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Recent Lawsuits: What Credit Unions Need To Know

These four lawsuits can provide valuable lessons to the industry.

When credit unions are unable to resolve disagreements with their members or third parties, they often end up in court. The results are not always expected.

SCRA Does Not Require Reducing Loan Interest Rate To Zero Percent

Smith obtained a loan from Navy Federal Credit Union for property in Illinois. Then he was called to active duty and stationed one hour away from his residence. Several years later he was transferred to Washington, DC, and began renting a home in Virginia. He asked Navy Federal to suspend his mortgage payments for nine months and to reduce his interest rate to 0%. Navy Federal obtained Smith’s orders calling him to active duty, but advised him those orders were insufficient documentation to obtain relief under the SCRA. Smith filed suit in federal court.

The court ruled that Smith stated a claim for relief under the Servicemembers Civil Relief Act to the extent he sought a temporary stay of the enforcement of his monthly mortgage payment. However, the SCRA does not authorize a reduction of interest rate to 0%. Therefore, it dismissed that portion of his complaint. Smith v. Navy Federal Credit Union

No FCRA Duty To Probe Disputed Debt, Report Back To Experian

Bay Ridge Federal Credit Union sued a member to collect on an unpaid loan. Bay Ridge also notified Experian. The member wrote to Experian to dispute the amount owed. Bay Ridge did not provide Experian with proof of the amount owed or conduct any investigation into the member’s dispute. The member filed suit against Bay Ridge, claiming numerous violations of the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. The court first noted that the FCRA allows individuals to sue their creditors for some violations of the FCRA, including the failure to investigate and report back to a credit-reporting agency in response to a consumer’s dispute. Despite notifying Bay Ridge of the dispute himself, the member did not allege that Experian notified Bay Ridge of his dispute. Bay Ridge, therefore, did not have an FCRA duty to investigate and report back to Experian and the court dismissed that claim. Algende v. Bay Ridge Federal Credit Union

Fraudulent Lien Sale Leads To Loss of Security Interest in Vehicle

Los Angeles Federal Credit Union loaned a member money to purchase a vehicle believing that title was clear. Unknown to LAFCU, however, a bank’s previous lien on the same vehicle had been extinguished through a fraudulent towing lien scheme. The vehicle was then sold to a used car dealer, CarMax. The bank convinced the DMV to reinstate the bank’s lien and terminate LAFCU’s lien.

The court ultimately found that when CarMax purchased the vehicle there was no lien listed on the DMV-issued certificate of title. CarMax was entitled to rely upon that certificate. CarMax qualified as a bona fide purchaser for value and took clear title to the vehicle. Although a properly perfected security interest generally is not extinguished by a subsequent sale of a good, there is an exception for fraudulent sales to good-faith purchasers for value. Los Angeles Federal Credit Union v. CarMax Auto Superstores California, LLC

Borrowers Entitled To Notice of Default, Opportunity To Cure Despite Waiver of Default Notice In Mortgage Forbearance Agreement

Borrowers obtained a mortgage from Achieva Credit Union. The mortgage contained an acceleration provision, which required Achieva to provide the borrowers with notice of default and 30 days to cure it. The borrowers later entered into a forbearance agreement which stated that no further notice of default was necessary and that notice of default of this agreement was waived. The borrowers completed payments under the forbearance agreement and resumed making their regular payments. Two years later, however, they received notice from Achieva that they were in default and that Achieva had accelerated the outstanding balance of the loan. When Achieva filed a foreclosure complaint, the borrowers defended on the basis that Achieva failed to comply with the notice and right to cure requirements contained in the mortgage. Achieva argued that the borrowers waived any further notice requirement when they executed the forbearance agreement. The court sided with the borrowers. It concluded that the forbearance agreement was not designed to waive any rights outside the time period during which it was in effect. Hatadis v. Achieva Credit Union

Brian Dolan is a member of the Kaufman Canoles nationally recognized Credit Union Team and can be reached at (757) 873.6311 or bodolan@kaufcan.com.

Given their structure and governance, credit unions have very specific legal needs. Kaufman Canoles’ Credit Union Team understands the credit union difference member owned, not-for profit financial institutions that are governed by volunteer boards. Our attorneys are familiar with all the state and federal statutes and regulations that must be followed in order to run a successful credit union. We use our knowledge and detail-oriented approach not only to help credit unions with commercial litigation and real estate transactions, but also with daily operations, regulatory compliance issues and human resources assistance. We not only understand a credit unions unique needs, we anticipate them.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
May 18, 2015

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