Navy Federal Credit Union Agrees to CFPB Order, $28.5M Fine for Improper Collection Actions

Yesterday, the Consumer Financial Protection Bureau (CFPB) announced that it had entered into a consent order with Navy Federal Credit Union (NFCU). The CFPB had taken action against NFCU for making false threats about debt collection to its members, which include active-duty military, retired servicemembers, and their families. The CFPB also claimed that NFCU had unfairly restricted account access when members had a delinquent loan.

NFCU is correcting its debt collection practices and will pay roughly $23 million in redress to victims along with a civil money penalty of $5.5 million. A copy of the consent order can be found here.

“Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts,” said CFPB Director Richard Cordray, in a release detailing the settlement. “Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so.”

NFCU is a federal credit union based in Vienna, Va. Membership in the credit union is limited to consumers who are, or have been, U.S. military servicemembers, Department of Defense civilian employees or contractors, government employees assigned to Department of Defense installations, and their immediate family members. It is the largest credit union in the country, with more than $73 billion in assets as of December 2015.

CFPB Findings

The CFPB investigation found that Navy Federal Credit Union deceived consumers to get them to pay delinquent accounts. The credit union falsely threatened severe actions when, in fact, it seldom took such actions or did not have authorization to take them. The credit union also cut off members’ electronic access to their accounts and bank cards if they did not pay overdue loans. Hundreds of thousands of consumers were affected by these practices, which occurred between January 2013 and July 2015. The practices violated the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Specifically, the CFPB found that Navy Federal Credit Union:

• Falsely threatened legal action and wage garnishment
• Falsely threatened to contact commanding officers to pressure servicemembers to repay
• Misrepresented credit consequences of falling behind on a loan
• Illegally froze members’ access to their accounts

The Consent Order

Under the terms of the order, Navy Federal Credit Union is required to:

• Pay victims $23 million
• Correct debt collection practices
• Ensure consumer account access
• Pay a $5.5 million civil money penalty

insideARM Perspective

It is interesting that the announcement of the latest CFPB enforcement action comes on the same day as the United States Court of Appeals for the D.C. Circuit decision determining the structure of the CFPB is unconstitutional. See In Long Awaited Decision, DC Court of Appeals Rules CFPB Structure is Unconstitutional.

It is not surprising that the CFPB closely examined collection practices at NFCU. Treatment of servicemembers by creditors and collectors is high profile. Just last week insideARM wrote about another significant case involving collection activity against servicememembers. That case involved a settlement between 49 State Attorneys General and USA Discounters.

Our servicemembers deserve better. They deserve to be treated in a fair and compliant manner.