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What Credit Unions Need to Know About Class Actions

Boost your knowledge of historic precedents, upcoming legal decisions, and institutional best practices to better protect the cooperative.

To better understand class action litigation and its potential implications, credit unions should familiarize themselves with the processes involved inthese type of suits and establish a proactive defense against such activity.

Class Action Basics

Generally, to obtain certification of a class, a member of the credit union who is seeking to become the class’s representative must demonstrate the following:

  1. Numerosity the class is so numerous that joining all of the individual plaintiffs into one lawsuit is impracticable.
  2. Commonality there are questions of law or fact common to all.
  3. Typicality the claims of the representative party are typical of all others.
  4. Adequacy the representative party will fairly protect the interests of the others.

Upon demonstrating those four elements, the Court will enter an order certifying a class.

Consumer Class Action Litigation Example

A credit union member obtained a HELOC secured by a deed of trust that required payment of a reconveyance fee when the loan was paid off. Upon refinancing, the member receiveda payoff statement that included a non-itemized $85.00 Release Fee/Reconveyance.The fee included recording costs, a processing agent’s fee, and the credit union’s own $26 processing fee.In the member’s class action lawsuit,they alleged that the $85.00 fee was not specifically identified or authorized by the deed of trust and that the credit union’s $26 processing fee was unfair and deceptive in violation of the State of Washington Consumer Protection Act.Theyrequested damages for violation of the law.A class was certified, and the trial court entered judgment for her and 428 other class members on the WCPA claim related to the credit union’s $26 reconveyance fee.

The Court of Appeals of Washington reversed the trial court’s judgment, because the deed of trust did not define the reconveyance fee, and it was unclear whether it included the processing agent’s fee, the credit union’sfee, or both.The case was returned to the trial court for a trial on that issue Peterson v. Kitsap Community Federal Credit Union.The fees and costs associated with such litigation are staggering.

This case is an example of how a minor fee included in a loan agreement can cause costly class action litigation.The question becomes: Is there a simpler way to avoid being involved in class actionlitigation?The answer turns, in part, upon an anticipated United States Supreme Court decision.

Class-Action Waiver Provisions

On November 9, 2012, the United States Supreme Court, in American Express Co. v. Italian Colors Restaurant, agreed to review the following issue: Whether the Federal Arbitration Act permits courts … to invalidate arbitration agreements [that]do not permit class arbitration of a federal-law claim.A decision is expected in June 2013 and its impact could be significant.

Depending on the outcome of the case, credit unions might consider including in their loan agreements carefully-drafted mandatory arbitration provisions that include a waiver of class arbitration.Such provisions could be well worth the investment.Itwould be money well spent and potentially thousands of dollars of legal fees could be saved.

Marc Darnell, Esq. (medarnell@kaufcan.com) and Brian Dolan, Esq. (bodolan@kaufcan.com) are members of the Nationally-Recognized Kaufman & Canoles’ Credit Union Team.

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.
June 4, 2014

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