Posts tagged ‘class-action lawsuits’

Does Your Deposit Agreement Contain an Arbitration Clause?

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  Secondly, a rule promulgated by the CFPB banning class action arbitration charges was repealed by Congress and President Trump, albeit after a 50-50 vote in the Senate.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?

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

Is Your Electronic Transfer Policy Unfair and Deceptive?

A recent case provides important guidance to your credit union regarding the Electronic Funds Transfer Act and corresponding language contained in your account agreements. Here Goes. 

A member opens up an account at your credit union and the following day uses the ACH network to make a $100,000 deposit. Your member is now seeking to bring a class action against your credit union for not immediately accruing interest on the deposit the day the money was transferred. Do they have a case?

Those are the facts recently analyzed by the US Federal Court for the Eastern District of New York in Cheng v. HSBC. For those of you who could find yourself the subject of a lawsuit, this case is the latest example of how previously hum-drum account issues have become hotter for high-stakes and often expensive litigation. And to those of you for whom a class-action lawsuit is not a primary concern, the case provides important guidance on what you have to disclose to your members under the Electronic Funds Transfer Act. 

When our Plaintiff in this case discovered that interest was not accrued on the account the day of the ACH deposit, he brought three separate claims against the bank. First that it breached the terms of its account agreement by not immediately accruing interest, secondly that it violated the Electronic Funds Transfer Act by not disclosing when interest would begin to accrue on ACH deposits, and finally that the bank committed a deceptive act under Section 349 of New York’s General Business Law.

First the good news. In an issue of first impression in New York, the court ruled the bank was not obligated to disclose when it would begin accruing interest for ACH deposits under the Electronic Funds Transfer Act, which requires financial institutions to disclose fees or charges for electronic transactions. Why? Because the court concluded that a fee or charge is a debit for a specific amount that is withdrawn from an account. Delaying when interest will begin accruing may result in a member having less money, but the financial institution is not taking money that would otherwise be available to the account holder. This is good news for those of us within the second circuit, but for those of you with credit unions outside of this area, at least one federal court in Massachusetts has reached a contrary result. But then again, these are the same people who root for the Boston Red Sox. So can they really be trusted?

Now for the bad news. As readers of this blog are well aware, your account agreements are contracts between you and your members. When analyzing how to interpret contracts, courts must first determine if the language is clear or is instead susceptible to more than one interpretation. The relevant language in this case stated that “electronic bank transfers may take up to four business days before it is credited to your HSBC account,” and more general language in the basic account agreement that “interest begins to accrue on the business day you deposit non-cash items.” The bank argues that this language, read together, clearly puts an account holder on notice that while you can expect interest to accrue on your account the same day as the deposit is settled, there is no guarantee the transfer will be deposited the same day it’s executed. The court agreed that while this interpretation is reasonable, it also agreed that a reasonable consumer could have an alternative interpretation that once an ACH transfer is executed, interest should begin to accrue. The next time you’re reviewing updates to your account agreements, make sure you close this loophole. As a result of this ambiguity, the contract claims were not dismissed.

Finally the court ruled that, as drafted, a jury could find that the bank’s contractual language amounted to an unfair and deceptive practice. 349 is becoming a potent weapon used against banks and credit unions. Remember, it is no defense to this statute that your credit union is federally chartered.

January 27, 2021 at 9:50 am Leave a comment

Does My Credit Union Properly Explain Its Overdraft Policy?  What State Laws Are Preempted? And What The Heck Do These Two Questions Have To Do With Each Other?  

These are two of the most important questions with which credit unions have to grapple.  Preemption has come to the fore as federal credit unions weigh how to respond to state level laws and regulations on issues ranging from fee waivers to mortgage forbearance.  Meanwhile, one of the most common class action lawsuits over the last four years involves variations on the claim that credit unions and banks are not properly disclosing their overdraft practices.

As luck would have it, there is another recent decision  which gives me an opportunity to provide guidance on both of these issues.  As painful as it is to me to admit, you have better things to do than read my blog all day.  I will talk about the overdraft issue today and the preemption issue tomorrow.

As readers of this blog know, in order to charge overdraft fees on debit card transactions you must first get a member to affirmatively opt-in to receiving the service and properly disclose the conditions triggering an overdraft charge.  In a nutshell some credit unions determine whether an account is overdrawn based on the amount of money in the account at the time the transaction is authorized by the member while others determine whether an account is overdrawn at the time the transaction is settled.

Plaintiff attorneys have scrutinized account agreements and brought lawsuits claiming that financial institutions are either mischaracterizing how they determine when an account is overdrawn or engaging in unfair and deceptive practices because of these vaguely written disclosures.

In refusing to dismiss the most recent case, the court explained that a jury could conclude the credit union’s account agreement is too vague.  Specifically the court noted that:

The Contract does not use the terms “authorization” or “settlement” to help explain when an overdraft fee can be imposed, it does not link the concepts of authorization or settlement to the mechanics of when an overdraft fee is assessed, and it does not provide examples showing how a consumer could incur an overdraft fee at the time of settlement.

One of the few good things about all of this litigation is that we are now getting pretty good guidance as to what constitutes acceptable language.  Your assignment for today is to take a look at the decision of Chambers v. Nassau Federal Credit Union (U.S.D.C. September 21, 2016).  This is perhaps the leading example of how financial institutions should properly disclose their overdraft policies.  If your credit union’s policy does not comport to this language, give your attorney a call.

One more point which has nothing to do with this specific case…  I know everyone is looking to save money and cut costs, but many credit unions are too large not to use a third party to prepare, scrutinize and update your account agreements.  Your agreements are sophisticated contracts that deal with an increasingly sophisticated and varied range of laws and services.  Your members might be the nicest people in the world, but there are people out there who make a living out of spotting mistakes in your agreements and making your credit union pay the price.

May 21, 2020 at 11:13 am Leave a comment

When common sense and trial lawyers collide

The Credit Union Journal is reporting that at least some consumer groups are starting to come out against H.R. 4367, a proposal that would end the federal requirement that banks and credit unions post ATM fee signs near ATM machines. 

Since consumers will still have to give a thumbs up or thumbs down to accepting ATM fees before withdrawing money, it is not as if they won’t continue to have the disclosures they deserve.  I know I am preaching to the converted on this one, but the morphing of a well-intended statute into a trip wire for class-action litigation underscores why we not only need to get this bill passed but why a broader look at class-action litigation is well overdue.  Here’s why.

First, to sue under the Electronic Funds Transfer Act, a consumer doesn’t even have to show she was harmed by a credit union’s failure to disclose.  As anyone who will watch the Thunder beat the Miami Heat tonight knows, a foul can be called on almost every play.  The real issue is whether anyone got an advantage as a result of violating the rules.  But when it comes to these disclosures, it is ridiculous that someone who was not even charged an ATM fee can go into court and demand reparation.  But that is the way that Congress wrote the law. 

Anyway, the statutory damages don’t seem all that large, do they?  Well, they really don’t until the “harmed member” becomes the lead plaintiff in a class-action law suit representing all those individuals who may have been harmed by a financial institution’s misstep.  The lead plaintiff may walk away with more money than others in the putative group, but most people have better things to do than sue over the fact that they got money out of an ATM.  The real winners are the plaintiff’s attorneys, who get a disproportionate share of the pot and usually get the defendant to pay the legal fees.  And we’re not exactly talking expensive and time consuming litigation here.  The complaints are so generic and the issue so straightforward that any first year law student with access to Google could file a credible complaint. 

Consumer groups argue that it is the fear of class-action lawsuits that forces financial institutions to comply with esoteric but important disclosure regulations in the first place.  Fair enough.  But where a consumer can show no harm, and a statute already provides adequate protection to ensure that they know what they are doing, what value does a lawsuit bring other than to the plaintiff’s bar?



June 19, 2012 at 7:46 am 1 comment

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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