Credit Union Settles Suit Over Misapplied Disability Payment

Posted on Apr 18, 2014

According to a new report, Wallingford Municipal Federal Credit Union has reached a settlement with a former accounting clerk over the alleged misuse of her Social Security disability benefits. The legal battle between the former employee and the credit union lasted for three and a half years. The employee, Naomi Odell, sued her former employer for seizing her $13,801 Social Security disability benefit to repay a loan that was in default. Ms. Odell was victorious in the initial court battle, with a judge awarding her more than $200,000 in damages. However, the credit union appealed the verdict. While the initial judge found that the credit union committed statutory theft by illegally using Social Security benefits for debt collection purposes, the institution appealed claiming that it had a “right of setoff funds” that permitted the use of Social Security money to repay the loan.

 

Back in 2005, Ms. Odell’s husband, Nicholas, took out a loan from Wallingford Municipal FCU. At the time, Ms. Odell was working at the credit union. She was also a co-signor on the loan. When her husband later defaulted on the loan, the credit union sued him for outstanding loan balance. Ms. Odell was later fired from her job in April 2007. Her termination occurred after being diagnosed with multiple sclerosis. Her physician stated that she would no longer be able to work full-time. As a result, Ms. Odell applied for Social Security disability benefits in May 2007.

 

At the time that Ms. Odell applied for Social Security disability, she provided her bank account information with Wallingford Municipal FCU. She stated that her reason for doing so was that it was the only bank account that she had at the time. Her benefits were approved approximately one year later. Ms. Odell anticipated receiving a lump sum payment of $13,801, followed by a recurring $1,300 per month.

 

However, Ms. Odell reportedly grew concerned that her benefits would be deposited into her account at the credit union. She contacted the manager and asked that he return any Social Security disability funds to the Social Security Administration. She also opened a bank account at another bank. Ms. Odell informed the credit union’s manager and CEO that the funds were exempt from debt collection, and that she would lose her home to foreclosure without the benefits she was set to receive.

 

Unfortunately, the credit union did receive Ms. Odell’s Social Security benefit payment on June 2, 2008. The original checking account with the credit union had been closed. However, Ms. Odell still had a share account at the institution. The Social Security disability payment was deposited into that account. 

 

The specific terms of the settlement reached between the credit union and Ms. Odell have not yet been made public.

 

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Carl M. Weisbrod
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Managing Partner of Morgan & Weisbrod, Board Certified in Social Security Disability Law