Lawsuit Against Fiserv Claims Fraud
A small credit union is making serious allegations against the financial technology giant Fiserv.
The $28 million Parks Heritage Federal Credit Union in Glen Falls, N.Y., located about 60 miles north of Albany, N.Y., accused the Fortune 500 corporation in a 26-page civil lawsuit of fraud, breach of contract and negligent misrepresentation. It also claimed Fiserv's account processing solution is inundated with flaws, bugs and defects that compromised the integrity of and misrepresented Parks Heritage. The credit union is seeking a monetary judgement of at least $2.5 million and punitive damages, and wants out of its master agreement with the Brookfield, Wis.-based Fiserv.
“Parks Heritage Federal Credit Union takes its commitment to member service seriously,” Charles J. Nerko, a New York-based lawyer representing the credit union, said. “We will take appropriate legal actions to protect the credit union and its members.”
Anthony LaPointe, president/CEO of Parks Heritage, declined to comment.
Ann S. Cave, public relations director for Fiserv, said the company does not comment on litigation. As of the afternoon of Nov. 8, Fiserv had not filed a legal response to the credit union's allegations in U.S. District Court in New York City, where the case has been litigated since last month.
This is the second time since 2014 that Fiserv has been sued by a credit union that made the same accusation in its lawsuit – fraud and other allegations about Fiserv's software performance.
In its November 2014 civil lawsuit filing, the $734 million Wildfire Credit Union in Saginaw, Mich., said it had initially expressed interest in Fiserv's ill-fated Acumen core, which had been billed as state-of-the-art but was killed off when Fiserv bought Open Solutions Inc. and its DNA core to fill that higher-end market niche.
In various meetings with Fiserv, Wildfire alleged company representatives made “false representations,” including that DNA can do everything Wildfire wanted it to do because it is open, flexible and can write applications, and that Fiserv would hit a home run with the conversion. According to Wildfire, the project manager assigned by Fiserv to oversee the core conversion had no working knowledge of DNA or any of the other products and services that Wildfire had purchased.
The Michigan cooperative claimed it had been damaged by Fiserv's actions, not only by the fact that the company retained more than $1.3 million that the credit union had already paid to Fiserv, but because of the loss of productivity and employee hours that were spent trying to assist in a platform conversion, which allegedly could not be achieved successfully or timely.
In a counterclaim, Fiserv denied all of these allegations. Last June, however, Wildfire and Fiserv agreed to a confidential out-of-court settlement.
The Parks Heritage lawsuit claimed that in many instances Fiserv destroyed the cooperative's information, denied its members access to information and funds, compromised the integrity of the credit union's information and misrepresented information to Parks Heritage and its members.
Although the credit union said in court documents that it was using a Fiserv account processing solution, it did not specify which platform it utilized. The master agreement is confidential and is not publicly available. In its lawsuit, Parks Heritage does not state when it signed the master agreement with Fiserv.
The credit union's lawsuit lists about 35 specific examples of problems that were allegedly caused by Fiserv's software. The lawsuit does not make clear when these problems began, but some of them date back to 2014 and 2015 while most of them occurred this year.
One of the most troubling examples was that members had been repeatedly locked out their online bank accounts. When these members attempted to log in, Fiserv presented security questions that did not correspond with the members’ accounts or falsely told members that the answers to their security questions were incorrect.
Fiserv also repeatedly led the credit union and others to believe that these member accounts had been hacked or that members had been victimized by identity theft, according to the lawsuit. Even though the problem persisted for months, Fiserv didn't fix it, forcing Parks Heritage to manually perform account resets for members and deal with the associated member complaints.
The lawsuit, however, does not specify how many members were affected or whether the credit union lost members because of these issues. As of September, Parks Heritage serves 3,683 members. In fact, membership has increased for the credit union from 3,606 in 2014 to 3,634 in 2015, according to its call reports.
Other problems included members being denied access to Fiserv's virtual branch and mobile banking system. These channels were also unable to display member balances. Members were also unable to access Fiserv's Popmoney feature and use their debit cards.
According to the lawsuit, on 42% of the business days in January 2016, Parks Heritage was denied access to Fiserv's CUSA system and needed to place service calls to Fiserv so that access could be restored. Still, after that, Fiserv continued to intermittently deny Parks Heritage access to this system.
What's more, in February 2016, Parks Heritage notified Fiserv that data in the credit union's cash transaction/suspicious activity report was missing. According to Parks Heritage, the destruction of this information occurred after Fiserv performed what it claimed to be an upgrade to its system.
Additionally, Fiserv's remote check capture system has also been unusable, according to the lawsuit. When the system underwent an upgrade that a Fiserv representative said would improve the remote check capture system's security, it actually delayed deposits. Among the problems with the remote check capture system is the system's inability to merge check images into a daily file and its inability to place automatic holds on remote-capture items, Parks Heritage alleged.
And for nearly five months, a credit union employee that used Fiserv's CUSA system's batch processing functionality received an application error with a red X appearing across the screen when attempting to post ACH exceptions. Subsequently, Fiserv corrupted the corresponding files and caused Parks Heritage to miss the ACH return deadline.
But Parks Heritage noted these incidents described in its lawsuit are illustrations only.
“Fiserv has engaged in other relevant acts, omissions, concealments and misrepresentation, including through its standardized coding, policies and business practices,” the credit union alleged. “Parks Heritage believes that additional incidents of Fiserv's misconduct will be identified after a reasonable opportunity for further investigation and discovery.”
Using Fiserv's solution also has “imperiled” the credit union's ability to comply with the law, Parks Heritage alleged.
For example, Fiserv incorrectly calculated the health savings account contribution limit for members, failed to provide required disclosures for loans and sent text messages via an auto dialer to consumers who did not provide consent to receive those messages.
Parks Heritage also alleged Fiserv repeatedly acted in bad faith.
“Despite Parks Heritage paying a monthly fee for ongoing services from Fiserv, Fiserv has improperly solicited additional fees and contracts from Parks Heritage for upgrades necessary for legal compliance or continued viable use of the software,” the credit union stated. “For example, in a May 31, 2016 notice, Fiserv advised Parks Heritage that it would have to pay additional fees to ensure compatibility with Windows 10, an industry-standard operating system.”