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Case Law Review: Maintain Clear Account Card Policies

Date:

THE LAW: BY BRAD R. BERGMOOSER

Why should your credit union develop and implement clear policies when
it comes to completing and changing beneficiaries on account cards?
Examining one law case that is surprisingly relevant to what CUs witness on
a daily basis could help save your credit union both time and money. Learn
these valuable lessons now to avoid legal headaches down the road.

The creation of the CFPB and heightened scrutiny from the NCUA and state regulators has focused much attention on the regulations and guidelines of those administrative agencies. It’s important for credit unions to remember, however, the lessons that can be learned from case law. Despite the ever increasing power being exerted by the executive branch of government, it’s the judiciary that has the final say in interpreting law.

Keeping the courts in mind, a recent case highlights why credit unions need to develop and implement clear policies on completing and changing beneficiaries on account cards. In inscott v. Bader, an appellate court was tasked with determining the recipient of funds in accounts held by a deceased member.

The facts of the case are similar to those credit unions see on a daily basis. The member had three accounts – checking, CD and an IRA – with a beneficiary listed on the account card. The issues leading up to litigation were triggered when the beneficiary died and the member attempted to add a new beneficiary. The credit union’s account card was two sided. The member completed the front side and the new beneficiary added his information on the back side. Unfortunately, the space for the member’s signature was on the back page and it was left unsigned. (The credit union’s policy required a signature.) With two cards, each half-completed, the credit union stapled them together and placed them in the file with the previous account cards. Following the member’s death, the credit union contacted the new beneficiary to inform him of some bills that would be paid out of funds in the accounts but ultimately decided the stapled account card was invalid and turned the funds over to the administrator of the estate.

The court ruled on two issues: 1) Was the account card listing the new beneficiary valid? and 2) If so, to which of the three accounts did it apply? The ruling, which was that the new beneficiary was entitled to the funds, and those funds, including the checking account and CD but not the IRA, are less relevant to this discussion than the fact that the entire situation could have been avoided. As the opinion discussed, the credit union had policies in place. Those policies were not followed and the result was the time and expense needed for the court to resolve the dispute. Credit unions can take away several valuable lessons from what happened in Linscott:

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