management for alleged violations of federal lending laws, illegally evading state licensing requirements, and engaging in unfair and deceptive practices. The actions of the Attorney General and Superintendent Lacewell are noteworthy; not because credit unions engage in the despicable conduct outlined in the complaint (they don’t), but because it underscores the aggressive posture New York is taking to fill in perceived gaps in federal enforcement of consumer lending laws.

According to the complaint, Vision Property Management has bought distressed properties and then leased them to home buyers for more than a decade. The complaint alleges that the company uses a lease-to-own framework under which it deceives consumers into thinking that they are buying a house, in fact they are entering into high interest lease and can be quickly evicted without the protection afforded by New York’s foreclosure laws. The South Carolina Company also never got licensed to provide mortgages in New York State. This is one of the highest profile licensing actions I have seen the state take against financial institutions.

 Loan Servicer Regulations Release

The Department of Financial Services also published proposed regulations in the state register detailing the obligations of student loan services. Credit unions are exempt from the state’s new licensing requirements for student loan servicing, but should make themselves familiar with these requirements. On that note enjoy your weekend.

 

 

August 2, 2019 at 9:18 am Leave a comment

Three Take-Aways From The CapitalOne Data Breach

Unless you live under a pineapple in Bikini Bottom you know that Capital One isn’t the only one that wants to know “what’s in your wallet”. The major issuer of credit cards has been victimized by a data breach, perpetrated by an ex Amazon employee, which has exposed more than 100 million credit card and account applications to potential misuse. As we all know these numbers always tend to increase over time.

Since you have both a legal obligation to respond to the latest cyber security developments and because you might as well learn from Capital One’s misfortune. Here are some of the take-aways for you to consider:

  • What data are you keeping? For how long? For what reasons? The more experience I gain in this area of the law the more I believe that record retention is actually one of the most challenging frameworks for your institution to implement. That being said, if press reports are accurate then some of the information which has been exposed includes credit card applications more than a decade old. I have some pretty smart compliance people that read this blog and if anyone can give me a good reason for holding onto this information for this long, please let me know what it is. In addition, when you look at both regulations and best practices you have a legal obligation not to hold data longer then you need it. For example, NY State’s cybersecurity regulations mandates that you have a policy specifically addressing the maintenance and destruction of data.
  • The Cloud is not without its risks. There is a perception that anything in the cloud is safer than it would otherwise be stored away on servers in your back office. After all what could be safer then floating on a puffy white cloud on a beautiful summer day. CAPOne was in the forefront of cloud based computing. News flash people the Cloud is nothing more or less than a massive amount of servers maintained by huge companies such as Amazon, Oracle, and Microsoft. These servers provide you with the convenience of offloading the need for much of your IT infrastructure in return for a fee. What this means is that your data is only as safe as the least trustworthy employee of your cloud service provider. It must not be exactly comforting to Capital One to know that the allege mastermind was a former Amazon employee who chose the online handle erratic when bragging about her exploits online.
  • What’s in your contract? Which bring us to the conclusion that your best protections are the ones that you put into your vendor agreement. While I will always argue that you should always review your contract terms and request changes. If only to demonstrate to your examiner that you understand the important role contracts play in proper vendor management. The reality is that because most cloud services are offered by huge companies, your negotiations will probably be unsuccessful. I have reviewed contracts from Oracle and Amazon recently and sufficient to say that you legal redress in the event of a data breach on the cloud is limited.

Fed Lowers Interest Rates

At the conclusion of its two day powwow the Fed’s Open Market Committee decided to cut interest rates by a quarter of one percent. The move underscores the strange economic times we continue to live in; after all can you imagine Alan Greenspan cutting interest rates with unemployment at historically low levels? According to the chairman, a rate cut this late in an economic expansion isn’t all that unusual and shouldn’t be viewed as a signal that future rate cuts are necessarily coming anytime soon. This of course confounded the captains of industry in Wall Street who were already penciling in multiple rate cuts in the coming months. President Trump was not amused.

August 1, 2019 at 9:42 am Leave a comment

CFPB Prepares For A Post-Patch World

What do the “Mortgage Patch” and Brexit have in common? More than you might think, and that is not good for anyone in favor of pragmatic politics and commonsense.

In June of 2016 the British people voted to leave the European Union. The assumption was that three years was more than enough time to negotiate an orderly transition for both Europeans and the British. After all, no one would want to suffer the consequences of a disorderly break-up, right? Well, this morning the British pound is at its lowest value relative to the dollar since the mid 80’s and the British now have a Prime Minister determined to leave on October 31st with or without a deal.

Meanwhile, the CFPB fired a shot across the bow of the mortgage industry last week when it issued an Advanced Notice of Proposed Rulemaking (ANPR) indicating that it would allow the mortgage patch to expire in 2021, albeit with a brief extension. The momentum is building for a crash that no one wants but no one seems willing or able to avoid.

As I explained in this previous blog, mortgages sold to Fannie or Freddie automatically qualify as qualified mortgages. This designation is crucial because the criteria that the GSEs use in determining whether or not to purchase mortgages is much less restrictive then the alternative criteria established by the CFPB. This is one of the major reasons why the country’s mortgage lending industry has become more, not less, dependent on the GSEs since they were placed in conservatorship at the start of the mortgage meltdown.

The catch is that the patch was always intended to be temporary. It was to last no longer than the GSEs were replaced or January 10, 2021 – whichever came first. At the time, no one gave much thought to this deadline. Surely, a country coming to grips with the consequences of an out of control mortgage lending industry would quickly move to restructure its secondary market, right?

Alas, here we are and we are no closer to agreeing on an alternative to our existing secondary market structure then we were 8 years ago. What’s more, the fate of the GSEs has ossified into one of those ideological redline issues in which no member can compromise without running the risk of being branded an ideological apostate and castigated on Twitter.

The press release issued by Director Kraninger that accompanied the ANPR was clearly intended to signal that she was prepared to experiment with a post-GSE world unless policymakers come up with any better ideas. .She explained that “the national mortgage market readjusting away from the patch can facilitate a more transparent, level playing field that ultimately benefits consumers through stronger consumer protections.”

Which brings us back to our forefathers in Great Britain. True believers in Brexit now argue that the consequences of leaving the European Union without a deal will be more than offset by its free market benefits. Similarly, there are people of good faith who sincerely believe that a mortgage market devoid of government subsidized mortgage buyers would ultimately benefit consumers. Both of these groups might be right, but neither of these seems like a risk worth taking or one that the majority of people want to see. Still, Brexit is right around the corner, and 2021 isn’t all that far away.

July 31, 2019 at 10:13 am Leave a comment

Three More Changes to Make to HR Handbook

Good Afternoon Folks, Sorry for the delay but the morning got away from me.

As much as I would love to dedicate space to the disclosure of the CapitalOne data breach I still have to get you updated on some HR bills signed by the governor recently that will have a direct operational impact on your credit union (I feel like I’ve been saying that a lot lately because frankly I’m not aware of any legislative session that has had a more direct impact on your business).

The most important bill for you to know about is A. 5308B any person who handles job interviews in your credit union should be made aware of this measure and be prepared to deal with its consequences. It prohibits employees from seeking, requesting or in any way requiring an applicant or current employee to disclose their salary history as a condition for being interviewed, this extends to potential promotions as well. In contrast a job applicant or current employee may voluntarily and without prompting disclose their salary history including for purposes of negotiating a salary.

An employer may confirm a person’s wage or salary history following a job offer the applicant or current employee responds by detailing their wage or salary history. It takes effect early next year

The second new measure that I wanted to tell you about further increases the scope of NY anti-discrimination laws S.6209-A sponsored by Senator Bailey makes it illegal to discriminate against a person based on their hair style when such hair style includes traits historically associated with race. Such as hair texture, braids, locks, and twists. It took effect when it was signed by the Governor on July 12.

Finally, S.5791 sponsored by Senator Ramos makes it illegal to threaten or penalize an employee based on his or her suspected immigration status. This prohibition extends to threatening to call government authorities. This bill takes effect on October 25th.

This goes without saying to you HR professionals out there that each one of these changes will require adjustments to your HR policies. On that note stay cool and enjoy the day. Remember personally I would take this weather over a snowy 5 degree day in February any day of the week.

July 30, 2019 at 11:38 am Leave a comment

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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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