Navy Federal Credit Union has agreed to
pay $28.5 million to settle Consumer Financial Protection Bureau claims that it
falsely threatened to take legal action and contact servicemembers’ commanding
officers to collect debts. The CFPB also found that the credit union
misrepresented the credit consequences of falling behind on a loan.
Between January 2013 and July 2015, CFPB
allegations charged that Navy Federal Credit Union sent template letters to
about 193,000 consumers threatening legal action, but only filed 5,000 debt
collection lawsuits against its members. A debt collection letter threatening to contact
servicemembers’ commanding officers was sent to approximately 115 consumers,
but the threat was was not carried out. “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.
Membership in Navy Federal Credit Union is
limited to consumers who are, or have been, U.S. military servicemembers, Department
of Defense civilian employees or contractors, government employees assigned to
Department of Defense installations, and their immediate family members. The
CFPB investigation found that the credit union deceived consumers to get them
to pay delinquent accounts.
Faulty practices. The CFPB said that Navy Federal Credit Union threatened severe
actions when, in fact, it seldom took such actions or did not have
authorization to take them. The credit union also illegally cut off members’ electronic
access to their accounts and bank cards if they did not pay overdue loans.
According to findings in the consent order,
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. Similarly, the credit union threatened to garnish
wages when it had no intention or authority to do so.
Despite threats to the contrary, the
credit union was not authorized and did not intend to contact military chains
of command about the debts it was pressuring servicemembers to repay. 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.
Remedies. The credit union is required to pay roughly $23 million in
compensation to consumers who received threatening letters and must create a
comprehensive plan to address how it communicates with its members about
overdue debt. Navy Federal Credit Union cannot block its members from accessing
all their accounts if they are delinquent on one or more account and is
required pay a penalty of $5.5 million to the CFPB’s Civil Penalty Fund.
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