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Financial Services Law Insights and Observations

North Carolina Supreme Court upholds credit union’s right to enforce unilaterally inserted arbitration clause

Courts Credit Union North Carolina Arbitration Contracts


On May 23, the North Carolina Supreme Court ruled that a defendant credit union can enforce an arbitration clause added to a customer’s contract years after its inception. The case centered on a “Notice of Amendments” provision in the contract, which customers agreed to when opening accounts, allowing the credit union to unilaterally change contract terms with proper notice to the consumer.

In January 2021, the credit union notified the plaintiff that it was updating its membership agreement to include an arbitration requirement for certain disputes and a waiver of class actions. In March 2021, the plaintiff filed a class action lawsuit against the credit union, alleging that it was improperly collecting overdraft fees on accounts that were never overdrawn. The trial court denied the credit union's motion to compel arbitration, but the appeals court reversed that decision and remanded the case with instructions to stay the case pending arbitration, holding that the addition of the arbitration provision was enforceable.

The North Carolina Supreme Court addressed in its opinion whether the inclusion of the arbitration violated the implied covenant of good faith and fair dealing. The Court highlighted the economic necessity for companies to adapt contractual terms efficiently and found that amendments adhering to the original contract's subject matter met the covenant of good faith and fair dealing.

The court then turned to the question of whether the original agreement “reasonably anticipated” the changes and whether the changes reasonably related to “subjects discussed” in the agreement. The court held that the inclusion of an arbitration clause was foreseeable due to the original contract's dispute resolution terms, which stated that the agreement was subject to the laws of North Carolina and set the venue for any dispute. Since the agreement’s changes addressed the forum for disputes, the court deemed this to be within the “same universe of terms.” Moreover, the court determined the contract was not illusory because the language included in the change to the contract limited its scope by stating “[e]xcept as prohibited by applicable law.”

Finally, the court rejected the plaintiff’s argument that she did not accept the offer to arbitrate “through silence,” holding that there was an agreement between the credit union and the plaintiff that the credit union could change the terms upon proper notice, not with consent of the plaintiff.