By Ray Birch
ROYAL-OAK, Mich.—When a credit union faces a lawsuit over its overdraft practices, should it fight or settle?
That can be a tough question to answer, as many experts have told CUToday.info following a wave of what are typically class action suits that have targeted credit unions in recent years. But one lawyer who helped a credit union recently successfully defend against a class action overdraft fee suit said taking a stand and fighting in court can be a successful path if the CU has carefully and regularly reviewed its overdraft agreements, policies and procedures.
Brandon Wilson, partner at Howard & Howard here, recently represented $1.2-billion Y-12 FCU, Oak Ridge, Tenn., in a fee case that was quickly dismissed.
“We moved to dismiss the complaint right out of the blocks,” said Wilson. “We got a hearing in the Anderson County Tennessee Circuit Court and the judge was convinced that the credit union's account agreement was clear, that the credit union was acting In accordance with it’s account agreement and that the plaintiff didn't have a claim.”
The Nashville, Tenn. law firm of Branstetter, Stranch & Jennings, PLLC, argued plaintiff Daphne Saunders was “unlawfully” assessed “multiple NSF fees on a single item.” The plaintiff's counsel argued the credit union’s overdraft agreements and policies regarding NSF fees are not clear and are “deceptive.”
A Key Argument
“That was the essence of the plaintiff's argument, that the credit union is not being clear about its NSF fee processes and therefore the plaintiff, as well as other credit union members, don't understand how and when they will be charged NSF fees,” said Wilson.
As CUToday.info has previously reported, Wilson noted there are just a few law firms in the U.S. that have been responsible for filing the majority of the overdraft class action suits hitting financial institutions.
Those law firms have included Indianapolis-based Cohen & Malad, Tycko & Zavareei LLP in Washington, McCune Wright LLP, based in Redlands, Calif., and Franklin D. Azar & Associates.
Brandon Wilson
“It's kind of the same in every one of these cases,” explained Wilson. “Basically, what the plaintiff's lawyers do is they look at the account agreement and they start parsing words…looking for ambiguities In the account agreement about what the credit union does in overdraft and NSF situations. Again, the credit union won in this case because the judge determined that the credit union’s agreement was clear in telling its members when and how NSF fees will be charged.”
The Bottom Line? The Bottom Line
Wilson acknowledges that fighting or settling often comes down to a decision regarding money—how big is the potential liability and how much will it cost to defend, considered with the chance of winning in court.
“In the class action cases it’s often $5 million to $15 million in potential liability depending on the institution,” Wilson said. “Sometimes it makes sense to settle and avoid the time and expense of litigation. But other times it doesn't. In the case of Y-12 we looked at their account agreement and felt strongly that Y-12 had been very clear in telling its members about how and when NSF fees may be charged. So we decided to fight.”
Howard & Howard has represented numerous credit unions faced with similar overdraft suits, according to Wilson, who believes the tide is now turning in the favor of credit unions in OD lawsuit decisions.
“In the first wave of these suits several years ago, courts seemed to be siding with plaintiffs,” he said. “It wasn't a very favorable landscape. But we're now seeing a lot of favorable case law in this latest rash of overdraft suits.”
No Letup Expected
Wilson, however, also does not believe the trendline will deter law firms from seeking more opportunities.
“I don't see this slowing down because class action litigation has become so prevalent and lucrative,” Wilson said. “One thing I tell credit unions until I am blue in the face is to have their account agreements and procedures reviewed on at least an annual basis. I think as more credit unions figure out they’ve got to stay on their toes with compliance, we will see a slowdown in these kinds of cases.”
The Key Claims
NAFCU Vice President of Regulatory Compliance Brandy Bruyere, in a previous CUToday.info report, outlined key elements/claims in the OD suits against many financial institutions:
- Violations of Regulation E, even where a credit union utilized the rule's model form
- Assertions that the account agreement was violated when the account balance was calculated inappropriately and fees were assessed
- Multiple state law claims
"More recently, the Regulation E claims are not as frequently seen in these cases," said Bruyere. "This may be in part because the Electronic Funds Transfer Act, which is implemented by Regulation E, only allows one year for bringing a claim to court."