WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has levied a significant enforcement action against Navy Federal Credit Union, the largest credit union in the United States, for imposing unlawful overdraft fees on its members. Between 2017 and 2022, Navy Federal collected these fees on transactions where members believed they had sufficient funds, only to face surprise charges when balances were later recalculated.
The CFPB’s investigation uncovered that Navy Federal’s practices disproportionately affected active-duty service members and veterans. The bureau has ordered the credit union to reimburse more than $80 million to affected consumers and to cease the imposition of these fees. Furthermore, Navy Federal has been fined $15 million, setting a new precedent as the largest penalty the CFPB has imposed on a credit union for such violations.
CFPB Director Rohit Chopra stated, “Navy Federal illegally harvested tens of millions of dollars in junk fees, including from active duty servicemembers and veterans.” He emphasized the ongoing efforts of the CFPB to eradicate illegal fees, which he claims have saved American families billions.
The credit union’s Optional Overdraft Protection Service, known colloquially as “OOPS,” was at the heart of the controversy. Customers were charged $20 per overdraft transaction, resulting in nearly $1 billion in fees over a four-year period. Two primary methods of fee imposition were identified: first, members were charged fees even when accounts initially showed sufficient funds for transactions; second, funds received via payment services were shown as immediately available, but delayed posting led to unexpected overdraft charges.
Federal regulators, including the CFPB and the Federal Reserve, had previously warned against such practices, emphasizing the need for clear and timely disclosure to consumers. Despite these warnings, Navy Federal’s practices continued, resulting in an average yearly collection of $44 million from surprise overdraft fees.
The CFPB’s enforcement action underscores its authority under the Consumer Financial Protection Act to address unfair, deceptive, or abusive acts or practices within financial institutions. The action against Navy Federal includes mandates for consumer redress, a prohibition on specific overdraft fee practices, and a substantial civil penalty to support the CFPB’s victims relief fund.
The bureau’s focus on overdraft fees aligns with its broader initiative to combat illegal junk fees. Recent proposals and reports have highlighted the ongoing consumer challenges associated with unexpected fees, suggesting regulatory changes that could align overdraft loans with the stricter parameters set for credit cards.
As the CFPB continues its vigilance against illegal financial practices, this case serves as a critical reminder of the bureau’s commitment to protecting consumers, particularly vulnerable groups such as military members and their families, from predatory financial practices.
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