Compliance Center: CUNA Mutual Group Risk Alert on Overdraft Fee Lawsuits

CUNA Mutual Group (CMG) recently issued a Risk Alert to their Bond Policyholders highlighting a recent series of class-action lawsuits in California that are targeting credit unions overdraft fee programs.  The lawsuits against the credit unions allege that the fees are being improperly assessed on the available balance instead of the actual balance, the fee structure has not been clearly communicated, and the members are not being provided with accurate available balance information.

According to CMG some credit unions assess an overdraft fee based on the member’s available balance, rather than on the actual balance. The available balance may be lower than the actual balance due to funds being held for debit card authorizations and check holds. The suits allege that this situation causes confusion and may mislead members because assessing the fee on the available balance could lead to situations where overdraft fees are assessed even though the actual balance may not go negative.

Litigation has been targeting these types of credit union overdraft fee programs. In fact, lawsuits allege multiple claims including:

  • The credit union improperly assessed overdraft fees based on the available balance rather than on the actual balance in the member’s account when the transactions clear the account.

  • In assessing these fees, the credit union breached the account agreement, which either misstates when the credit union charges overdraft fees or fails to disclose how fees are calculated.

  • The credit union has misled members as to when fees will be charged by failing to clearly define available balance, or by failing to disclose the available balance to their members prior to the transactions.

The potential damages from these lawsuits, if successful, could be significant.  If determined unlawful and/or improper, credit unions may be required to return multiple years’ worth of overdraft fees to their members.  The risk alert also pointed out that unlawful or improper fees that have to be returned may not be insurable and that the credit unions may be in for a huge shock.

Credit unions would be advisable to review their current overdraft practices to see if they are assessing fees based on the available balance or actual balance.  In addition, credit unions should review their disclosures and what they have provided to the members with regards to their practices.  And possibly seek legal counsel if you feel that your credit union might be at risk.

Compliance Question of the Week

Can a credit union or member stop payment on a cashier’s check, tellers’ check or certified check?

The short answer is no.  This is because a third party can enforce a cashier’s check if they are a “holder in due course”.  In order to be considered a holder in due course, the holder must have taken the instrument for value, in good faith, without notice of any claims against the instrument, and without notice that the instrument was fraudulent.  If a credit union wrongfully refuses to pay a cashier’s check, the holder can assert the right to enforce the check and may be entitled to compensation for expenses and possible damages.

There is, however, an exception if the credit union’s member claims that the cashier’s check has been lost, destroyed, or stolen.  If this happens, the member must identify the check with reasonable certainty, complete a declaration of loss, and promise to indemnify the credit union for any loss.  Once the member completes these steps, the cashier’s check can be re-issued.   It is important to note that the original check has not actually been stopped.  If someone receives the original check under circumstances where (s)he is considered a holder in due course, the credit union must pay the original check. 

Resources

RCW 62A.3-104

RCW 62A.3-302

RCW 62A.3-312

RCW 62A.3-411

ORS 73.0302

ORS 73.0312

ORS 73.0411

IDS 28-3-302

IDS 28-3-311

IDS 28-3-411

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that its Secondary Capital Working Group Webpage is now available. The workgroup was announced by Chairman Matz in December of 2014.

The NCUA announced that its Office of Small Credit Union Initiatives will be accepting nominations for consulting assistance through May 31, 2015. The consulting service is geared towards helping credit unions find opportunities in the marketplace and offer affordable services to their members.

NCUA Chairman Matz delivered remarks at the Defense Credit Union Council’s Oversea’s Subcouncil regarding topics impacting credit unions today. One focus of Matz’s remarks included the proposed rule to Implement the Military Lending Act which Matz states will harm the good that credit unions are able to do for their military members.

The NCUA announced that it’s May 21, 2015 Board meeting will be available via Livestream. Additionally, no registration will be required going forward as each open Board meeting will be available on the NCUA’s homepage.

The NCUA will be holding a Twitter Chat, in conjunction with the AARP, on detecting and addressing elder financial abuse.  The Chat will be help on May 13, 2015.    

Consumer Financial Protection Bureau (CFPB)

The CFPB issued a report found that 26 million consumers are “credit invisible”, or have little to no credit history, or no recent credit history.

The CFPB released an article detailing what could happen to a borrower’s student loans if their school is shut down. The article lists several different remedies that students can attempt to help with this issue.

Federal Financial Institutions Examination Council (FFIEC)

The FFIEC released its 2015 CRA Data Submissions Guide to aid banks in collecting and reporting CRA data.

Federal Deposit Insurance Corporation (FDIC)

The FDIC and OCC released statements on their actions to help reduce the unnecessary regulatory burden on community banks at the Economic Growth and Regulatory Paperwork Reduction Act Outreach Meeting.

Financial Crimes Enforcement Network (FinCEN)

FinCEN Director Calvery delivered a speech at the West Coast AML Forum. Calvery’s speech focused on virtual currency efforts, money laundering through real estate, third party money launderers, and beneficial ownership.

Federal Housing Finance Agency (FHFA)

The FHFA released revisions to its affordable housing lending categories excluded from the multifamily lending purchase cap.

Federal Reserve Board (FRB)

The FRB released its April 2015 Senior Loan Officer Opinion Survey on Bank Lending Practices. Some financial institutions reported that they have eased standards on real estate loans eligible for purchase by GSEs.

FRB Chair Yellen delivered a speech at the Finance and Society Conference. The speech focused on what steps the regulators have and are taking to ensure that financial institutions’ incentives are aligned properly with the promotion of financial security.

The FRB released its 2014 report on average debit card interchange fees by payment card networks.

The May edition of the FRB’s Fedfocus is now available.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of April 28, 2015. The last update prior to this was April 23, 2015.

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance, NCUA.