PIERRE, S.D. Members of Black Hills FCU have petitioned the South Dakota Supreme Court to declare a lawsuit against the credit union and CUNA Mutual Group’s CUMIS Insurance Society unit over credit life disability terms a class action.
The lawsuit alleges that CUMIS improperly changed the terms and rates of credit life and disability policies that make loan payments if borrowers become disabled.
A lawyer for the borrowers says the lawsuit must be handled as a class action because it would be impossible for 4,461 borrowers to file their own lawsuits.
An attorney for the insurance company argues the dispute cannot be handled as a class action because each borrower would have to testify about whether they waited too long to sue.
The lawsuit alleges that the credit union and insurance company improperly changed the terms and rates for disability insurance without giving borrowers sufficient notice.
Court documents indicate that people who borrowed money and bought the disability insurance before July 1, 1999, had been told they would be notified before any premium rate was increased. The lawsuit alleges that a quarterly advertising newsletter sent to credit union members contained a notice that said the insurance terms would change and premium rates would increase on July 1, 1999, but few people would be able to understand the change would double the amount they would pay for the insurance.
Ed and Kathy Thurman of Rapid City discovered the change in 2009 when they decided to pay off their home equity loan early but found out they owed more than $10,000 instead of $4,260, according to court documents. Their monthly payments had not changed, but the loan was being paid off more slowly because more of the payment was going to insurance rather than the loan principal.
The state Division of Insurance told CUNA it had acted illegally because the newsletter notice did not comply with requirements. The division then asked the insurance company to waive the extra amount owed by the Thurmans, but the Thurmans instead filed a class action lawsuit on behalf of other borrowers.
Court documents indicate credit union officials were surprised when they discovered the insurance change had substantially increased the amount borrowers had to pay over the life of their loans.
The credit union and insurance company argue that the borrowers waited too long to sue because state law requires such claims to be made within six years of an alleged wrong. The borrowers contend they can still sue because they have six years to file after they discovered the wrong.
