Credit union compliance experts are tasked with leading their credit union through the industry’s most challenging compliance issues. Unfortunately, examiner questions and compliance issues are no longer the whole story for financial institutions to manage legal risk. In the past decade, there has been a steep rise in lawsuits naming credit unions as defendants. Compliance teams now have the added burden of working with legal counsel to prepare their institutions against litigation.
While there is no end in sight for the rise in lawsuits, compliance professionals can use legal advice from their counsel to reduce risk of becoming a defendant in a lawsuit. While we cannot provide legal advice, our teams can raise awareness of trends in the legal system that may decrease the risk of being named in a lawsuit.
Overview of the key trends
There are five trends credit union and CUSO compliance experts should be aware of:
Overdraft litigation: Class action lawsuits against credit unions for overdraft violations still remain the single biggest legal threat to credit unions. Credit unions should be aware overdraft class action litigation is increasing and appearing in states that have not really had an abundance of overdraft litigation recently.
Telephone Consumer Protection Act (TCPA): Although the Supreme Court has reduced the risk of using auto-dialers, TCPA litigation remains a real danger. Expect law firms to go after organizations that relax their TCPA controls.
Nondiscrimination: There is increasing litigation against banks for harassing and discriminating against customers on the basis of race.
Security: There are still class action lawsuits filed against credit unions for failure to provide adequate security.
Force Majeure: COVID-19 is changing how force majeure is interpreted by the courts.
Credit unions and CUSOs can help protect themselves against the threat of litigation by working with their legal counsel to review these issues.
Overdraft litigation is not going away. If anything, plaintiff’s law firms have refined the process for these lawsuits and are now pressing claims against financial institutions in jurisdictions that have generally avoided overdraft litigation. For example, in 2021 the National Law Review reported that banks and credit unions in Maine have become targets of overdraft class actions. Credit unions should be very vigilant about how they manage fees to members.
A major item to be aware of are the terms in the Membership Agreement or the credit union’s disclosures. If these terms do not match the actual overdraft fee process, the organization is at risk of being sued in class actions. Some of the ways law firms have challenged the legality of credit overdraft practices include: