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Financial Services Law Insights and Observations

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  • Court holds credit union must face breach of contract claims over overdraft practices

    Courts

    On November 8, the U.S. District Court for the District of Massachusetts granted in part and denied in part a credit union’s motion to dismiss a putative class action challenging the institution’s overdraft practices. As summarized in the order, the plaintiff alleged the credit union improperly charged overdraft fees when the “available balance” of her account, which was calculated by deducting pending debits and deposit holds, was insufficient to cover a transaction, even though the “actual” or ledger balance would have covered the transaction. The plaintiff brought multiple claims against the credit union, including breach of contract and Electronic Funds Transfers Act (EFTA) claims.

    The credit union moved to dismiss arguing, in part, that the relevant account agreements referenced the “available balance” method for overdraft purposes and that the term is a “well-known bank term that has long been understood to mean the money in an account minus holds placed on funds to account for uncollected deposits and for pending debit transaction.”

    The court disagreed, concluding that “available balance” is not a defined term, is ambiguous, and therefore its meaning presents a factual dispute that cannot be resolved on a motion to dismiss. The court allowed, however, the EFTA claim to proceed only for violations that occurred within one year of the complaint filing.

    Courts Credit Union Overdraft EFTA Class Action Breach of Contract

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  • District Court dismisses ADA claim against credit union on standing grounds

    Courts

    On August 7, the U.S. District Court for the Northern District of Illinois dismissed claims that a credit union’s website violated the Americans with Disabilities Act (ADA), holding that the plaintiff lacked standing because he was not (and was ineligible to be) a member of the credit union. According to the opinion, the plaintiff is permanently blind and alleged that the credit union’s website did not comply with ADA requirements that are applicable to online website accessibility. The district court granted the credit union’s motion to dismiss on standing grounds, finding the plaintiff had no plausible reason to use the credit union’s website because the website was directed at members of the credit union, and the plaintiff was not (and was ineligible to be) a member.

    Courts Americans with Disabilities Act Credit Union

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  • NCUA proposes additional payday loan alternative option

    Agency Rule-Making & Guidance

    On June 4, the National Credit Union Administration (NCUA) published in the Federal Register a proposal to create a new payday alternative loan product (PAL II) in addition to the current payday alternative loan product (PAL I), which has been available since 2010. According to the NCUA announcement, the goal of PAL II is to expand access to safe and affordable short-term, small-dollar loans for consumers of modest means. PAL II would include most features of PAL I, with four changes: (i) eliminating a loan minimum while setting the maximum at $2,000; (ii) setting a term maximum of 12 months; (iii) eliminating the requirement for membership minimum length; and (iv) as long as the consumer only has one outstanding loan at the time, eliminating the time restriction on the number of loans a credit union can make to the borrower in a six month period.

    The proposal also requests input on the potential features of a possible third option, PAL III, including lending restrictions, associated fees, and underwriting guidelines.

    As previously covered by InfoBytes, the OCC recently issued a bulletin encouraging banks to offer short-term, small dollar installment lending.

    Agency Rule-Making & Guidance NCUA Payday Lending Federal Register Credit Union

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  • NCUA Issues Final Rules Regarding Appeals Procedures; Proposes Rule Regarding Capital Planning and Stress Testing

    Agency Rule-Making & Guidance

    On October 30, the National Credit Union Administration (NCUA) issued a final rule expanding the number of material supervisory determinations that can be appealed to the NCUA Supervisory Review Committee (SRC). Under the rule, federally insured credit unions (FICUs) may appeal examination-related determinations that may significantly affect capital, earnings, operating flexibility, or level of supervisory oversight. The effective date for the final rule is January 1, 2018.

    On October 30, the NCUA also proposed changes to rules covering capital planning and stress testing requirements for covered credit unions (see previously InfoBytes coverage on proposed changes to stress tests by other federal agencies). The proposal would allow FICUs with over $10 billion in assets to conduct their own stress tests in accordance with NCUA requirements and report the results in their capital plan submissions. The specific testing requirements are tiered and dependent on various asset size and capital planning cycles. Comments about the NCUA proposed rule must be received on or before December 29.

    Agency Rule-Making & Guidance NCUA Examination Credit Union Stress Test

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  • NCUA Issues Proposed Rule to Revise Advertising Requirements for Federally Insured Credit Unions

    Agency Rule-Making & Guidance

    On October 4, the National Credit Union Administration (NCUA) issued proposed changes to the advertising rule requiring federally insured credit unions (FICUs) to use NCUA’s “official advertisement statement” when advertising products and services. The changes will include: (i) adding a fourth advertising option for FICUs, “Insured by NCUA”; (ii) expanding the current advertising statement requirement exemption concerning certain radio and television advertisements; and (iii) eliminating a requirement that NCUA’s official advertising statement must be included on statements of condition required to be published by law. Comments must be received by December 4, 2017.

    Agency Rule-Making & Guidance NCUA Credit Union

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  • DOJ Announces Settlement with Michigan Credit Union over SCRA Violations

    Federal Issues

    On July 6, the DOJ announced a settlement with a Michigan-based credit union resolving allegations that the credit union illegally repossessed four servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). As previously reported, the DOJ filed its complaint on July 26, 2016, alleging that the credit union violated the “SCRA’s prohibition against repossessing a motor vehicle from a servicemember during military service without a court order if the servicemember made a deposit or installment payment on the loan before entering military service.”

    Servicemember protections under the SCRA empower the court to (i) review and approve each repossession; (ii) delay a repossession or require the lender to refund the payments made by the servicemember prior to the repossession; (iii) appoint an attorney to represent the servicemember; and (iv) require the lender to post bond with the court.

    Under the settlement, the credit union agreed to a civil penalty of $5,000. In addition, the credit union agreed to pay up to $10,000 plus lost equity in the vehicle with interest and to repair the credit of each affected servicemember whose vehicle was repossessed. The credit union also agreed to obtain either a court order or a valid SCRA waiver before repossessing a servicemember’ s vehicle, and to develop policies and procedures for vehicle repossessions that comply with the SCRA as well as provisions to ensure that servicemembers may benefit from the 6 percent interest rate cap on vehicle loans.

    Federal Issues DOJ Credit Union SCRA Courts Settlement Servicemembers

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  • FHFA Publishes Final Rule on State-Chartered Credit Union Membership

    Agency Rule-Making & Guidance

    On June 5, the Federal Housing Finance Agency (FHFA) issued a final rule amending its regulations to allow certain state-chartered credit unions without Federal share insurance to obtain Federal Home Loan Bank memberships. The final rule is substantially the same as the proposed rule issued by the FHFA in September 2016 with the exception of an added revision intended to help streamline credit union Bank membership applications. The amendment was adopted in order to implement a provision of the Fixing America's Surface Transportation Act and goes into effect July 5, 2017.

    Agency Rule-Making & Guidance FHFA Credit Union FHLB

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  • NCUA Collects $445 Million from International Bank Due to Faulty Mortgage-Backed Securities, Recovers Nearly $4.7 Billion to Date

    Securities

    On May 1, the National Credit Union Administration (NCUA) announced it has collected $445 million from a Switzerland-based bank over claims stemming from losses borne by two liquidated credit unions related to faulty mortgage-backed securities they bought from the bank. As part of the settlement, NCUA will dismiss its 2012 lawsuit filed in the U.S. District Court in Kansas on behalf of the credit unions and brought against the bank for violations of federal and state laws through its alleged misrepresentations in the sale of mortgage-backed securities. Notably, the bank is not admitting fault as part of the deal. The $445 million in recoveries will be used to pay claims against the liquidated corporate credit unions, “including those of the Temporary Corporate Credit Union Stabilization Fund.” “This latest recovery . . . provide[s] a measure of accountability for the firms that sold faulty securities to the corporate credit unions,” acting NCUA Chairman Mark McWatters said. “It remains incumbent on NCUA to provide transparency in terms of the settlements, the legal fees and other costs that go with them, and how these affect the Stabilization Fund.” To date, NCUA’s recoveries from financial institutions alleged to have sold faulty securities to five corporate credit unions, leading to their collapse, have reached nearly $4.8 billion.

    Securities Mortgages Credit Union NCUA

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  • Credit Unions, Small Banks Encourage Fed Payments System Operational Role

    Fintech

    On April 18, three industry organizations representing community banks and credit unions—the Credit Union National Association (CUNA), the Independent Community Bankers of America (ICBA), and the National Association of Federally-Insured Credit Unions (NAFCU)—sent a letter urging the Federal Reserve System (Fed) to provide central bank settlement services in support of private sector development of future payment systems, rules, and standards. The letter also urges the Fed to take on three operational roles in addition to settlement capabilities: (i) to serve as an “on-ramp” to real-time payments; (ii) to serve as a real-time payments operator, much as it currently is an operator for checks, automated clearinghouse payments, and wire transfers; and (iii) to maintain a “payments directory” that would link together financial institutions and private-sector payments directories. The organizations argue, among other things, that the Fed’s commitment to these operational roles is critically important to achieving the “much-needed goals of safety, equitable access, and ubiquity” in developing an improved payments system. The letter emphasizes that the organizations are not requesting that the Fed develop rules or standards for real-time payments, but rather take the position that such efforts “should be left for private sector rules and standards organizations.”

    As previously covered by InfoBytes, the Fed created the Faster Payments Task Force and the Secure Payments Task Force in June 2015 to lead industry efforts toward a speedier and better payments system. The CFPB also issued a set of guiding principles aimed to help private industry better protect consumers as new, faster electronic payment systems continue to emerge. (See InfoBytes coverage)  The April 18 letter “applaud[s] the formation of both [Task Forces]” and “strongly encourage[s] the ongoing commitment of the [Fed] to lead and catalyze payments industry activities until the desired outcomes stated in the 2015 Strategies for Improving the U.S. Payments System paper are achieved.”

    Fintech Credit Union Community Banks ICBA NAFCU CUNA Federal Reserve CFPB

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  • Credit Union Trade Association Submits Letter in Support of Proposed CFPB Exemption

    Federal Issues

    On March 5, Credit Union National Association (CUNA) President Jim Nussle submitted a letter to Rep. Roger Williams (R-Texas), supporting his introduction of H.R. 1264—the Community Financial Institution Exemption Act. The bill, referred to the House Financial Services Committee on February 28, provides an exemption from rules and regulations of the CFPB for community financial institutions with under $50 billion in assets. “The rules are, in large part, implemented to address abuses perpetrated by the large institutions and other previously nonregulated providers, and not small institutions like credit unions and small banks,” Nussle wrote. “While we believe that the statute presently provides the CFPB authority to exempt credit unions under $50 billion from its rulemaking, the bureau has been unwilling to effectively use the exemption authority.”

    Federal Issues CFPB Credit Union House Financial Services Committee

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