The Consumer Financial Protection Bureau took action against Navy Federal Credit Union for abusive and improper debt collection practices regarding the accounts and loans of active duty military, retired service-members, and their families. Navy Federal made false threats about debt collection to its members and unfairly restricted account access when members had a delinquent loan. According to CFPB Director, Richard Cordray, “Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts. 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 Credit Union is a federal credit union based in Vienna, Virginia. Since opening in 1933, Navy Federal has expanded to include over five million members. As a credit union, it offers its members a vast array of consumer financial products and services. Members are limited to those who are or have been members of the United States Military, Department of Defense civilian employees or contractors, government employees assigned to Department of Defense installations, and their immediate family members. As of December 2015, it was listed as the largest credit union in the United States with more than $73 billion in assets.
The CFPB investigation revealed that Navy Federal deceived its consumers in an attempt to get them to pay delinquent accounts. The credit union falsely threatened severe actions, even when it did not have authorization to take such actions. Additionally, the credit union often severed members’ electronic access to their accounts and bank cards if they did not pay overdue loans. The credit union engaged in these practices from January 2013 and July 2015, affecting hundreds of thousands of consumers. The current action alleged that the credit union violated the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specific violations included: (1) Falsely threatening legal action and wage garnishment; (2) falsely threatening to contact commanding officers; (3) misrepresenting credit consequences of falling behind on a loan; and (4) illegally freezing members’ access to their accounts. Debt collectors are prohibited from telling military members’ chain of command that they owe a debt, threatening them with prosecution under the Uniform Code of Military Justice, or threatening them with security clearance revocation.
The CFPB is authorized by the Dodd-Frank Act to take action against institutions or individuals engaging in unfair or deceptive acts or practices. Under the terms of the order, Navy Federal Credit Union is required to: (1) pay $23 million in compensation to consumers who received threatening letters; (2) correct debt collection practices; (3) ensure consumer account access; and (4) pay a $5.5 million civil money penalty. According to the order, all consumers who received a threatening letter regarding contacting commanding officers will receive at least $1,000 in compensation. Most consumers will be eligible for redress if they received a threatening letter of any kind and thereafter made payments to the credit union within 60 days.