North Carolina Supreme Court Allows Unilateral Changes To Terms Of Service Agreement

Changing the Terms of Service (DALL-E)

On May 23rd, the Supreme Court of North Carolina ruled that a credit union can enforce an arbitration clause that had been unilaterally added to a banking customer’s contract at a later date.  

The case involves a contract dispute between Pamela Phillips and the Charlotte Metro Credit Union (“CMCU”). In 2013, Ms. Phillips opened a checking account with the CMCU and agreed to a standard membership agreement, which included a "Notice of Amendments" provision allowing the credit union to change the terms of the agreement upon notice to Ms. Phillips. It did so in 2021, amending the agreement to require arbitration for certain disputes and to waive customers' right to file class actions. Ms. Phillips was notified via email about the change, but there was no explicit opt-out in the email, and she did not notify the CMCU that she was opting out within the prescribed 30-day window.

In March of 2021, upon discovering that the CMCU had charged her overdraft fees on accounts that were not overdrawn, Ms. Phillips filed a class action complaint. When the CMCU moved to compel arbitration according to the amended agreement, the trial court denied the motion, citing that the "Notice of Amendments" provision did not permit the credit union to add an arbitration provision unilaterally. The CMCU appealed the decision to the N.C. Court of Appeals, which reversed the trial court's decision, ruling that the arbitration amendment was enforceable.  One of the judges, however, argued in dissent that the amendment violated the covenant of good faith and rendered the contract illusory.

After further appeal, in May the N.C. Supreme Court held that the arbitration amendment was indeed permitted because it was within the “universe of terms “of the contract and, therefore, its addition was allowed under the unilateral amendments provision. The court did not define specifically how to determine the “universe of terms” of an agreement but did note that application of unilateral amendment provisions still implicated the duty of good faith and fair dealing.

Key takeaway:  Unilateral changes to terms of a service agreement may be permitted if the original contract includes a provision that allows for such unilateral modification and the new term(s) reasonably relate to the universe of terms in the original contract.