June 30, 2020

Compliance Blog updates CUs on litigation risks

complianceIn a new post on the Compliance Blog, NAFCU Vice President of Regulatory Compliance Brandy Bruyere gives an update on potential litigation risks credit unions should be aware of. In the blog, Bruyere focuses on two key issues: Indirect lending and the Fair Credit Reporting Act (FCRA).

Indirect Lending

Bruyere references a website post where plaintiffs' attorneys were seeking consumers who purchased cars at auto dealers with financing provided by credit unions, claiming the consumer may have overpaid in interest.

"Sometimes in an indirect auto lending relationship, auto dealers can increase the interest rate on car loans a bit higher than what the borrower otherwise qualifies for and keep some or perhaps all of the difference," writes Bruyere. "This is part of how dealers may be compensated, but since that could create an incentive to maximize compensation, these kinds of programs frequently have controls in place from a due-diligence perspective."

Bruyere highlights that NCUA examiners have "carefully scrutinized credit union's indirect lending relationships" in the past, noting that the agency has previously issued guidance.

"Credit unions may want to review their programs for compensating indirect auto lending partners and consult with counsel on possible state law requirements," advises Bruyere.


Bruyere points to a study finding FCRA lawsuits have doubled between 2009 and 2019 and notes that the litigation may come in several different forms, such as:

  • assertions that a consumer report was impermissibly accessed;
  • claims that information provided to consumer reporting agencies was not accurate; or
  • claims that when a consumer report was used to deny employment, adverse action notification requirements were not properly followed.

Bruyere highlights that although the litigation risk is not widespread within the industry, it could be part of the reason FCRA compliance was included on the NCUA's list of 2020 supervisory priorities.

NAFCU members can view a more detailed overview of the agency's 2020 supervisory priorities and a round-up of related resources in the January edition of the NAFCU Compliance Monitor.

For more on indirect lending and the FCRA, read Bruyere's full litigation risk update.

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