By Ray Birch
ROYAL-OAK, Mich.—Could testimony from CFPB Director Richard Cordray help credit unions defend themselves against a potential wave of overdraft lawsuits?
That’s possible, according to attorney Michael Bell, who is currently defending three credit unions fighting class-action suits against their overdraft practices.
Bell, with Howard & Howard here, told CUToday.info that his law firm has served a subpoena on the CFPB demanding the deposition of Cordray concerning Cordray’s public statements regarding issues such as model forms issued by CFPB for credit unions to use with their members. Bell contends the director’s testimony will bolster the cases of credit unions he is defending, and possibly others that face what may be a growing wave of overdraft lawsuits.
Howard & Howard is currently defending United FCU in St. Joseph, Mich., Advia CU in Kalamazoo, Mich., and Marietta, Georgia-based LGE Community CU. At least 10 credit unions in the country have been sued over their overdraft practices.
As CUToday.info reported, a Detroit-based law firm is running newspaper ads headlined, “Attention Credit Union Members: Has your credit union assessed multiple overdraft charges when you believed you had a sufficient balance?"
“We are seeking in these cases to depose Richard Cordray,” said Bell. “The CFPB has initially denied our request and if necessary we will file motions in Washington, D.C., and we think it is absolutely relevant and germane to our cases and we want to depose him.”
Plaintiffs in the litigation allege that CU members are being misled about the transactions that can lead to overdraft fees, and that transactions are being processed by size rather than chronology to ensure overdrafts and the resulting fees occur. The overdraft model form, created by the CFPB, is what credit unions and banks use to enroll consumers into overdraft programs and explain the OD process as well. Bell’s clients deny the allegations.
“Cordray is on the record in various ways talking about what the model form means and what it is used for, as well as what the regulation means,” said Bell. “We think those things are favorable for our positions and we want these facts to come out in our cases.”
Model Form Is Key
The model form is an important aspect of the cases, said Bell.
“The CFPB has come out with this model form for banks and credit unions to use for disclosure purposes. Credit unions have used CFPB’s model form and the plaintiffs are saying the model form is no good, it’s confusing etc.,” explained Bell. “We strongly believe that if you use the model form, you are immune from liability. You have no liability. And we believe Cordray’s testimony will support that.”
Bell asked what’s the point of a model form if a credit union uses it and then gets into trouble by using it.
“We believe the CFPB did all this work creating this model form, and they did it for a reason. They wanted banks and credit unions to use it and then that would protect them with a safe harbor,” said Bell. “We want the courts to enforce that.”
That could be an important step in what Bell believes may be a growing battle against class action lawsuits against financial institutions related to overdrafts.
“All these lawyers now are blanketing the market with advertisements, hunting for plaintiffs. There will be more of these lawsuits, unfortunately, as there is a fixation at the moment by plaintiffs’ lawyers on these matters,” said Bell. “I think they feel it is easy to get plaintiffs because so many people use debit cards and so many people get dinged with an overdraft.”
Firm Seeking Plaintiffs
As CUToday.info reported, newspaper ads in Detroit are being run by the Birmingham, Mich.-based Michael B. Serling law firm, which said it is seeking people who have been the victims of "multiple overdraft charges.” The Serling firm has been running similar ads seeking victims of mesothelioma and lung cancer caused by asbestos exposure.
“Has your credit union assessed multiple overdraft charges when you believed you had a sufficient balance?” the ads ask. “Certain credit unions determine your ‘available balance’ in a manner that understates the actual balance.”
Bell told CUToday.info that credit unions facing such suits must decide whether to fight or settle.
“You come to a fork in the road with these cases,” said Bell. “There are credit unions that make a business decision to settle, and then there are credit unions that make the business decision to defend. We vigorously defend.”
Bell acknowledged that these cases can get expensive.
“If lawyers get a class of people, imagine them making you incur hundreds of thousands of dollars of costs just related to the discovery process,” he said. “They sometimes request a copy of every document related to every transaction you have done for a certain time period, for example. But one of the key things we do is fight hard to protect the credit union in the discovery process, and we have been successful in doing that.”