Filed under: Current Issues in Credit Unions
And now back to our regularly scheduled programming. This month, Faith, Hal, Guy, Katherine & Rob discuss the following:
–NCUA wanting to pull State Employees CU’s Insurance?! http://www.cutimes.com/2012/05/16/oig-report-reveals-ncua-questions-secus-safety-and
–What’s new with FinCen?
–CUSOs and FOIA requests.
–Would testing directors for financial literacy help protect the insurance fund?
–Another whack at overdraft services. What’s going to happen and how should credit unions prepare? (See Shari Storm’s post below).
–Big K Roundup.
By Larry R. Rothenberg, Partner
A limited liability company (LLC) is a form of business association that was created to provide limited liability as well as tax benefits. Ohio’s LLC statutes, which were originally enacted in 1994, have been amended several times since. New amendments[1] that became effective on May 4, 2012, bring about significant changes.
Among the changes is a clarification and limitation on the rights of a judgment creditor. The amendments add to the statute[2] which provided that upon application for a “charging order”, a court could charge an LLC member’s membership interest in the LLC with payment of the unsatisfied amount of the judgment, and that to the extent the membership interest was so charged, the judgment creditor could have the rights of an assignee of the membership interest. But is that the creditor’s only remedy, or could the creditor also be entitled to levy on and take ownership of, the member’s interest, and demand that distributions be made or to participate in management of the Ohio LLC?
Prior to the amendments, Ohio’s statute was substantially similar to Florida’s corresponding statute[3] . In 2010, the Florida Supreme Court decided a case[4] holding that the remedy provided by the statute for a charging order was not the creditor’s only available remedy. The Court held that the judgment creditor could also make use of a separate statute whereby various categories of real and personal property, including “stock in corporations,” are subject to levy and sale under execution. Hence, the creditor in the Florida case was entitled to take over the management of the single-member LLC. Although that case is binding only in Florida and it dealt with a single-member LLC, the implication was that a similar remedy may also be available in the context of a multi-member LLC.
Perhaps in order to preclude an Ohio court from interpreting Ohio’s statute similar to the Florida case’s holding, the new amendments to Ohio’s statutes close the door to any alternative remedy. In clear terms, the amended statute now states that a charging order is the sole and exclusive remedy that a judgment creditor may seek to satisfy a judgment against the membership interest of a member or a member’s assignee. The amended statute further states that no creditor of a member of an LLC or a member’s assignee shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the LLC.
Any hope of convincing an Ohio court to follow the Florida decision is now gone. Based on Ohio’s amendments, judgment creditors of a member of an Ohio LLC are clearly limited to a charging order on the member’s interest. The charging order will entitle the creditor to LLC distributions, if and when made, but the creditor will not be permitted to take over LLC assets or participate in the management of the LLC.
The amendments to Ohio’s statutes also change, among other things, provisions with regard to operating agreements, a member withdrawing from the LLC, and the fiduciary duties of the members.
If you have any questions on this matter, please contact Larry R. Rothenberg, Esq. Larry is the partner in charge of the Real Estate Default Group in the Cleveland office of Weltman, Weinberg & Reis Co., LPA who focuses on complex foreclosures, evictions and title insurance issues. He is the author of the Ohio Jurisdictional Section within the treatise, “The Law of Distressed Real Estate”, and was a contributing author to “Ohio Foreclosures, What You Need To Know Now”, published by The West Group. He can be reached at 216.685.1135 or lrothenberg@weltman.com.
[1] H.B. 48.
[2] Ohio Revised Code §1705.19.
[3] Fla. Stat. §608.433 (4).
[4] Olmstead v. Federal Trade Commission, No. SC08-1009.
By Shari Storm
Last month, the Consumer Financial Protection Bureau (CFPB for short), announced that they would begin new inquiries into overdraft practices.
The CFPB is exploring whether consumers can anticipate and avoid overdraft fees. The CFPB will examine how clearly overdraft terms are disclosed and the extent to which consumers are made aware of, qualify for, and take advantage of, alternative means of covering overdraft transactions.
Many of us believe that we are going to have to disclose exactly how money moves through a member’s account. The CFPB is basically saying that if your institution clears largest checks first, say, then you’d need to tell members that. Or if you process all of your ACH debits before credits, consumers need to know that too.
All this is reasonable. Consumers should know this and it is fair to ask us to tell them. Being reasonable and fair, however, does not make it easy.
I was tasked with writing the summary of how money flow flows through our members’ accounts. It turned out I had to talk to a lot of staff to get all the details. Frontline, IT, consumer loans and mortgages helped me figure out this puzzle. I thought I’d share with you the complexities of modern banking that I found. I put them in checklist form to make it easier for you. If you are the person in your credit union that needs to pull this together, find the answers to these questions and you’ll be golden.
- What time do you start your processing each day?
- How long does it generally take?
- Do you process five, six or seven days a week?
- In what order to you process? (ACH deposits, allotments, checks)
- What order do you clear your checks (largest to smallest or first in / first out?)
- What time are checks cleared?
- When do you process your bill payments? (ours happen at the same time as we are doing ACH debits so transactions are jumbled with one another around 9 am every day)
- Which transactions can cause an overdraft fee? ACH? POS? Checks? Bill payer? Loan allotments?
- If your bill payer is not on your overdraft system what happens if there are not sufficient funds to pay a bill?
- When are your VISA payments processed?
- Are all VISA payments processed the same way? (our online banking payments go through a different system than those done in the branch or call center)
- Does your POS overdraft system use available funds? If so, what happens when there is a hold that lowers the available funds?
- What time of the day do you process overdraft fees?
- What if a member visits a branch and brings their account current before you process fees? Are they still charged the fee?
- Do POS transactions post at any time or do you batch them?
- When do your incoming wires post?
- When do your night drop deposits post?
- When do your shared branching transactions post?
- What other idiosyncrasies does your system have? (ask your front line, I bet they can tell you)
Good luck!
Shari Storm is Senior Vice President and Chief Marketing Officer of Verity Credit Union and is the author of the book “Motherhood is the New MBA”, available here: http://www.amazon.com/Motherhood-New-MBA-Parenting-Skills/dp/0312544316/ref=sr_1_1?s=books&ie=UTF8&qid=1314126290&sr=1-1
Filed under: Consumer Financial Protection Bureau
By Douglas Hattaway, Attorney
Regulations scheduled to take effect next year may force some credit unions to stop offering its members an important service: the ability to send money electronically to foreign countries. Earlier this year the Consumer Financial Protection Bureau (CFPB) issued its final rule on electronic remittances. The final rule amends Regulation E, which implements the Electronic Funds Transfer Act.
Under the new rules, businesses will have to make certain disclosures—such as the exchange rate, fees, and the amount of money to be delivered—before the consumer pays for a remittance transfer. However, the ability to cheaply and accurately provide these disclosures can depend on the process a company uses to facilitate remittances. Many major providers of remittance transfers use “closed networks,” where the remittance transfer provider has a contractual relationship with every network and agent involved in the remittance process. Many credit unions, however, facilitate electronic remittances using “open networks,” such as international wire transfers and international automated clearing house systems (ACH), where the remittance transfer provider does not have a contractual relationship with, and thus does not have the same ability to monitor and control every institution involved in the transaction.[1] For credit unions and other users of open networks, the regulatory burden imposed by these new rules could be enough to force them out of the electronic remittance market.
The new rules do provide a potential safe harbor: the rule only applies to a remittance provider that provides remittance transfers “in the normal course of its business.”[2] But what constitutes the “normal course” of business? A business that makes no more than 25 remittance transactions in a calendar year is deemed not to provide remittance transfers in the normal course of its business, but beyond that the standard gets murky. The comment to the current version of the rule states that what constitutes the normal course of business “depends on the facts and circumstances, including the total number and frequency of remittance transfers sent by the provider.”[3] Obviously, this fluid standard does little to ease compliance concerns and could potentially strip the safe harbor of much of its usefulness.
Fortunately, the CFPB has shown that it is willing to consider implementing a clearer (and possibly higher) threshold for the “normal course of business” standard, and has requested public comment on what this threshold should be. On April 6, 2012, the National Association of Federal Credit Unions (NAFCU) sent a letter to the CFPB arguing that the 25-transaction standard is useless because no business with such a low demand would expend the time and resources necessary to establish remittance transfer capability in the first place. Instead, NAFCU suggests that the threshold should be 600 transactions a year.[4] Similarly, the Credit Union National Association (CUNA) sent a letter to the CFPB urging the Bureau to raise the safe harbor from 25 transactions to 1,000 transactions a year, or alternatively, having the safe harbor protect any institution that does not earn more than 30% of its total net income from remittances.[5] Both letters suggest that credit unions may be forced to stop offering remittance transactions if the safe harbor provision is not expanded.
Hopefully the CFPB acts quickly to address these concerns. The final rule takes effect in February 2013.
DOUG HATTAWAY. Doug is an associate in Consumer Collections located in the Grove City, Ohio office. He can be reached at 614.801.2739 and dhattaway@weltman.com.
Footnotes:
[1] See 77 Fed. Reg. 6194
[2] Id.
[3] Id.
[4] A copy of the NAFCU letter is available here: http://www.cuinsight.com/456/media/news/nafcus_comments_to_cfpb_on_remittance_transfers.html
[5] A copy of the CUNA letter is available here: www.cuna.org/download/cl_040912.pdf
Filed under: Consumer Financial Protection Bureau, Dodd-Frank Act, Regulation E
By David A. Wolfe, Attorney
In order to remain competitive in the marketplace, financial institutions compete to produce attractive financial products and increasingly with regard to their customer service. Maintaining a sound, clear and transparent legal framework for the administration of business activities in the financial market is important to maintain stability and promote competitiveness, and sets a major challenge for state and federal lawmakers.
Over the past few years, government supervision of the financial services industry has increased significantly. New regulatory measures attempt to reduce the risk of future financial crises and increase consumer protection, which sounds reasonable, but imposes a huge collective burden. Stronger regulation significantly changes financial institution management and procedures, leading to necessarily higher costs.
Most notable is the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and its establishment of the Consumer Financial Protection Bureau, (CFPB), which transferred rulemaking authority for several consumer financial protection laws from various federal agencies, including the National Credit Union Administration (NCUA), to the CFPB on July 21, 2011. At more than 2000 pages, the legislation requires almost 400 different rules from more than 20 different federal agencies. The Dodd-Frank Act requires the CFPB, when issuing a rule, to consider “the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule.”
Regulatory challenges are also reshaping financial business models. While new consumer protection laws may restrict banking fees and increase transparency, they will also reduce revenue and profit margins for many financial products and services.
For example, in 2010, the Federal Reserve Board amended the Electronic Fund Transfer Act (Regulation E), which prohibited banks from charging overdraft transaction fees for ATM withdrawals or one-time debit card transactions, unless the consumer has specifically opted in for this overdraft coverage. The Federal Reserve estimates this change will reduce industry gross revenues for banks and credit unions by more than $15 billion annually. Financial institutions have diverse products and customers, which allows cross-product and cross-customer subsidies, but efforts to recapture this lost revenue will cause financial institutions to eliminate free services and reallocate fees and charges across all products and customers.
While there appears to be increased recognition of the impact that rulemaking activity has on the financial sector as well as on the broader economy, attention to economic cost-benefit analysis in rule making activities should continue to be a priority for any regulatory agency.
David is an associate of Consumer Collections in the Michigan office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 248.362.6142 and dwolfe@weltman.com.
Filed under: credit unions
by Lauren Halton
For the second year in a row Weltman, Weinberg & Reis sent out a call for nominations to all Ohio credit unions for our 2012 WWR Outstanding Community Partner award. Our goal is to honor credit unions that actively partner with their local communities to provide educational, community outreach and/ or community service programs. For the second year in a row, the response was enthusiastic and impressive, making selecting a winner very difficult! The winning credit union was Fiberglas Federal Credit Union of Newark, Ohio. Fiberglas Federal Credit Union’s vision supports the initial principals of the credit union movement: “People Helping People.” The credit union views being a community partner as a large component of its corporate culture. It instills in its employees the belief that their responsibility is not only to serve the needs of their membership but to also serve the needs of their community. All nine of Fiberglas’s Management Team serve active roles with charitable organizations. Big Brothers, Big Sisters, Licking County Coalition for Housing, Salvation Army and Saint Vincent de Paul Shelter to name just a few. Young served as Campaign Cabinet Chairman for the 2011-2012 United Way Campaign.
On May 11, 2012, Lauren Halton, credit union client representative for Weltman, Weinberg & Reis Co., L.P.A. (WWR), presented Jay Young, CEO, and Shani Smith-Reed, Vice President of Marketing, of Fiberglas Federal Credit Union of Newark, Ohio with the 2nd annual 2012 WWR Outstanding Community Partner Award at the credit union’s main branch located at 215 Deo Drive, Newark, Ohio 43055. Along with the crystal trophy, Fiberglas Federal Credit Union was awarded a $1,000.00 check to assist with their future charitable endeavors.
All nominees demonstrated a company-wide commitment to community service and were recognized for their participation. Other nominees included CME Federal Credit Union (Columbus), Credit Union of Ohio (Hilliard), Eaton Family Credit Union (Euclid), Members First Credit Union (Columbus), Teleris Credit Union (Cleveland), and Telhio Credit Union (Columbus).
This award is meant to celebrate credit unions in Ohio that are investing time and resources into their communities and inspiring others through their work. We congratulate all our nominees on the work and commitment they have demonstrated, are proud to partner with Glass City Federal Credit Union as our inaugural winner and look forward to supporting credit unions for years to come.
Lauren Halton is a Credit Union Representative with Weltman, Weinberg & Reis Co., LPA. She can be reached at 614.857.4382 or lhalton@weltman.com.
*Pictured left to right: Jay Young (CEO, Fiberglas Federal Credit Union), Lauren Halton (WWR) and Shani Smith-Reed (Vice President of Marketing, Fiberglas Federal Credit Union)
Filed under: bank secrecy act | Tags: Customer Identification Program, FACTA, Patriot Act
By August J. Ober, Attorney
With the passage of the Patriot Act in 2001, which amended FACTA and the Bank Secrecy Act by extension, financial institutions were required to develop a written Customer Identification Program (CIP). The Patriot Act requires that the CIP be integrated into the institutions Bank Secrecy Act and Anti-Money Laundering safeguards. Our credit union clients, of course, fall within the definition of “financial institutions” and thus are bound by the Patriot Act.
The CIP must set forth procedures and guidelines that would allow the credit union to form a “reasonable belief” as to the identity of the members they serve. The legislative intent was aimed at stifling identity theft and in turn terrorism.
So the million dollar question remains, “What allows the credit union to form “reasonable belief?”
The spirit of the requirement indicates that the totality of the circumstances can establish a “reasonable belief.” This begins with the opening of the account, where a credit union must obtain the following minimum information: member’s name, date of birth, address, and social security number. This initial information may be obtained solely based on the application the customer completes. However, best practices dictates that the credit union verify this information. Note that verification is not strictly required if a pre-established risk analysis so determines.
When verification is sought, it is usually achieved by traditional means such as the production of a Driver’s License, Government issued ID, Passport, Social Security Card, and/or Birth Certificate.
It is acknowledged however, that traditional forms of identification may not always be available. In these instances, a credit union may choose to verify through other means. For example, a credit union may compare information with other creditors, credit reporting agencies, or with public records such as property deeds or voters registrations. It has even been said that some financial institutions opened accounts using information verified by criminal mug shots, automobile titles, and even a rental agreement for a boat slip.
In the end, credit unions are only required to verify enough information to form a “reasonable belief” as to their members’ identity. If this sounds subjective, it is. As mentioned, traditional identification is not mandatory but clearly is the most reliable means of verification. A credit union should think twice before it creates a situation where it must defend its practices after inaccurately identifying a member through shoddy verification.
The credit union is best protected by establishing strict, clear, concise protocols to verify information when traditional identification is both available and unavailable; and alternatively define when a “reasonable belief” can not be formed. If a credit union stringently follows their own established procedures, then their subjective “reasonable belief” should stand up to scrutiny.
August is an associate of Consumer Collections in the Philadelphia office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 215.599.1500 and aober@weltman.com.
By Andrew C. Voorhees, Attorney
In a down economy, many businesses and financial institutions are forced to make difficult decisions to cuts costs and maintain profitability. For credit unions, one of those difficult decisions is whether to continue to participate in local or national trade associations. An examination of the value a trade association provides can determine whether it is a worthwhile expense.
Trade associations can provide representative and other collective products and services to credit unions in their common interests. In return for periodic dues and/or fees, trade associations offer networking, training, educational programs, advice and publications. Also, trade associations are typically non-profit organizations with a governing body made up of elected representatives from its members.
However, one of a trade association’s main functions is as a representative body. In this capacity, a trade association advances the collective view and position of its members to government departments, agencies, regulators and legislators. It also communicates the collective view and position to the media and other opinion-makers.
Detractors may cite that the lobbying functions provided by trade associations can now be accomplished by the member credit unions directly. The rise of social media has provided almost everyone with a forum to make their views known and work to advance their own agendas. Opponents may cite these low-cost grass roots efforts, as well as a lack of measurable results, as a viable alternative to paying periodic fees to a trade association.
However, trade associations provide credit unions with a more focused and effective lobbying effort than what would be accomplished on a piecemeal basis. Local credit unions may be too small to effectively lobby on a federal or state basis. As such, membership in a trade association can provide more leverage to have their voices heard in Washington. Trade associations can also provide advocates to carry the message to lawmakers and policymakers, as well as provide legislation and regulation analysis and gain consensus as to the direction of the industry.
In order to increase its value in the digital age, trade associations should make use of social media and other digital means to further connect with their members’ opinions and directions for the industry on a grass roots level. The largest credit union trade association is the Credit Union National Association (CUNA) based in Washington D.C. and Wisconsin, which claims 90% of credit unions as members. A review of their website (cuna.org) reveals a “Grassroots Action Center” to allow its members to take an active role in lobbying on current issues. The mechanism even allows for members to send correspondence to legislators electronically on various pending issues. As such, CUNA provides both a unified voice for the direction of the industry, while at the same time providing its members the means to lobby on a grass roots level.
While the fees required for membership with a trade association may be significant in the current economy, trade associations still provide value to credit unions – through networking, education, and training. They provide low-cost marketing opportunities to better connect with future customers. Most importantly, they provide a unified and focused lobbying effort for the industry as a whole. So long as trade associations continue to evolve and make use of the electronic grass-roots lobbying tools that have recently become prevalent, trade associations should continue to provide value to its members.
Andrew practices in Commercial Collections and is located in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.685.1050 and avoorhees@weltman.com.
Filed under: credit unions
By Shari Storm
I’m writing this on the third day of the five-day CUES CEO Institute. It is the end of April and the Cornell campus is covered in snow. At any rate…
Yesterday we spent a good deal of time discussing how executives can do a better job of learning from their failures. This has always been an interesting topic to me and I periodically re-read an article from the Harvard Business Review titled, “Teaching Smart People to How Learn”. <http://www.amazon.com/Teaching-People-Harvard-Business-Classics/dp/1422126005>
The main point of the article and from what we learned at class yesterday is that executives tend to be confident people (big surprise). But sometimes that confidence is actually overconfidence. Overconfidence leads to learning difficulties because leaders struggle to accept the fact that they don’t know something or that they did something incorrectly. An overconfident person has a tendency to think that they already know and have no need for learning or that any failure was not their fault.
One thing that has helped me on the path of learning from my failures is to put my mistakes into categories. I’ve identified three failure categories. It’s a shame our language doesn’t have separate words to describe each one.
Below is my category of failures and what I try to do to learn from each of them.
1. The “I’m Trying Something New and It Didn’t Work” failure.
The first type of failure is when you predict a certain outcome when trying something and it doesn’t work. For example, I thought slashing our overdraft on debit fee by half, would cause more people to opt into the service and more people to use the service. I assumed there was a certain amount of elasticity based on price. So we moved the fee down $14 and guess what? I was wrong. We had the same amount of people opt into overdraft protection as our peers and nobody used it more. After a few months of losing considerable non-interest income, we put the fee back to its original amount.
What did I learn from that experience? To watch a pricing change closely and if it is not performing as expected, change it quickly. I must also remind myself that I will not always be able to predict consumer behavior, but as head of marketing, it’s my job to do so. One of the hardest things about marketing is how often your ideas don’t work. Fail fast and move on.
2. The “I Had No Idea” failure.
The second type of failure is when you are missing critical information – usually because of inexperience, poor training, or lack of guidance. When I first started at the credit union, I renamed one our products. I didn’t realize at the time that I needed to get it trademarked. I had never worked in a company that named services so I didn’t know anything about trademarks. A few years later another financial institution trademarked the name and I was left with egg on my face.
What did I learn? Sometimes I don’t know what I don’t know. The higher up the organization chart and the longer you’ve been at a job, the harder it gets to combat this. You need to do things like ask questions all the time. “Is there anything else I need to do on this project? Is there anything I’m not thinking of?” You need to hang out with people in your field and learn from their mistakes. You need to keep reading and listen to others. Learn fast and keep learning.
3. The “I Just Plain Screwed Up Because of My Bad Habits”
The last, and most important type of failure is when a weakness you have causes you to mess things up. I once lost one of my most valued employees because I failed to communicate with her. It was chiefly because I was overcommitted and stretched too thin. Calling her and explaining something was on my list and I didn’t get to it and didn’t get to it and before I had a chance to talk with her, she had accepted a job someplace else.
What did I learn? Every person has a list of about four things that they consistently do that keeps them from being their most successful self. I need to watch those things carefully and when I start to do them – STOP. In this instance it was waiting too long to do something important. I must remind myself that I can change these behaviors. I’m smart enough, discipline enough and determined enough. I just need to do it.
While it doesn’t do us any good to beat ourselves up over our failures, it does do us a great disservice not to learn from them. As Professor Russo stated so eloquently yesterday, “Experience is mandatory. Learning is not.”
Shari Storm is Senior Vice President and Chief Marketing Officer of Verity Credit Union and is the author of the book “Motherhood is the New MBA”, available here: http://www.amazon.com/Motherhood-New-MBA-Parenting-Skills/dp/0312544316/ref=sr_1_1?s=books&ie=UTF8&qid=1314126290&sr=1-1
Filed under: Uncategorized | Tags: arbitration agreements, Federal Arbitration Act
By Amanda R. Yurechko, Attorney
While the Federal Arbitration Act encourages the use of an arbitration provision in a contract and encourages the use of arbitration as an inexpensive and relatively quick way to resolve disputes, much of the discussion surrounding the use of an arbitration agreement in a nursing home admission agreement is less favorable. Such agreements have been criticized as favoring the nursing home industry and asking elderly residents to give up rights they otherwise have, at a time in the life when they are most vulnerable.
The Supreme Court issued a ruling this past February that no state can impose additional requirements upon arbitration agreements that conflict with the Federal Arbitration Act (FAA).[1] In Marmet Health Care Center v. Brown [2], the U.S. Supreme Court considered West Virginia’s requirement that all claims for wrongful death or negligence submitted to arbitration, must be accompanied by a post-dispute arbitration agreement. The West Virginia Supreme Court of Appeals had previously held that, “as a matter of public policy under West Virginia law, an arbitration clause in a nursing home’s admission agreement adopted prior to an occurrence of negligence that results in a personal injury or wrongful death, shall not be enforced to compel arbitration of a dispute concerning the negligence.”[3] The Supreme Court reiterated the federal policy in favor of arbitration as a dispute resolution tool.[4] It also relied upon its recent ruling in AT&T Mobility LLC v. Concepcion,[5] holding that “when a state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” The Supreme Court struck down the West Virginia requirement of a post-dispute agreement to arbitrate, as a prerequisite to compel arbitration.
The debate about post-dispute agreements to arbitrate is far from settled however. Several major arbitration forums limit consumer arbitrations by refusing to handle them or by requiring a post-dispute agreement before they will accept an arbitration of a nursing home matter. As an example, The National Arbitration Forum no longer accepts any arbitration by a commercial entity against a consumer, including a nursing home against its resident. The American Arbitration Association requires this “post-dispute” agreement to arbitrate in a matter against a consumer. Further, Congress is still considering what has been billed as the “Fairness in Arbitration Act,” which seeks to eliminate the use of arbitration agreements in the nursing home-resident relationship.[6]
Notably, the arbitration agreements in the Marmet Health Care Center v. Brown line of cases contained provisions that exempted the collection of the balance due on the account from the requirements of the arbitration provision. When drafting an agreement with consumers, it’s important to consider this type of exemption, in order to streamline the collection and litigation of past-due accounts and avoid the issues raised by the courts regarding arbitration in this context.
While there may be benefits to using an arbitration agreement in general, the collection of a past due account should be exempted in order that the account may be collected quicker, more economically, and with less debate over the need for a post-dispute agreement to arbitrate. With pre-existing arbitration agreements, providers should look to the rules of the specific forum to determine whether they will take the arbitration, and review the procedures of the forum to determine if a post-dispute agreement is required. If post-dispute consent cannot be obtained, in some states, the resident will be deemed to have waived the right to arbitration by failing to raise it in state court litigation. Additionally, if the Arbitration Agreement itself is waived or deemed invalid, in most cases the nursing home can proceed to obtain a judgment under the remaining terms of its admission agreement.
While this is a very broad topic for an article of its own, keep in mind that all is not lost if the Arbitration Agreement cannot be enforced, which we will address in a follow-up advisory shortly. In the meantime, if you have any questions about your facility’s use of arbitration provisions in your admission agreements, or about the case law detailed in this advisory, please contact our office.
[1] 9 U.S.C. 1 et seq.
[2] 132 S. Ct. 1201 (2012)
[3] Brown v. Genesis Healthcare Corp. No. 35494 (W.Va., June 29, 2011
[4] KPMG LLP v. Cocchi, 132 S. Ct. 23, 25 (2011)
[5] 131 S. Ct. 1740, 1747 (2011),
[6] See S. 987, and H.R. 1873, introduced in the 2011-2012 term.
Amanda Yurechko is an associate in Consumer & Commercial Collections, focused on the Governmental Collections, Healthcare, Commercial Collections and Commercial Business Groups with Weltman, Weinberg & Reis Co., LPA. She is based in the Cleveland office. Amanda can be reached at 216.685.1060 and ayurechko@weltman.com.
