Profits Before People

Credit unions like to talk about how they put people ahead of profits; but a complaint before the South Dakota Supreme Court against Black Hills Federal Credit Union (Rapid City, SD) and CUNA Mutual Insurance Society (CUMIS) seeking class certification paints an entirely different picture.

The issue deals with credit disability insurance sold by Black Hills FCU to borrowers provided by CUMIS.

The complaint states that on July 1, 1999 Black Hills FCU unilaterally changed the terms of the policy by increasing what it charged for coverage with negligible increase in disability coverage. According to the complaint, the new coverage was 68% more expensive than the coverage that the insureds bought.

It alleges that CUMIS and Black Hills FCU consulted with each other before changing the terms and determined that the change would bring them significant financial benefit.

The complaint states the Black Hill FCU consulted with CUMIS on the placement of the "Notice to Members" so that the notice would not attract attention.

The "Notice to Members" of the change was buried inside the credit union's newsletter on the bottom of the fourth page. Information at the top of the page was in bold typeface and large font, "so that the reader’s eye and attention would be drawn to the bold typeface and large font, rather than to the “Notice to Members” at the bottom of the page."

The complaint stated that Black Hills FCU under the advice from CUMIS concealed:

• "The rate the members were paying before the increase;
• The percentage amount of the increase;
• The dollar amount of the increase over the life of the loan;
• The increased amount of interest that BHFCU would collect over the life of the loan as a result of the increased premium; and
• The insignificant benefit of the negligibly increased insurance coverage."

The complaint alleges that if the members "understood how much their premium was being increased, and how little increased benefit that they were providing with the premium increase," the members would have rejected the change.

The lawsuit accuses CUMIS and Black Hills FCU of breach of contract and unjust enrichment, along with other violations.

In addition, the South Dakota Division of Insurance had informed CUMIS that it had acted illegally because the newsletter notice did not comply with state requirements.