CUNA, NAFCU, and the Virgnia Credit Union League filed a joint amicus brief in support of 1^st Advantage Credit Union Tuesday, in the lawsuit Studco Building Systems, LLC, v. 1^st Advantage Federal Credit Union. The lawsuit involves a credit union member who transmitted fraudulent emails to the plaintiff, and the plaintiff then transmitted several high-value ACH payments to the credit union, which were eventually withdrawn by the member.

"Credit unions support their members but there must be a limit to liability for fraud that is out of the credit union’s control,” said CUNA President/CEO Jim Nussle, NAFCU President/CEO Dan Berger, and VACUL President/CEO Carrie Hunt in a joint statement. “We maintain that the judge got it wrong in this case. Financial institutions rely on automation to sort through billions of ACH transactions each year. For perspective, some 30 billion payments moved through the ACH network operators in 2022. While the ACH system is designed to flag transactions that warrant closer scrutiny, it is unrealistic to think any financial institution handling a significant volume of ACH transactions can manually monitor fraud. While fraud is on the rise and unfortunate, credit unions cannot be held accountable for events out of their control. Our financial system would collapse if that were the case.”

The U.S. District Court for the Eastern District of Virginia ruled in January 2023 that 1^st Advantage violated statute and found it liable for both compensatory damages and punitive damages totaling nearly $760,000.

“The district court’s opinion turns a blind eye to the market pressures and industry norms that support the transaction-processing measures criticized in this case,” the brief reads. “As a result of this myopic approach, the decision threatens to destabilize the system of settled rules that credit unions follow when implementing transaction software, and will assign credit unions an impossible task—the manual review of thousands of transactions every day.”

The brief also notes:

• Credit unions form an essential part of our financial system but face increasing challenges in today’s financial environment, including “extreme growth” in ACH payments, especially over the last several years.
• Credit unions must rely on automated technology and clear rules to meet the challenges of the modern financial industry without squandering member resources.
• 1st Advantage’s software systems and practices complied with both the financial system’s ground rules and the law and struck an appropriate balance between automation and intervention.