The North Carolina Supreme Court on Thursday, May 23 held that a credit union’s unilateral update to add an arbitration provision and class action waiver to its contract with one of its customers was valid under North Carolina contract law.

The decision in Canteen v. Charlotte Metro Credit Union means that an arbitration amendment added by the credit union — now known as Skyla Credit Union — to member contracts was binding and enforceable.

For financial institutions and other consumer-focused companies, the court’s divided decision provides clarity that unilateral amendments to agreements can be made, provided the contract specifically allows unilateral changes, and the subject of the amendment is already a topic covered in the agreement. 

Unilateral Change Is Not a Breach of Implied Covenant of Good Faith and Fair Dealing

In Canteen, Charlotte Metro Credit Union held checking accounts for various parties and was sued in a class action for allegedly charging improper overdraft fees.

The checking account agreement provided that the credit union could unilaterally change the account agreement on notice to the account holder. Charlotte Metro Credit Union decided to unilaterally amend the contract to add an arbitration provision and class action waiver and sent a notice stating that these provisions would become effective unless the account holder opted out.

When Charlotte Metro was subsequently sued, it moved to compel arbitration. The plaintiff claimed that the unilateral change to the contract violated the implied covenant of good faith and fair dealing, and that allowing unilateral amendments by one side would render the contract illusory.

In a divided opinion, the North Carolina Supreme Court held for Charlotte Metro.

“Change-of-terms provisions permit unilateral amendments to a contract so long as the changes reasonably relate back to the universe of terms discussed and anticipated in the original contract,” the court wrote in its majority opinion.

The court clarified that a unilateral amendment provision does not grant a party “free rein” to change a contract however it wants. Importantly, if a party attempted to unilaterally amend a contract to deal with subjects not addressed in the original contract, that would violate the covenant of good faith and fair dealing, which is implied by law into every contract. Fortunately for Charlotte Metro, its original account agreement contained a North Carolina choice of law clause and provided that any lawsuit would be filed in the county where the credit union was located. The court held that those provisions meant that the forum for disputes was a term already discussed in the original contract, so Charlotte Metro could change the forum to arbitration by a unilateral amendment. Two justices dissented.

Final Takeaway

This ruling from the Supreme Court is a significant victory for financial institutions wanting to minimize the risk of potential consumer class actions through arbitration and class action waiver provisions. It provides a mechanism for modifying existing contracts that include a unilateral amendment provision without the necessity of having each consumer sign a new contract (which would be virtually impossible for most large companies). 

But caution is required given the scope of the court’s ruling. Financial institutions must still tread carefully in trying to roll out new provisions on any topics not squarely addressed in the existing agreements.   

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