WASHINGTON— The Consumer Financial Protection Bureau has ordered $171-billion Navy Federal Credit Union to pay more than $95 million for charging illegal overdraft fees, the agency reported.
The action includes a $15-million civil money penalty, the largest amount the CFPB has ever obtained from a credit union for illegal activity.
The CFPB’s action against Navy FCU, headquartered in Vienna, Va., follows the Bureau recently fining VyStar CU $1.5-million for the troubled rollout of its new online and mobile banking platforms.
In the action against Navy, the CFPB said that from 2017 to 2022, Navy Federal charged customers “surprise” overdraft fees on certain ATM withdrawals and debit card purchases, even when their accounts showed sufficient funds at the time of the transactions.
The CFPB is ordering Navy Federal to refund more than $80 million to consumers, stop charging illegal overdraft fees, and pay a $15-million civil penalty to the CFPB’s victims relief fund.
“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.”
OOPS
The CFPB said that through its “Optional Overdraft Protection Service,” known as “OOPS,” Navy Federal charged consumers $20 for most overdraft transactions. The credit union collected nearly $1 billion in overdraft fees from 2017 to 2021.
“Members were illegally charged overdraft fees in two ways. First, when they made purchases with their accounts showing enough money to cover the transaction, the credit union still charged them overdraft fees if the account had a negative balance once the purchase posted to the account, sometimes days later. Navy Federal collected an average of $44 million a year in these surprise fees. As early as 2015, federal regulators, including the CFPB and the Federal Reserve, began cautioning financial institutions against charging these surprise overdraft fees,” the CFPB said.
“Second, when customers received money though payment services like Zelle, PayPal, and Cash App, Navy Federal’s systems showed the money as immediately available to spend. However, the credit union failed to disclose that payments received after 10:00 am Eastern (and later, after 8:00 pm Eastern) wouldn't actually post until the next business day. Some customers who tried to use this money were then charged overdraft fees. Through this practice, Navy Federal collected at least $4 million in fees,” the CFPB added.
The CFPB said it found that Navy Federal violated the Consumer Financial Protection Act through:
- Charging illegal, surprise overdraft fees on purchases made with sufficient funds: Navy Federal charged fees to consumers whose accounts showed sufficient funds when making purchases, only to charge fees when the transactions were later processed.
- Charging overdraft fees caused by delayed peer-to-peer payments with undisclosed processing times: The credit union showed incoming payments from services like Zelle, PayPal, and Cash App as available to spend, but failed to disclose that payments received after specific cutoff times would not post until the next business day, while still charging overdraft fees to some customers who attempted to use these apparently available funds.
Todd Harper
NCUA Cites 'Substantial Harm'
NCUA Chairman Todd Harper said Navy Federal’s authorize positive, settle negative practices and the subsequent charging of overdraft fees were not only unfair, but they also caused substantial harm to consumers.
"More overt, in many cases, consumers were charged an overdraft fee completely unaware of Navy Federal’s complex processes related to the posting of transactions and whether they will incur an overdraft fee," Harper said. "APSN 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. 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.”
Enforcement Action
The CFPB’s order:
- Obtains more than $80 million in consumer redress: Navy Federal must refund overdraft fees improperly charged to affected consumers.
- Bans Navy Federal from charging certain overdraft fees altogether: The credit union can no longer charge overdraft fees resulting from insufficient funds at the time of processing despite sufficient funds when the transaction occurred or overdraft fees resulting from the delayed posting of funds received through peer-to-peer payment networks.
- Requires Navy Federal to pay a $15-million fine.