A US credit union has been ordered to pay a total of $95m in refunds and penalties for charging illegal overdraft fees to its customers between 2017 and 2022.
During this time, Navy Federal collected nearly $1bn in overdraft fees through its “Optional Overdraft Protection Service,” also known as “OOPS”.
The Consumer Financial Protection Bureau (CFPB) found that Navy Federal had violated the Consumer Financial Protection Act in two different ways. Firstly, Navy Federal charged fees to members whose accounts showed sufficient funds when making purchases, only to charge fees when the transactions were later processed. These fees made Navy Federal $44m a year.
Secondly, the credit union charged overdraft fees caused by delayed peer-to-peer payments with undisclosed processing times, collecting more than $4m in fees through this practice.
On November 7 the CFPB ordered Navy Federal to stop these overdraft fee practices, and to refund these illegal overdraft fees, totalling over $80m, as well as pay a $15m civil penalty to the CFPB’s victims relief fund.
Navy Federal Credit Union serves more than 14 million members, including active duty military members, veterans, Department of Defense civilian employees, and their families. The credit union is the largest in the world, with 360 branches and more than $180bn in assets.
In a statement, Navy Federal said it has “fully cooperated” with the CFPB’s investigation, adding that it “will continue to comply with all applicable laws and regulations, just as we always have and as we believe we did here.”
The credit union went on to say that its overdraft services enable many of its members to make necessary purchases without going into long-term debt, providing “a lifeline to its members and an alternative to payday lenders”.
“At the same time, Navy Federal works to help members avoid overdrawing their accounts in the first place and has long invested in specific programs designed to help members reduce their chances of incurring overdraft fees. Navy Federal also works to support members if they do overdraw their accounts.”
NFCU said it will continue to refine its processes “to help members avoid fees and maximise its member experience”, including eliminating non-sufficient fund fees for personal checking accounts starting at the beginning of next year.
National Credit Union Administration chairman, Todd Harper, commented on the settlement, describing Navy Federal’s actions as “unfair” and causing “substantial harm to consumers”.
“[Authorize positive, settle negative] practices and an overreliance on overdraft and non-sufficient fees are counter to the credit union system’s statutory mission of meeting the credit and savings needs of their members – especially those of modest means”, Harper added.
“Credit union member-owners have the right to know about any fees and practices that affect their hard-earned savings and credit unions owe it to their members to be transparent. The settlement with Navy Federal underscores the importance of ensuring fair and responsible treatment of consumers and protecting consumers from predatory business practices.”
This is the third time the CFPB has fined a credit union, and the second time it has fined NFCU. In 2016 Navy Federal was ordered to pay $28.5m for improper debt collection practices. NFCU also settled a class action suit in 2020 for $16m, for charging members non-sufficient fund fees.
“Navy Federal illegally harvested tens of millions of dollars in junk fees, including from active duty servicemembers and veterans,” said CFPB director Rohit Chopra. “The CFPB’s work to rid the market of illegal junk fees has saved American families billions of dollars.”
