By Ray Birch
WASHINGTON—It’s time for credit unions to be concerned about overdraft lawsuits, but not overly concerned, say analysts.
The experts said they don’t expect the potential wave of lawsuits to pose the same threat to the movement as the recent rash of ADA cases, but also said there are steps CUs can take to help avoid an OD suit.
As CUToday.info reported, credit unions could be facing a wave of class-action suits related to overdraft policies. Analysts who spoke with CUToday.info said increased litigation certainly seems likely given a new website specifically aimed at recruiting as plaintiffs credit union members who have been charged overdraft or insufficient funds fees on their accounts following usage of a debit card.
The site, CreditUnionClassAction.com, states: “Are you a credit union member? Have you been charged overdraft fees or insufficient Funds Fees On Your Checking Account? We are investigating several credit unions, including California Bank & Trust (which is not a credit union), Star One, First Technology Federal, Alliant, SchoolsFirst Federal, PenFed, and other credit unions, for engaging in potentially unfair business practices related to overdraft fees on accounts when a debit card is used.”
The site is run by the Southern California-based law firm Marlin & Saltzman, LLP. There is a reportedly a related social media marketing campaign to source potential plaintiffs as well, using ads on Facebook. These ads encourage consumers to contact the firm to discuss, with an aim towards filing class action lawsuits.
Ryan Donovan
Influencing Policy
Experts believe the overdraft cases will never match the number of ADA suits—now totaling in the hundreds against CUs—because lawyers are largely suing to influence overdraft policy and there also is OD lawsuit case history and clarity around overdraft guidelines.
As CUToday.info has reported, lack of clarity from the Department of Justice around website accessibility standards has opened the door for many of the ADA lawsuits that are hitting CUs across the country, which in turn is opening the door for attorneys to seek settlements.
“The important thing to keep in mind about these overdraft cases is that we are seeing consumer groups, finance attorneys, and in some cases state attorney generals trying to use the court system to advance their public policy goals,” said CUNA Chief Advocacy Officer Ryan Donovan.
The Perception
Donovan said that these groups are attempting to use the courts to sway public policy regarding overdrafts since the BCFP, under Mick Mulvaney’s leadership, is not as aggressive with enforcement actions as it was under the leadership of former Director Richard Cordray.
“The perception now on the part of a lot of consumer advocacy groups is that the BCFP won’t be as aggressive, so they are taking their case to court,” Donovan contends. “So this is a little different than the ADA situation, in that with the ADA lawsuits there is a clear gap in public policy and entrepreneurial finance attorneys are just trying to take advantage of that. The overdraft cases are fishing attempts—fishing to drive public policy, fishing to drive enforcement through litigation.”
Carrie Hunt
The good news, according to Donovan, is that the current number of overdraft lawsuits is small, in the single digits.
“We will see how this plays out. It’s still relatively early for these cases,” he said. “The lawyers are advertising for plaintiffs and they will certainly find the best cases possible to pursue. The fact that they have only pursued a handful of cases now is a good thing, but this is something credit unions have to be on the lookout for, no doubt about it.”
Not The Same Threat
NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt also believes the overdraft suits don’t pose the same threat as the ADA cases.
“Credit unions and banks have been facing overdraft litigation for years,” Hunt said. “I certainly think that the plaintiffs’ attorneys having a website for class action is new for overdrafts. But a website for class-action suits is very common and a typical tactic on the part of lot of these attorneys. We saw it during patent litigation and certainly with ADA mass litigation.”
What Hunt sees as being in credit unions’ favor, is legal precedent has been set from pervious overdraft cases and clear regulatory guidelines around overdrafts exist.
“The courts have been hearing overdraft cases for several years—there is more of a body of case law with overdraft suits,” she said. “And the Federal Reserve, and now the BCFP, have rules of the road specific to overdraft protection. So courts are actually interpreting regulations and looking at case law in these overdraft suits, whereas the ADA body of law is just not that established, and there is not regulatory clarity. Now that does not mean there are no issues that potentially need to be resolved with overdrafts, but I do think credit unions have more tools at their disposal should they get sued.”
Setting Up a Defense
Michael Moebs, economist and CEO at Moebs $ervices, which specializes in overdraft pricing and guidance, noted that overdrafts have always been subject to “nuisance suits since Truth-in Savings, Reg DD, went into place in 1993. Recently these nuisance suits have shifted to class-action suits. Whether individual or class action, these lawsuits are nuisances. However, this is not a threat to take lightly."
Moebs said his firm has worked with credit unions that have faced overdraft lawsuits, and shared advice.
“If your institution is the target of a lawsuit, move quickly. Of course, contact your attorney immediately,” said Moebs. “This is a cooperative effort—get your league or national association involved. Encourage your league to align efforts with the bank state and national associations. Also, payday lenders and their state and national associations will help out too. Partnering helps defeat nuisance lawsuits by exhibiting there is necessary resources to challenge and resist these erroneous claims.”
Lay The Groundwork
Michael Moebs
But Moebs insisted that credit unions should lay a groundwork for a defense long before they are sued.
“Put your CU’s game plan together before anything happens,” said Moebs. “Outline the who, what, when, where, why and how of your strategy.”
Moebs emphasized that credit unions should stop making “judgmental decisions” on overdrafts.
“Stop all overrides by loan personnel, sales personnel, and others,” he said. “Go to complete automatic decisioning and use the veil of Reg Z on automatic decisioning to protect you.”
Moebs said that overdraft price should be a focus, as well.
“If your OD price is more than $25 per overdraft, reduce the price as soon as possible to less than $25—or better, less than $20. A high overdraft price is often a target,” he said.
NAFCU’s Hunt said the rash of ADA lawsuits, and now a potential for a wave of overdraft cases, has become frustrating for the movement.
“Credit unions have to spend their time and resources to defend against these suits,” noted Hunt. “But the overdraft suits are different than ADA—these lawyers must seek real plaintiffs with real issues. It’s just a different set of facts. I am sure we will see an uptick in this litigation because that is the world we live in.”
