Indiana bank bills could erode consumer protections

The revival of a bill that would allow banks to change contract terms without explicit consent from their users rang alarm bells for consumer advocates but faced little opposition in the House. Additionally, the proposal would override two recent opinions from the Indiana Supreme Court.

The move coincides with another bill, this time in the Senate, that would shorten the statute of limitations for consumers to take legal action against their banks while simultaneously capping award amounts.

For Erin Macey, the director of the Indiana Community Action Poverty Institute, both pieces of legislation further erode already weak protections for Hoosier consumers and haven’t received enough attention.

“At their heart, I think they’re about the same issue. On a very basic level, banks and credit unions are being sued over their overdraft fees,” Macey said. “Rather than let that play out in the courts, they are going to the legislature to permanently take away consumer protections. Every person who has a checking or a savings account should hear about this.”

Both continue through the legislative process, now at its halfway mark, despite bipartisan qualms. Neither have yet been scheduled for committee hearings in their opposite chamber.

A second attempt

House Bill 1284 draws some of its contents from a bill that passed the House last year and died when amended into a bill from the Senate. Author Rep. Kyle Pierce, a Republican from Anderson, characterized it as a bill that “restores the long-held legal principle that continued use or silence are forms of acceptance” and reverses two Indiana Supreme Court decisions.

Those decisions, Decker v. Star and Land v. IU Credit Union, were both 2023 cases in which justices sided with Hoosier consumers over financial institutions. In Land, the banks slipped arbitration clauses into lengthy monthly statements after customers had opened accounts and instructed users that continued use constituted agreement to the new terms.

Justices determined that “silence and inaction did not amount to assent,” when it came to inserting new contract language. Land was part of a class action lawsuit concerning overdraft fees similar to the Decker case.

“Rather than suggesting that Land’s silence would amount to acceptance, the parties’ previous dealings point in the opposite direction: the need for affirmative assent,” read the ruling, which included the bolded words.

Notably, Justice Mark Massa disagreed with the majority, saying that Land had received notice and continued using the account, a consent option that “was neither burdensome nor unreasonable, but the consequences of our decision today may turn out to be both.”

In committee, Pierce detailed the cases and said justices were “hawkish on (the) issue of notice,” saying his proposal would require written notice of changes — which the court agreed was adequate but still didn’t resolve consent.

This question of consent was exactly what sank the language last year, bringing together an unlikely coalition of senators who typically disagree with one another: Sen. Greg Taylor — a Democrat — and Republican Sens. Mike Young and Aaron Freeman.

Young, an Indianapolis Republican, disagreed with the idea that banks should add new language into contracts, such as arbitration, “that never had anything to do with the language to start with.”

Indiana already has weak consumer protections, according to a December 2023 report from the National Consumer Law Center. The organization gave Indiana a ‘D’ grade when it came to its nationwide evaluation, which included creditor limitations on garnishing wages and letting families maintain small amounts of funds.

“This is a dangerous precedent that we’re allowing … if someone says, ‘well, if it’s good enough for financial institutions to add something to a contract, why can’t I do it? Why can’t a hospital do it? Why can’t an attorney do it?’” Young said. “Only the bank can add the language but not the other party. And that’s even more unfair — to allow one party to completely change the contract without the parties ability to do anything about it.”

Opponents last year also noted that when other companies increase fees or change terms mid-contract — such as Netflix — the process of canceling is quick and easy, unlike when someone wants to close a bank account.

Additionally, Young observed that arbitration would “more than likely” favor banks.

In a roll call on April 19, 2023, the bill failed on a 19-22 vote, sending it to a conference committee where the language on implicit consent was stripped.

But the 2024 bill faces little opposition, garnering just four ‘no’ votes in a Jan. 30 vote in the House — three Democrats and one Republican.

Less time to sue

At the same time, the Senate is moving forward with a bill that would shorten the amount of time that Hoosiers have to sue their financial institutions from six years down to two, and caps the amount of damages that can be awarded.

A committee amendment from Freeman would also limit the window for banks to sue users to two years.

Senate Bill 188, authored by Sen. Scott Baldwin, would curb “predatory practices by big law firms” that bring class action lawsuits against banks. He said account agreements would go up for all Hoosiers to protect the few who made bad money choices.

The bill would “try to dissuade those actions” by trimming the statute of limitations, which the General Assembly cut from ten years down to six in the last few years.

In committee, Macey said that shortening the length of time people had to sue would not only discourage class action lawsuits but also make it harder for individuals to sue their banks for excessive overdraft fees. This disproportionately harms impoverished Hoosiers, she said.

“But finding legal help to challenge harms like these — that may be repeated across many people — it’s important but it’s very challenging. This is where class actions and contingency fee cases come in,” Macey testified.

She said that some financial institutions had reorganized transactions in a way that would charge multiple overdraft fees, dinging customers repeatedly, even as the national conversation shifted away from overdraft fees.

Macey pointed to the National Credit Union Administration (NCUA), which had recently urged credit unions in Indiana to reconsider their overdraft protection programs to better align with the overall mission to empower impoverished communities.

“… the reality is that punitive overdraft fees can harm consumers, and households hit by frequent fees often have their checking accounts closed,” NCUA Chair Todd Harper told the Indiana Credit Union League in May. “In addition, Black and Hispanic consumers are more likely to be charged these fees and have their accounts closed, creating an inequitable environment of financial exclusion for people of color, instead of a better system of financial inclusion.”

Harper noted that other financial institutions had stopped charging such fees altogether and credit unions would be pressured to follow suit.

The bill passed out of committee 7-2 with no Democratic support. But two of the Republican members who voted ‘yes’ expressed their concerns about the legislation. Freeman said the issue didn’t appear to be six years versus two years, but rather overdraft fees in general.

“I think we’re taking a swing and we’re hitting something (but) missing the problem,” Freeman said. “All I know is, if I’m an individual in Indiana and I find out my bank has done something wrong … and I’m limited to two years of damages as opposed to six years of damages, I think all of us would be very angry about that.”

“I think we should think long and hard about what we’re doing,” Freeman continued.

By Whitney Downard – The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.