Is Your Arbitration Clause Enforceable?

As I have said before, given the explosion of class-action lawsuits involving credit unions over the last 15 years, any growing credit union should consider whether to put an arbitration clause into its account agreements. Properly crafted and disclosed to their members, an arbitration clause can eliminate the risk and expense of being subjected to a potentially expensive class-action lawsuit while continuing to provide legitimately aggrieved members a mechanism for addressing their concerns with the credit union. The good news is that, as more and more credit unions join banks in adopting these clauses, the clearer the rules of the road – which brings me to the inspiration for this column.

On Thursday, a state appeals court in Colorado reversed a lower court ruling and upheld the imposition of an arbitration clause against a member who was seeking to bring a class-action lawsuit. The case I am talking about is Macasero vs. ENT Credit Union (Macasero v. ENT Credit Union :: 2023 :: Colorado Court of Appeals Decisions :: Colorado Case Law :: Colorado Law :: US Law :: Justia). In 2014, Cecilia Macasero became a member of the credit union to get a car loan. When she became a member, she agreed to accept electronic disclosures. In 2014, the account agreement she signed did not contain an arbitration clause but did include a provision explaining to members that the agreement’s terms “are subject to change at any time at the discretion of ENT.” The notice went on to explain that members would be notified of any change in terms “by utilizing your account and related services you agree to amendments of the terms of this agreement, which have been made available to you …” In 2019, the credit union updated its account agreement to include arbitration and a class action waiver. The credit union notified members by mail or email, depending on how they agreed to receive information, but both groups were put on notice in their bank statements. Our plaintiff conceded that she had received the email notification, but she said she didn’t know of the changes because she didn’t bother opening the email.

The court ruled that, regardless of whether the email was opened, the credit union had taken the necessary steps to put the member on notice that the amendments were being made and the language in the account agreement provided adequate notice that the credit union could unilaterally make changes. Furthermore, the court ruled that the email sent to members was displayed in a way that let members understand where they could get more information about these changes. As concisely summarized by the court, the plaintiff “was placed on constructive notice of the change in terms because she received the notice in the manner she had agreed upon and the notice was sufficiently clear and conspicuous, considering the party’s prior … dealings [and] that the notice was reasonably conspicuous, and the change of terms was easily accessible.” In other words, the credit union had checked all the boxes.

But don’t get too excited. The case articulates all the appropriate guide posts for you to consider in integrating arbitration clauses into your credit union’s account agreement but, yes there is always a but, how the courts will interpret a given credit union’s compliance with these criteria varies depending on where your credit union is located. One of the most important areas of disagreement between the courts is whether the original language of an account agreement is broad enough to put a member on notice that subsequent changes could include arbitration clauses. For instance, in Servier City Federal Credit Union vs. Branch Banking & Co. (Branch Banking & Trust Company v. Sevier County Schools Federal Credit Union – SCOTUSblog) the Court of Appeals for the Sixth Circuit ruled that a member who joined the credit union in 1989 wasn’t bound by a 2017 amendment to her account agreement. The court reasoned that the language in the 1989 agreement, while it reserved the right of the credit union to make changes, did not provide adequate notice that the changes could include arbitration clauses.

The court reached this conclusion even though it stipulated that “changes in the terms of this agreement may be made by the financial institution from time to time” and that such changes become automatically effective within 30 days. The court’s ruling means that, at least for those of you who live within the jurisdiction of the Sixth Circuit, affirmative consent as opposed to simply continued use is the safest way of assuring that an account agreement is binding. This decision was appealed to the Supreme Court, which unfortunately decided not to hear the case.

Another important takeaway from the Colorado case is to provide adequate notice to members by clearly articulating the changes that are being made, providing a readily accessible link with which they can get more information, and giving them the opportunity to opt out of arbitration clauses. The bottom line is that while the framework for arbitration clauses is well established, there is still considerable disagreement among courts as to how strictly to enforce notification requirements. I expect litigation in this area to continue and ultimately be settled by the Supreme Court. But in the meantime, document the notice you have given to your members, don’t hide the ball and be mindful of the requirements within your own jurisdiction.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.