R. Todd Sherpy, founding partner of the law firm of Sherpy and Jones, offered an overview of the litigation front from a risk-management perspective during CUNA’s Governance, Risk Management and Compliance Leadership Institute in Denver.
He addressed these key areas.
Technical overdraft protection compliance
Larger credit unions are targets in unfair overdraft protection lawsuits simply because of their size, says Sherpy, who explains what he calls the “litigation game” based on the tactics some lawyers use to enrich themselves.
“Be aware of the environment you live in,” he says, advising attendees to learn about these lawsuits and regulatory guidance regarding overdraft protection. “That’s how you manage your risk. You don’t wait for things to happen; you address potential risks and prepare to mitigate them. Have a plan.”
Americans with Disabilities Act (ADA) and websites
Sherpy reviewed the history of ADA website actions dating back to 2010 and explained that tactics similar to those with overdrafts are pervasive.
This is affecting both large and small credit unions, with one California firm sending “pre-litigation demands” to credit unions as small as $20 million in assets. Again, knowledge is the best defensive tool, he says.
Telephone Consumer Protection Act (TCPA)
Sherpy describes the TCPA as a consent order where the Federal Communications Commission lays out an expansive rule (compared to a rule or regulation where there is input and clarification)—which why he calls TCPA compliance a “hot mess.”
He says advises credit unions to go through each bullet point of the consent order with legal counsel. During this process credit union will find many gray areas that will require risk-management skills.
“This is a discussion you should have had two or three years ago,” Sherpy says. “But it’s one you need to have right now if you didn’t do your due diligence because that’s why we’ve seen the lawsuits. ‘Proactive’ is the mantra.”
New risk focus on Bank Secrecy Act (BSA)
Sherpy cites a memo from former U.S. Deputy Attorney General Sally Yates that outlined how fines could be levied on not only financial institutions but individual officers guilty of BSA infractions.
Indemnification and insurance/bond policies don’t cover this risk, and all credit union staff and volunteers are exposed. “That immediately ramped up the heat as to our risk allocation for this set of rules,” Sherpy says.
Fair Credit Reporting Act
Sherpy has noticed a recent increase in lawsuits against financial institutions for inaccurate reporting to credit agencies. The best protection is consistent and diligent documentation, he says.
“Every time a member raises a complaint, there should be a documentation of that complaint,” Sherpy says. “It is a protective tool with regard to litigation and complaints. It should show the remedial steps and tell a complete story of what happened.”
Often it’s not regulatory issues or an incomplete document that creates risk headaches for credit unions but rather an icy sidewalk or ripped carpeting that puts members at risk physically, Sherpy says.
“Real-life common sense goes a long way to protecting you from all legal risks.”