CFPB: Navy federal Credit Union threatened soldiers with debts, cut off access to ATMs, veterans'benefits
NavyFederal.org
Navy Federal Credit Union threatened to contact soliders' commanding officers and cut off access to ATMs as part of a pattern of illegal debt collection practices, federal regulators said Tuesday. The credit union, which is the nation's largest, grants membership only to current and former U.S. military servicemembers, civilians working on military projects, and their families.
The Consumer Financial Protection Bureau said Tuesday that the credit union froze accounts and disabled services for 700,000 accounts after consumers became delinquent on a Navy Federal credit product. That could shut down consumers’ debt cards, online banking, and ATM cash access. Tens of thousands of accounts were shut down after a payment was late only 1-5 days, the CFPB said. Most were frozen when they were late between 6-15 days.
(This story first appeared on Credit.com. Read it there.)
The freezes prevented some veterans from accessing protected federal benefits, such as Social Security income and veterans’ benefits.
The financial institution also called and wrote servicemembers saying it planned to contact commanding officers if a prompt payment on a debt wasn't made.
One debt collection letter the bank sent repeatedly said: “Your continued failure to forward the requested funds will leave us no alternative but to forward the Certificate of Compliance covering your loan to your commanding officer to request assistance in communicating with you,” according to the consent order made public Tuesday.
Consumer credit problems can result in military discipline or loss of a security clearance, and Navy Federal did not actually intend to contact the servicemembers' chain of command, the CFPB said.
“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. “Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so.”
As part of the settlement, Navy Federal will pay $23 million in compensation to account holders, including at least $1,000 to all consumers who received the letter threatening to contact their commanding officer. Navy Federal – which has $73 billion in assets -- will also pay a $5.5 million penalty.
In a statement, the credit union said it cooperated with federal regulators.
“Navy Federal Credit Union is proud of its 83-year history of helping our members fulfill their financial goals—both for savers and for borrowers. As a not-for-profit cooperative, when we make loans, we are lending our members’ money. We have a long history of helping members when they are making the effort to pay back their loans, and we will continue to do so. This is part of our duty to our membership as a whole," the statement read. "Where our Collections practices have come up short in the Consumer Financial Protection Bureau’s estimation, we have made all the necessary changes. We have cooperated with the CFPB throughout the process. Navy Federal Credit Union has been nationally recognized for its exceptional service to members. We remain steadfastly focused on upholding our standards of service excellence and the trust of our membership.”
The CFPB said hundreds of thousands of consumers were affected by these practices between January 2013 and July 2015.
Other CFPB allegations include that Navy Federal:
Falsely threatened legal action and wage garnishment: The credit union sent letters to members threatening to take legal action unless they made a payment. But in reality, it seldom took any such actions. The CFPB found that the credit union’s message to consumers of “pay or be sued” was inaccurate about 97 percent of the time, even among consumers who did not make a payment in response to the letters. The credit union’s representatives also called members with similar verbal threats of legal action. And the credit union threatened to garnish wages when it had no intention or authority to do so.
Misrepresented credit consequences of falling behind on a loan: The credit union sent about 68,000 letters to members misrepresenting the credit consequences of falling behind on a Navy Federal Credit Union loan. Many of the letters said that consumers would find it “difficult, if not impossible” to obtain additional credit because they were behind on their loan. But the credit union had no basis for that claim, as it did not review consumer credit files before sending the letters. The credit union also misrepresented its influence on a consumer’s credit rating, implying that it could raise or lower the rating or affect a consumer’s access to credit. As a furnisher, the credit union could supply information to the credit reporting companies but it could not determine a consumer’s credit score.
As part of the settlement, Navy Federal will be required to:
Correct debt collection practices: The credit union must create a comprehensive plan to address how it communicates with its members about overdue debt. This includes refraining from any misleading, false, or unsubstantiated threats to contact a consumer’s commanding officer, threats to initiate legal action, or misrepresentations about the credit consequences of falling behind on a Navy Federal Credit Union loan.
Ensure consumer account access: Navy Federal Credit Union cannot block its members from accessing all their accounts if they are delinquent on one or more accounts. The credit union must implement proper procedures for electronic account restrictions.