NEWS: The Consumer Financial Protection Bureau (CFPB) ordered Navy Federal Credit Union to refund more than $80 million to members, stop charging certain overdraft fees, and pay a $15 million civil penalty. This is the largest amount the CFPB has ever obtained from a credit union for illegal activity. The Consent Order identified the following violations:
- The credit union committed unfair acts and practices when it collected overdraft fees from consumers on transactions that had a sufficient balance at the time the credit union authorized the transaction but then later settled with an insufficient balance; and
- The credit union committed unfair acts and practices when it collected overdraft fees in situations where consumers reasonably believed, based on their available balances, that a person to person transaction would have led to sufficient funds in their accounts to cover all debits that posted that day without disclosing, until December 2020, that there was a cutoff time after which the transaction would not post the same day.
The credit union collected nearly $1 billion in overdraft fees through its “Optional Overdraft Protection Service.” The CFPB said that members were illegally charged overdraft fees when they made purchases with their accounts showing enough money to cover the transaction, but then the credit union charged the member an overdraft fee if the account had a negative balance once the purchase posted to the account. Also, when members received money through payment services like Zelle, PayPal, and Cash App, the money showed available, however, the credit union did not disclose that payments received after a certain time would not actually post until the next business day. When members tried to use this money, they were charged overdraft fees.
A statement by Chairman Harper said:
Authorize positive, settle negative (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.
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 (Authorized-Positive Overdraft fees) or overdraft fees resulting from the delayed posting of funds received through peer-to-peer payment networks (Delayed Original Credit Transaction Overdraft fees).
- Requires Navy Federal to pay a $15 million fine: Navy Federal will pay a $15 million civil penalty to the CFPB’s victims relief fund.
Again, the CFPB has made overdraft fees a point of focus. In 2022, the CFPB issued a circular stating that unanticipated overdraft fees are likely illegal, as we highlighted in this Compliance Courier.