NC Supreme Court Upholds Credit Union’s Arbitration Provision
Recently, the Supreme Court of North Carolina upheld a change-of-terms provision of the defendant credit union’s user agreement, under which the credit union later unilaterally amended the agreement to require arbitration of disputes.
The class action complaint in this case was filed in March 2021 by an account holder challenging allegedly improper overdraft fees. The original membership agreement included a clause that provided that the credit union may change the terms of the agreement upon notice to the account holder. The credit union subsequently sent notice to account holders that it was amending the agreement’s “Governing Law” provision to require arbitration, instead of requiring legal action to be brought in the county in which the credit union was located.
The credit union filed a motion to compel arbitration pursuant to the amended agreement that had added the arbitration clause, to which the class representative failed to opt out within the allotted 30-day window. The trial court denied the credit union’s motion. The credit union appealed the ruling, which the Court of Appeals reversed, finding the arbitration amendment enforceable.
Plaintiffs appealed to the Supreme Court of North Carolina, arguing that the addition of the arbitration clause pursuant to the change-of-terms provision did not comply with the implied covenant of good faith and fair dealing. On review, the Supreme Court noted that a change-of-terms provision “does not grant a party free reign to alter a valid agreement.” However, it held that changes to an agreement that are related to the “universe of terms” included in the original agreement are enforceable.
The Supreme Court of North Carolina concluded that the arbitration provision reasonably related back to the “Governing Law” provision of the original agreement, which set forth the forums for dispute resolution. Therefore, the modified term related to a subject addressed in the original agreement and was enforceable.
