If the constant threat of ADA suits wasn’t enough, credit unions now have another potential legal hassle to worry about.
Attorneys at the Southern California-based law firm Marlin & Saltzman, LLP have set up a website called Credit Union Class Action and are seeking credit union members who have been charged overdraft fees for insufficient funds related to debit card usage with the hopes of garnering enough of a response to put together a class-action suit. While sources say these attorneys are also going after bank customers, the site specifically seeks credit union members, and those behind the site have been using targeted ads on social media in their search for potential plaintiffs.
“We don’t condone this approach — this is better handled, frankly, by regulators with the power to do so,” said Ryan Donovan, chief advocacy officer with the Credit Union National Association, speaking during a recent CUNA press call. That sort of fishing, he noted, is “unfortunately not illegal but also a common tactic.”
Credit union trade groups said they learned of the matter within the last month or so and are urging credit unions to work with staff and vendors to ensure their overdrafts are compliant. But they were also quick to point out that Marlin & Saltzman is believed to be just one of a handful of firms pursuing similar cases. Earlier this year, CUNA, CUNA Mutual Group, the National Association of Federally-Insured Credit Unions and others filed an amicus brief with the 11th Circuit Court relative to an overdraft case, regarding model forms under Reg E and whether that regulation mandates any particular way of ordering transactions.
In a bit of unfortunate timing, the issue arises as credit unions have seen a surge in overdraft revenue while banks are seeing declining overdraft income, largely because banks are shedding single-service customers only interested in checking accounts.
While it’s unclear how many credit unions have been impacted at this point, the number appears to be fewer than a dozen, with NAFCU reps noting they’ve only heard from one or two CUs so far. Carrie Hunt, EVP and genral counsel at NAFCU, noted that one credit union has actually already been sued by this same law firm and had the case dismissed because the statute of limitations had expired.
“This isn’t necessarily new, though it is new that this law firm is pushing for a class-action lawsuit,” said Hunt.
Representatives from Marlin & Saltzman did not return calls from Credit Union Journal seeking comment.
The trade associations’ strategy for now is merely to alert credit unions to the problem so that if a CU receives some sort of demand letter it can be ready to work with counsel as it would in any other legal situation.
“Credit unions saw a whole slew of litigation relative to patent trolls and we have all of the ADA suits,” noted Hunt. “Unfortunately, we’re in a litigious society and credit unions being sued on various things — even typical things like collections — is pretty run of the mill. Just like any other case, credit unions [that may see demand letters from related to overdrafts] are going to have to look at what’s being alleged, how they run their overdraft program, and do an assessment as to whether or not they think there’s any sort of cause of action, and potentially decide to litigate or settle the case — if it even goes that far.”
‘The cost of doing business’
The potential for class-action overdraft suits comes as credit unions continue to fend off wave after wave of legal challenges related to alleged non-compliance with the Americans with Disabilities Act. But despite similarities — a small number of law firms phishing for CUs that might be non-compliant and can be targeted for a law suit — CUNA and NAFCU reps were hesitant to draw too many comparisons between the two.
“Like ADA, this is another reason to go after credit unions for issues that may not even be a lack of compliance with the law,” observed Elizabeth Eurgubian, CUNA's deputy chief advocacy officer.
NAFCU’s Hunt also noted that potential Reg E violations that could lead to overdraft suits haven’t hit nearly the same level as alleged ADA violations, in which credit unions in more than 25 states have been targeted.
“Anyone who watches TV past 11 a.m. at night will certainly see that attorneys have always advertised or are potentially fishing for causes of action and plaintiffs,” she said. “Typically we see it in medical situations where ‘Did you work in asbestos?’ or ‘did you have an IUD that you had a problem with?’ … This is just a version of that in the financial services space…we fought very hard under Reg E and overdrafts for there to be a model that allows credit unions to be in compliance with Regulation E, because that gives some level of protection. Litigation is a real issue; it costs credit unions time and money, but in the society we live in, it unfortunately is the cost of doing business.”
In spite of that, the end game remains unclear — in part, sources say, because the issue of the problem is unclear. Whereas ADA cases revolve around a lack of guidance, these cases vary more.
“Some of these causes of action are specifically relative to contract claims, so they’re arguing that the account notices may not be clear,” explained Hunt. “It could be a very case-by-case situation where a financial institution is going to be amending its account agreements. If ultimately a court were to rule on a bigger issue, one of the issues we filed the amicus brief on in the 11th circuit was relative to whether credit unions were allowed to order transactions in a certain way. If the issue were to be decided by a court that went further than a case-by-case basis, then potentially we’d have to go back and see if regulation relative to overdrafts needed to be changed, or if it was a statutory issue we’d need to go back to Congress.”
In the meantime, trades continue to push to make CUs aware of the issue and defend them when necessary.