Banking contracts bill squeaks by in Senate vote

A bill allowing financial institutions to change contract terms on customers without explicit acceptance narrowly passed the Senate Tuesday on a 28-21 vote and now moves one step closer to the governor’s desk.

House Bill 1284 is a response to two recent legal cases in which justices sided with Hoosier consumers over banks and credit unions. In one case, the Indiana Supreme Court determined that banks needed affirmative assent and couldn’t take a user’s silence and continued use of a product as acceptance. 

Banks, credit unions stinging from court losses turn to legislature

The House proposal would reverse those rulings. In other words, if a bank changes a contract — such as slipping in an arbitration agreement and therefore barring a Hoosier from settling certain differences in court — but the customer doesn’t close the account for another 30 days, that means they’ve accepted the changes. 

“Banking is unique,” said Sen. Mike Gaskill, the Senate sponsor for the bill. “Where else in your life do you make an agreement or enter into a contract with someone that lasts 30, 40 or 50 years? … The world has changed and the practice of giving advance written notice has changed.”

Gaskill, R-Pendleton, said financial institutions statewide had been using this process for new language but were “turned … upside down” by an “unfortunate court decision.” 

“We cannot hamstring our banking industry into the dark ages,” Gaskill concluded.

But not everyone agreed with Gaskill’s arguments, including the Indiana Community Action Poverty Institute, which testified against the bill in committee.

“Hoosiers deserve to be treated fairly in their banking relationships. This unprecedented bill completely undermines what few rights consumers have and leaves them even more vulnerable to abusive practices. Governor Holcomb should stand by consumers, small business owners, and the Indiana Supreme Court and reject this bill,” said Erin Macey, Director of the institute in a statement.

Sen. Fady Qaddoura said he might be inclined to support the legislation if it included a more “conspicuous notice for consumers” and a longer period of time to accept. 

“I don’t think the banking institutions are intentional about harming consumers but I think what we’re asking for is balance,” Qaddoura, an Indianapolis Democrat, said. 

A split in the Republican caucus

According to Sen. Scott Baldwin, the shortened time period is necessary to allow banks to quickly comply with federal regulations. He filed a bill similarly decried by consumer advocates to shorten the length of time customers have to file class action lawsuits against financial institutions. That bill is scheduled for a hearing on Thursday in the House.

“We’ve become aware that there’s quite a few predatory law firms from outside our borders, outside of our state, that are preying on our banks with class action lawsuits that also have a negative effect on our consumers to the tune of million of dollars in settlements … which in turn also drives up deposit account rates and other banking fees,” said Baldwin, R-Noblesville. 

He pointed to a Senate amendment to specify that notifications must come in writing in the form preferred most by a customer.

“There’s no doubt it’s not completely perfect as it relates to where we want to be with consumer protection. But it’s better than it was,” Baldwin said. 

But Baldwin’s colleagues were split and some repeated the same arguments that sank similar language last year. Indianapolis Sen. Aaron Freeman even quoted the Bible — “Father forgive them, for they know not what they do” — saying that the bill changes existing contract law. 

Fellow attorney and Indianapolis Republican Sen. Mike Young said the law wasn’t fair to both parties, since customers couldn’t simply change contract terms and expect the bank to accept them.

During Young’s questioning, Gaskill said dissatisfied customers could seek another bank, a response panned by the senator, who said “All banks can do this. What guarantee do I have when I go to another bank that they don’t get me hooked in with something nice to then unilaterally change it afterwards?”

“They shouldn’t be able to unilaterally just change these on us and our only answer is to go to another bank that can do the very same thing,” Young concluded.

The coalition of 13 Republicans — both moderate and ultraconservative members — combined with eight Democrats wasn’t a large enough group to sink the bill, which now moves back to the House.

The House must either vote to concur with the Senate changes or send it to a conference committee to negotiate a deal between the two chambers. The proposal previously encountered little opposition on the House floor — getting just four ‘no’ votes from three Democrats and one Republican.