Credit Union Legal Update – Recent Lawsuits: What Credit Unions Need to Know

    By Lender Representation Credit Union

    SCRA Does Not Require Reducing Loan Interest Rate To Zero Percent

    Smith obtained a loan from Navy Federal Credit Union for property in Illinois. Then he was called to active duty and stationed one hour away from his residence. Several years later he was transferred to Washington, DC, and began renting a home in Virginia. He asked Navy Federal to suspend his mortgage payments for nine months and to reduce his interest rate to 0%. Navy Federal obtained Smith’s orders calling him to active duty, but advised him those orders were insufficient documentation to obtain relief under the SCRA. Smith filed suit in federal court.

    The court ruled that Smith stated a claim for relief under the Servicemembers Civil Relief Act to the extent he sought a temporary stay of the enforcement of his monthly mortgage payment. However, the SCRA does not authorize a reduction of interest rate to 0%. Therefore, it dismissed that portion of his complaint.
    Smith v. Navy Federal Credit Union

    No FCRA Duty To Probe Disputed Debt, Report Back To Experian

    Bay Ridge Federal Credit Union sued a member to collect on an unpaid loan. Bay Ridge also notified Experian. The member wrote to Experian to dispute the amount owed. Bay Ridge did not provide Experian with proof of the amount owed or conduct any investigation into the member’s dispute. The member filed suit against Bay Ridge, claiming numerous violations of the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. The court first noted that the FCRA allows individuals to sue their creditors for some violations of the FCRA, including the failure to investigate and report back to a credit-reporting agency in response to a consumer’s dispute. Despite notifying Bay Ridge of the dispute himself, the member did not allege that Experian notified Bay Ridge of his dispute. Bay Ridge, therefore, did not have an FCRA duty to investigate and report back to Experian and the court dismissed that claim. Algende v. Bay Ridge Federal Credit Union

    Fraudulent Lien Sale Leads To Loss of Security Interest in Vehicle

    Los Angeles Federal Credit Union loaned a member money to purchase a vehicle believing that title was clear. Unknown to LAFCU, however, a bank’s previous lien on the same vehicle had been extinguished through a fraudulent towing lien scheme. The vehicle was then sold to a used car dealer, CarMax. The bank convinced the DMV to reinstate the bank’s lien and terminate LAFCU’s lien.

    The court ultimately found that when CarMax purchased the vehicle there was no lien listed on the DMV-issued certificate of title. CarMax was entitled to rely upon that certificate. CarMax qualified as a bona fide purchaser for value and took clear title to the vehicle. Although a properly perfected security interest generally is not extinguished by a subsequent sale of a good, there is an exception for fraudulent sales to good-faith purchasers for value.
    Los Angeles Federal Credit Union v. CarMax Auto Superstores California, LLC

    Borrowers Entitled To Notice of Default, Opportunity To Cure Despite Waiver of Default Notice In Mortgage Forbearance Agreement

    Borrowers obtained a mortgage from Achieva Credit Union. The mortgage contained an acceleration provision, which required Achieva to provide the borrowers with notice of default and 30 days to cure it. The borrowers later entered into a forbearance agreement which stated that no further notice of default was necessary and that notice of default of this agreement was waived. The borrowers completed payments under the forbearance agreement and resumed making their regular payments. Two years later, however, they received notice from Achieva that they were in default and that Achieva had accelerated the outstanding balance of the loan. When Achieva filed a foreclosure complaint, the borrowers defended on the basis that Achieva failed to comply with the notice and right to cure requirements contained in the mortgage. Achieva argued that the borrowers waived any further notice requirement when they executed the forbearance agreement. The court sided with the borrowers. It concluded that the forbearance agreement was not designed to waive any rights outside the time period during which it was in effect.
    Hatadis v. Achieva Credit Union

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