Credit Union Settles Members’ Class Action Lawsuit for $215,000

A Maryland credit union settled a class action lawsuit for more than $200,000 that will be paid to members who claimed the $198 million Marriott Employees Credit Union in Bethesda, Md. violated the Truth in Lending Act (TILA) by failing to disclose the true cost of mini-loans for which members were allegedly charged an interest rate of 46%.

The TILA disclosures provided by MEFCU did not properly give notice of the security interests it claimed in their deposit accounts and wages from their employer, according to the settlement agreement.

MEFCU denied violating TILA and noted in court documents that it has “meritorious defenses” to all of the claims asserted in the class action lawsuit. But the credit union also noted that defending itself through a trial would have meant substantial costs and risks concluding it would be in the best interest of MEFCU to settle.

The lawsuit’s plaintiffs are Katherine Payne and Arthur Coates both of Philadelphia who are Marriott hotel employees and members of the credit union. The size of the settlement fund is $215,000 that will be paid out to 204 class action members of the lawsuit,

However, according to the settlement agreement, Payne and Coates will each receive $5,000, which was described as a “low-end incentive payment” for their service and involvement in bringing the lawsuit against the credit union. Additionally, the lawyers who represented them will receive $72,250 or 35% of the settlement fund.

After the lawsuit was filed in Sept. 2018, MEFCU asked a federal court judge to dismiss the case because the credit union argued the lawsuit failed to prove TILA violations. U.S. District Judge Wendy Beetlestone in Philadelphia did not dismiss the lawsuit in Jan. 2019 because the credit union’s security interest disclosure for loans was not clear. However, Judge Beetlestone dismissed the members’ $1 million claim for actual damages against MEFCU.

Since the Marriott hotel chain controls the amount of hours employees work, they used MEFCU’s $500 mini-loan to make ends meet whenever the employer reduced work hours, according to the lawsuit.

Payne’s and Coates’ MEFCU’s mini-loan credit agreements disclosed an 18% APR based on a finance charge of $29.23 for the six-month loan. They were also required to pay a $35 application fee after their loans were approved.

The TILA allows an application fee to be excluded from the finance charge as long as the fee is used to recover the costs associated with processing credit applications such as credit reports, credit investigations and appraisals. Payne and Coates argued in court documents that the mini-loan is promoted by the credit union as being available to all Marriott employees who join MEFCU but it allegedly did not perform any credit check, obtain credit reports, or conduct any credit investigation.

Because MEFCU excluded the $35 application fee from the finance charge, contrary to TILA regulations, the APR disclosure to Payne and Coates was understated and that the actual APR was 46%, not the 18% APR disclosed by the credit union, which allegedly violated TILA.

Moreover, for Marriott employees to qualify for the loan, a $250 cash security deposit is required, which is collected through $10 weekly deductions from the employees’ wages. Although these funds are held in an MEFCU share savings account, they are frozen and inaccessible to employees during the loan repayment period.

Payne and Coates argued the mini-loans posed no risk for MEFCU but did create burdens for low-income members who need the loans compared to other loans for higher-income member borrowers.

MEFCU countered that Payne’s and Coates’ claim that MEFCU application fee is not a bona fide application fee and should have been disclosed as a finance charge fails because TILA regulations say that application fees are not to be considered as finance charges.

In addition, the credit union pointed out that in a previous case involving a mortgage company, a court ruled application fees are excluded as finance charges under TILA so long as they are charged to all applicants.

MEFCU and its lawyers did not respond to a CU Times request for comments Tuesday.