The CFPB said Tuesday the $77 billion Navy Federal Credit Union will pay $23 million to members and a $5.5 million civil penalty for making false threats about debt collection to active-duty military service members, retired service members, and their families.
The Vienna, Va.-based credit union also unfairly restricted account access when members had a delinquent loan, according to the CFPB.
The CFPB investigation found that Navy FCU deceived members to get them to pay delinquent accounts and falsely threatened severe actions when it seldom took such actions or did not have authorization to take them.
What’s more, the credit union also cut off members’ electronic access to their accounts and bank cards for failing to pay overdue loans. Hundreds of thousands of members were affected by these practices, which occurred from January 2013 to July 2015, according to the CFPB.
“Where our collections practices have come up short in the Consumer Financial Protection Bureau’s estimation, we have made all the necessary changes,” Navy FCU said in a prepared statement. “We have cooperated with the CFPB throughout the process.”
The credit union also stated: “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. 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 the credit union violated provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The federal agency’s investigation said Navy FCU mailed letters to members threatening to take legal action unless they made a payment. However, the CFPB found that the credit union’s message to consumers of “pay or be sued” was inaccurate about 97% of the time, even among members 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, according to the CFPB, the credit union threatened to garnish wages when it had no intention or authority to do so.
What’s more, the credit union also mailed letters to dozens of service members threatening that it 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. Navy FCU was not authorized and did not intend to contact the service members’ chains of command about the debts it was attempting to collect, according to CFPB.
The federal agency also uncovered that Navy FCU sent about 68,000 letters to members misrepresenting the credit consequences of falling behind on a loan. Many of the letters said that members would find it “difficult, if not impossible” to obtain additional credit because they were behind on their loan.
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.
The CFPB is requiring Navy FCU to pay roughly $23 million in compensation to members 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 members who received the letter threatening to contact their commanding officer will receive at least $1,000 in compensation. The credit union will contact members who are eligible for this compensation.
The credit union also 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 FCU loan, the CFPB said.
The federal agency also said that Navy FCU can no longer 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.
Earlier on Tuesday, the U.S. Court of Appeals for the District of Columbia Circut, ruled the structure of the CFPB was unconstitutional since it is operated by a single person. CU Times staff will continue working with legal and constitutional experts to find out what Tuesday’s ruling by the court means for current and pending actions taken by the CFPB against financial insitutions.
