Lender liability losses continue to rise among all financial institutions due in large part to the struggling economy, says Jay Isaacson, director of product management, Credit Union Protection, for CUNA Mutual Group (below).
Among credit unions, the number of lender liability claims grew 18% from 2010 to 2011, he says, and total paid losses on those claims jumped 30% during that time.
The most common claim: Defective notice of intent to sell, Isaacson says.
That’s when the lender fails to provide notice to the person on the security agreement that it will be selling the person’s repossessed or foreclosed upon property.
“It all comes down to the economy,” Isaacson says. “It’s not recovering as quickly as we’d hoped, and we’re still seeing elevated levels of repossessions and foreclosures. Those events can be traumatic—they can create an emotional situation where [the member] brings a claim against the credit union.”
Reducing exposure to this risk starts with basic due diligence, he adds.
Also, “be particularly mindful of U.S. Bankruptcy code, Fair Credit Reporting Act, Unfair and Deceptive Trade Practices Act, and Fair Debt Collection Practices Act requirements in your collection and reporting procedures,” advises Brad Mundine, CUNA Mutual’s senior manager, Credit Union Protection Risk Protection.
“Consult with an attorney to ensure processes, procedures, and other member-facing documents such as ‘notice of intent to sell’ are in compliance with these acts,” he continues, “as well as other applicable statutory laws that may apply to your credit union. Damages resulting from violations of these laws can be significant.”