JACKSONVILLE, Fla. – The Navy Federal Credit Union is ordered to pay about $23 million to victims for making false threats to members to collect debts and illegally freezing accounts. The order comes from the Consumer Financial Protection Bureau (CFPB) -- which investigated the credit union for improper debt collection actions.
“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.”
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Members of the Navy Federal Credit Union are limited to active duty military, retired service members and their families, Department of Defense civilian employees or contractors, government employees assigned to Department of Defense installations and their immediate family members. The CFPB says it's the largest credit union in the country.
The CFPB investigation found that Navy Federal Credit Union did the following:
- 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.
- Falsely threatened to contact commanding officers to pressure service members to repay: The credit union sent letters to dozens of service members threatening that the credit union would contact their commanding officers if they did not promptly make a payment. The credit union’s representatives also communicated these threats by telephone. For members of the military, consumer credit problems can result in disciplinary proceedings or lead to revocation of a security clearance. The credit union was not authorized and did not intend to contact the service members’ chains of command about the debts it was attempting to collect.
- 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.
- Illegally froze members’ access to their accounts: The credit union froze electronic account access and disabled electronic services for about 700,000 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.
Hundreds of thousands of consumers were affected by these practices, which occurred between January 2013 and July 2015. The CFPB wants all service members to know their rights if a debt collector calls. A debt collector cannot tell their chain of command that they owe a debt, threaten them with prosecution under the Uniform Code of Military Justice, or threaten to revoke their security clearance. If you need more information or help responding to a debt collector, go here.
The CFPB has ordered Navy Federal Credit Union to pay roughly $23 million in compensation to consumers who received threatening letters. Most will be eligible for redress if they received one of the deceptive debt collection letters and they made a payment to the credit union within 60 days of that letter. In addition, all consumers who received the letter threatening to contact their commanding officer will receive at least $1,000 in compensation. The credit union will contact consumers who are eligible for compensation.
The order also says 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.
The credit union must also ensure consumer account access and cannot block members from accessing their accounts if they are delinquent.
Finally, the CFPB ordered Navy Federal Credit Union to pay a penalty of $5.5 million to the CFPB's Civil Penalty Fund.
The Consumer Financial Protection Bureau has the authority to take action against institutions or individuals engaging in unfair or deceptive acts or practices or that otherwise violate federal consumer financial laws. You can read the Navy Federal Credit Union consent order here.