Lawsuits that accuse credit unions of predatory overdraft practices may seem as if they intend to protect consumers, but at their core they are “just about playing the system,” CU*Answers CEO Randy Karnes told Credit Union Times.
Such lawsuits, like those filed June 22 against three large California credit unions, do little to help those who overdraft their accounts, but are helpful to lawyers in search of paperwork settlements, said Karnes, whose Grand Rapids, Mich., CUSO serves about 185 credit unions with core processing and a variety of other services.
Industry consultant Marvin Umholtz agreed, saying that unfortunately, a credit union doesn’t have to be guilty of abusive behaviors to be subjected to lawyers’ attempts to “shake down the financial community for settlements.”
The $9.4 billion SchoolsFirst Federal Credit Union, $6 billion Star One Credit Union and $1.3 billion Kern Schools Federal Credit Union were all sued by the same attorney in three separate suits.
The suit claims members were victims of transaction reordering and other abusive overdraft practices. The court documents were worded similarly to other overdraft lawsuits against big banks.
Opportunistic attorneys aside, Karnes said credit unions should be mindful that times have changed, and what was once seen as a member-friendly tactic is now suspect. Every credit union should be aware of those who seek to exploit overdrafts, and work to validate their processing practices against today’s network standards, he said.
“What was once helping a member clear their largest and potentially most embarrassing NSF type transactions first, now is suspect by those who believe that the member has no responsibility in actually spending only the money they have in their account,” Karnes said. “A sign of the times, and the unfortunate rule of the day."