Biggest US credit union strong-armed its members, CFPB says
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The U.S. Consumer Financial Protection Bureau announced the penalties Tuesday, which include $23 million in payments to credit union members and a $5.5 million fine to the agency’s civil penalty fund.
“Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts,” CFPB Director Richard Cordray said in a statement. “Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so.”
Navy Federal has more than 6.5 million members, 287 branches and assets of $77.9 billion. It caters to current and former Defense Department and Coast Guard personnel, military contract workers, and their families.
Agency cites abuses
The abusive collection practices occurred between January 2013 and July 2015 and violated the Consumer Financial Protection Act, according to the order. The credit union consented to the order without admitting or denying wrongdoing. Among the abuses cited by the agency were:
- Frozen account access. The credit union cut off about 700,000 members from electronic access to their accounts since Jan. 1, 2013, sometimes only one to five days after their loan went delinquent. ATM use, debit cards and online account access were shut down – with the exception of making payments to the delinquent account.
- False threats. Members were falsely told they would be sued if they did not pay, or that in some cases their commanding officer would be informed of their nonpayment. In the military, having delinquent debts can be grounds for disciplinary action and the loss of security clearances.
- Exaggerated consequences. Navy Federal implied that it could raise or lower members’ credit scores and that a delinquency would make it “difficult, if not impossible” to find other credit, according to the CFPB. The misstatements were made in about 68,000 letters. Although the credit union furnished information to credit bureaus, the claims made in letters exaggerated its influence on members’ overall credit profile.
How fine money will be distributed
Recipients of threatening letters will receive $23 million, the CFPB said, either as credits to their account or in checks by mail, if they are no longer credit union members. All who were told their commanding officer would be contacted will receive at least $1,000. Other members will be eligible for compensation if they made a payment to the credit union within 60 days of receiving a threatening letter.
Navy Federal said in a statement that it has cooperated with the CFPB’s investigation. “Where our collection practices have come up short in the Consumer Financial Protection Bureau’s estimation, we have made the necessary changes,” said the emailed statement from Brian Parker, senior public relations specialist.
“We remain steadfastly focused on upholding our standards of service excellence and the trust of our membership,” the statement said.
The credit union stopped freezing electronic access to accounts as a collection tactic in mid-2015, during the CFPB’s investigation, according to the order.
Security interest clause
The CFPB order does not mention the credit union’s security interest policy. The order says that freezing electronic access to accounts was illegal as an unfair practice under the Consumer Financial Protection Act. The freezing of electronic services occurred sometimes without adequate notice and affected government benefits such as Social Security payments, which are protected from being seized to pay debts.
Current versions of Navy Federal’s credit card agreement posted online still contain the security interest clause, giving the credit union access to funds in a cardholder” individual or joint checking account. “If your credit card loan becomes delinquent, this security interest may be used without further notice to pay all or part of such delinquency,” the contract states.
Asked about the security interest policy, Parker said he was unable to comment beyond the credit union’s statement.
See related: CFPB proposes new limits on debt collectors