On October 11, 2016, the Consumer Financial Protection Bureau (CFPB) announced that it had taken action against Navy Federal Credit Union for allegedly making false threats about debt collection to its members, which include active-duty military, retired servicemembers, and their families, and for allegedly restricting account access when members had a delinquent loan. Under the terms of the consent order, Navy Federal Credit Union will pay approximately $23 million in redress to consumers, pay a civil money penalty of $5.5 million, revise its debt collection practices, and take steps to ensure delinquent members can access their accounts.
The CFPB alleged that Navy Federal Credit Union deceived consumers to get them to pay delinquent accounts by threatening to take actions it seldom took or did not have authorization to take. The CFPB also alleged that Navy Federal Credit Union also cut off members’ electronic access to their accounts and bank cards if they did not pay overdue loans. These actions allegedly violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair or deceptive acts or practices and occurred between January 2013 and July 2015. Specifically, the CFPB alleged that Navy Federal Credit Union:
- Falsely threatened legal action and wage garnishment: The CFPB alleged that the credit union sent letters and made phone calls to members threatening to take legal action unless they made a payment, but seldom took any such actions. In addition, the CFPB alleged that the credit union threatened to garnish wages when it had no intention or authority to do so.
- Falsely threatened to contact commanding officers to pressure servicemembers to repay: The CFPB alleged that the credit union sent letters and made phone calls to servicemembers threatening that the credit union would contact their commanding officers if they did not promptly make a payment. According to the CFPB, the credit union was not authorized and did not intend to contact the servicemembers’ chains of command about the debts it was attempting to collect.
- Misrepresented credit consequences of falling behind on a loan: The CFPB alleged that the credit union sent letters to members misrepresenting that they would find it “difficult, if not impossible” to obtain additional credit because they were behind on their loan. The CFPB alleged that the credit union had no basis for that claim, as it did not review consumer credit files before sending the letters. The CFPB also alleged that the credit union misrepresented its influence on a consumer’s credit rating.
- Unfairly froze members’ access to their accounts: The CFPB alleged that the credit union engaged in an unfair practice by freezing electronic account access and disabled electronic services for accounts after consumers became delinquent on a Navy Federal Credit Union credit product. This meant delinquency on a loan could shut down a consumer’s debit card, ATM, and online access to the consumer’s checking account. The only account actions consumers could take online would be to make payments on delinquent or overdrawn accounts.
To remedy the alleged violations, the CFPB’s consent order requires Navy Federal Credit union to:
- Pay $23 million in restitution to members who received inappropriate debt collection letters.
- Pay a $5.5 million civil money penalty.
- Create a comprehensive plan to address how the credit union communicates with its members about overdue debt, which must include refraining from any misleading, false, or unsubstantiated representations regarding contacting a member’s commanding officer, initiating legal action, or the consequences of falling behind on a Navy Federal Credit Union loan.
- Stop blocking members from accessing all their accounts if they are delinquent on one or more accounts and implement proper procedures for electronic account restrictions.