JMFA alleged in a federal lawsuit that the $91 million First Imperial Credit Union was secretly and illegally using the consulting firm's overdraft protection solution.
The Baytown, Texas-based firm accused the El Centro, Calif.-based cooperative of breach of contract, fraud, trade secret misappropriation and unfair competition in the lawsuit filed in U.S. District Court in San Diego last week.
Fidel Gonzalez, president/CEO of FICU, said the lawsuit is bogus because when the credit union implemented its overdraft protection program in 2012, it used another company, not JMFA.
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"I'm disappointed [JMFA] would actually do this, but it is what it is," Gonzalez said. "We can prove that we used this other company. Once they get the letter and documentation from our attorney, I'm sure they will drop the lawsuit at that point."
In addition to the $460,350, JMFA is asking the federal court for punitive damages, attorney fees and expenses.
In 2008, FICU asked JMFA to provide a comprehensive analysis and detailed recommendations for an overdraft protection program known as JMFA Overdraft Privilege.
Soon after, JMFA agreed to develop a number of recommendations and provide the credit union with software to implement the recommendations. FICU agreed to pay JMFA 27% of its month quantified net increase in noninterest income and returned item expenses related to NSF and overdraft charges, according to the lawsuit.
In December 2008, Joseph Ramirez, who was the president/CEO of FICU at the time and the person who executed the ODP agreement, left the credit union. After Ramirez's departure, FICU decided not to implement the ODP program until a new CEO was appointed.
JMFA's executive search group helped FICU recruit Gonzales.
FICU agreed to reschedule the implementation of the ODP program for January 2010 after the credit union updated the JMFA software solution in November 2009, the lawsuit claimed.
However, the credit union decided not to implement JMFA's ODP program. No reason for FICU's decision was given in the lawsuit.
In addition, JMFA alleged in its lawsuit that in 2012, FICU implemented and began using JMFA ODP program recommendations and software.
"In May 2016, JMFA discovered that FICU had implemented and was improperly using JMFA's ODP program recommendations and software," the lawsuit claimed. "By comparing FICU's agreed-upon baseline numbers with its published financial disclosures for the years 2013, 2014 and 2015, JMFA determined that FICU's income from returned item expenses related to NSF and overdraft chares increase by at least $1.7 million during those three years. Therefore, under the ODP agreement, JMFA was entitled to at least $460,350 – 27% of $1.7 million – from FICU."
"None of the stuff that we used to implement our overdraft privilege program was from JMFA, and they know this," Gonzalez said. "So I don't understand why they are pursuing this lawsuit."
Gonzalez said the credit union is using the software solution from SmartStep Solutions in Lakeway, Texas, to operate its ODP product.
"We paid [SmartStep] just like when we were going to pay JMFA back in 2008 when we were considering them, but it never came to fruition so we never used their system," he said.
At that time, the credit union decided not to go forward with JMFA's ODP program because there was a lot of talk about new regulations.
In 2012, FICU revisited introducing an ODP product and liked SmartStep Solutions' offerings.
"[SmartStep Solutions] was very similar to what JMFA does," Gonzalez said. "It's the same program, but with a different provider. But [SmartStep] has its own software …. and we went with that."
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Peter Strozniak
Credit Union Times reporter covering credit union operations, fraud, M&As, leagues, business continuity, and breaking news.
