Overdraft Suits an Issue to Watch

(From CU Today) – The growing number of lawsuits, many seeking class action status, that continue to be filed against credit unions over their overdraft practices are evolving and growing more sophisticated.

The litigation shares something in common with the separate litigation alleging websites are in violation of the Americans with Disabilities Act (ADA), many of the suits are being filed by a small number of firms seeking CU members as plaintiffs.  The suits are targeting specific aspects of disclosures.

Both CUNA and NAFCU acknowledge the number of overdraft lawsuits against credit unions has been increasing, with both saying it’s an issue they are monitoring.

‘An Uptick Right Now’

NAFCU Vice President of Regulatory Compliance Brandy Bruyere said the increased threat in the last year is coming largely from a Washington, D.C.-based law firm.

“Overdraft lawsuits, as we know, have been going on for a while, but there is an uptick right now and it’s been over the course last year, and we are attributing that to a new firm active in this area, Kaliel PLLC,” she explained.

Bruyere said approximately one year ago the firm began a large social media campaign to attract plaintiffs for overdraft cases, filing complaints in New York and then in a few other states, most recently Maryland.

Some of the law firms that have filed overdraft-related lawsuits include Tycko & Zavareei LLP, Kopelowitz Ostrow, and Frank Azar, a personal injury attorney whose advertising uses the tagline “The Strong Arm.”

“We are keeping an eye on this and engaging as necessary, making sure all of our members know that this is not the same thing as the ADA website litigation,” said Bruyere.

As CUToday.info has reported, numerous credit unions have been targeted in a wave of OD lawsuits, including Navy Federal—which just settled a class action OD lawsuit for $24.5 million, Ent Credit Union, Alliant Credit Union, First Community CU, and more.

Bruyere emphasized these overdraft cases are not appearing with the same intensity as the ADA cases, adding NAFCU’s position is the overdraft lawsuits will not be filed with the same frequency as have been the ADA filings.

“But you can never be certain,” she added.

Filings Are More Sophisticated

Bruyere said the most recent complaints filed in the overdraft cases have been fairly well researched and assembled by lawyers, and include plaintiffs who are members of the credit union named in the suit. That contrasts somewhat with some of the ADA cases, many of which she said are often not deeply researched by law firms and having plaintiffs who are not even members of the credit union being sued. Many of those suits were dismissed for a lack of standing as a result.

“This firm is doing their homework, showing that these folks incurred either NSF or overdraft fees, in contrast to many ADA firms that are just painting the town red with the demand letters,” she said. “These are a little bit more carefully crafted pieces of litigation and are hitting on areas where they are claiming credit union overdraft contracts are not clear.”

Press releases issued by Kaliel PLLC and other firms announcing the filing of the suits have included quotes from the plaintiffs and paint credit unions as making millions of dollars from low-balance consumers and the vulnerable.

In the case of the most recent lawsuit, that filed against Chesterfield, Mo.-based First Community CU, a press release stated, “First Community Credit Union makes millions of dollars each year through the imposition of NSFs. These fees are by definition often assessed on consumers struggling to make ends meet…and often fall disproportionately on racial and ethnic minorities, the elderly and the young.”

Greater Disclosure Needed

Bruyere said credit unions typically rely on model forms and regulations for making disclosures about their overdraft policies, but they must go even further.

“But in addition to Regulation E, you also have your account agreements that set forth the terms of how the credit union will operate, including when will an overdraft fee be incurred should that person have opted into that program, or an NSF fee charged. A lot of these lawsuits put these two things together,” Bruyere told CUToday.info. “They are often claiming that the CU is not clearly defining what the available balance was, not clearly and specifically explaining what method would be determined to use the available balance…So what we are seeing from these cases is the credit unions are not, per se, doing something that’s prohibited, but there are attorneys who have had some success making the argument that the credit union’s contract isn’t clear.”

Two Paths

Bruyere said credit unions faced with similar suits have won on some motions, while others have preferred to settle.

“We’ve seen some credit unions lose motions to dismiss, so the next step is to settle, because then these cases get really expensive,” she said. “We have also seen some credit unions that have agreements that are more explicit and motions are dismissed.

“What this new threat is doing,” continued Bruyere, “is encouraging many credit unions to dust off their overdraft procedures and policies and take a hard look at their agreements in the space, often consulting with outside counsel, seeing what the litigation looks like and what the outcomes look like in the jurisdictions that they operate in. I call it taking preventive and protective steps. Maybe they decide there’s more ambiguity in their agreements than they thought and make adjustments.”

‘They Are Growing’

Alexander Monterrubio, senior director of advocacy and council at CUNA, also confirmed the number of overdraft lawsuits are increasing among credit unions.

“We’ve been watching these cases since early last year, and even beyond that,” said Monterrubio. “They are growing. Initially we saw a number of overdraft lawsuits, mostly focused on the western United States. More recently, they’ve been expanding into other states. This situation is very similar to the ADA litigation problems CUs are facing, where a few attorneys are taking advantage of unclear areas of the law.”

Monterrubio noted in 2017 a law firm created the website creditunionclassaction.com in which the firm was “literally shopping for plaintiffs to sue on behalf of the overdraft contacts,” Monterrubio said.

That URL is no longer active.

From what CUNA has seen, many of the cases initially alleged the credit union’s overdraft disclosures were simply vague. But that has evolved.

“More recently we have seen cases focused more on actual balance vs. available balance, and whether or not the overdraft fees that are being charged are consistent with whatever is in the credit union’s disclosure to their members,” he said. “The numbers of these overdraft cases are not yet large—not like ADA—but this is something CUNA is monitoring.”

What Might Be Next?

As is NAFCU, who does not rule out the number of overdraft cases against CUs could spike.

“Anything’s possible,” said Bruyere. “When these plaintiffs’ firms settle one case and they’ve got some money in their pockets, they use it to go onto more cases. Now do I think we will see hundreds of lawsuits filed in very short period of time like what had been happening with ADA? We are not seeing any signs today of that, and right now there are only a couple firms looking at credit unions for these cases. But I know attorneys keep moving the ball forward.”