NEW ORLEANS—Don’t expect the wave of class actions lawsuits against credit unions to recede anytime soon, say experts who warn CUs lawyers are zeroing in where they see for their “deep pockets.”
As CUToday.info has reported, the number of class action lawsuits against CUs has increased in recent years, first with Americans With Disabilities Act (ADA) lawsuits alleging website accessibility issues, and more recently overdraft claims. While the ADA suits have slowed, the overdraft cases have increased. In both cases, credit unions are seeing more of the litigation due to the fact they are growing, explained Bruce Jolly, partner at Reed & Jolly PLLC.
Saying banks had previously been the bullseye among FIs when it came to class action suits, but now CUs are in the sights of law firms seeking quick money.
‘What Can I Sue You For?’
“Credit unions have been definitely discovered by these lawyers; they see you as having deep pockets,” said Jolly, who was part of a panel group discussing class action lawsuits during NAFCU’s Annual Conference. “You are large enough now where plaintiff’s lawyers are looking at you and saying what are you doing wrong, but more so, what can I sue you for.”
Meredith Ritchie, general counsel and chief ethics officer at Alliant CU in Chicago, said class action litigation against CUs is “here to stay” and that credit unions should simply get used to the fact they are no longer off the radar of most attorneys.
“We’re going to just have to deal with this reality,” she said.
The panelists agreed credit unions are being forced to cope with lawsuits that are often based on “flimsy” allegations created in boilerplate fashion, from law firms that can be located thousands of miles from the credit union being sued.
Following Rules Not Enough
They also emphasized that following the rules and proper procedures may not deflect lawsuits, or even prevent an unfavorable decision in a courtroom.
“What we are seeing again and again with these law firms is that even if they see you are obeying the regulations, they say here is why we are suing you anyway. They are out there trolling. They are often saying, OK, you followed the regulations but you did it in an unfair manner,” said John Bredehoft, attorney at Kaufman and Canoles P.C., referring largely to overdraft suits.
Advice Offered
The panel offered advice on what CUs can do to help protect themselves.
“Make sure your disclosures are up to date,” recommended Ritchie. “That won’t prevent you from being sued but it will give you better odds of withstanding a suit. Challenge your business units to do this, and you will then be better poised and confident if something does come down the pike.”
Jolly emphasized working closely with the credit union’s product development teams.
“Make sure your compliance team is integrated into the new product development process,” he said. “That is where a breakdown often occurs. Someone has a great idea, but the compliance team can tell them it won’t fly due to a regulation.”
Bredehoft pointed out most of the class action cases never go to trial.
“I spoke with a judge who told me he had 30 class actions to address and they all settled,” Bredehoft explained. “The fact that these never go to trail leads many law firms to have claims based on the flimsiest of premises.”
Pushing Back
While encouraging credit unions to do their due diligence, Ritchie also urged them to fight back.
“It’s important that as a group we push back on these cases,” she said. “Let these law firms know we are not going to take this anymore. Maybe even file a claim of malicious prosecution or harassment against these firms. Push back, we don’t want to be victims.”
With ADA cases dying down somewhat and overdraft picking up, what else could be headed CUs’ way from the desks of lawyers? Jolly said to be careful with the use of Big Data. He cautioned CUs that improper use of member data could lead to breach of privacy claims.
“When Big Data is mentioned at the board level make sure you are paying attention and are asking the right questions,” he said. “Have something in place to make sure you are not violating the Fair Credit Reporting Act or Equal Credit Opportunity Act.”