CFPB Sanctions Navy Federal for Improper Overdraft Fees

Navy Federal, the nation’s largest credit union with $181 billion in assets, must pay $95 million in restitution and penalties after the Consumer Financial Protection Bureau accused it of illegally charging overdraft fees.

The federal Navy, based in Vienna, Virginia, has “collected tens of millions of dollars in garbage fees, including from active duty military personnel and veterans,” CFPB Director Rohit Chopra said in a news release Thursday. Agency having carried out a decisive campaign Against Overdraft Practices, cited two practices in particular: charging fees when the member had sufficient funds at the time of purchase, and when the member relied on a peer-to-peer payment that had not yet been processed.

The CFPB has prohibited Navy Federal from charging overdrafts in similar situations in the future. The credit union must also reimburse its members $80 million and pay a fine of $15 million, the largest amount the CFPB has ever imposed on a credit union. The CFPB’s enforcement action earned the Navy Federal a sharp rebuke from National Credit Union Administration Chairman Todd Harper.

“The Federal Navy’s practice of ‘allow the positive, settle the negative’ and subsequent imposition of overdraft fees was not only unfair and misleading, but also caused significant harm.
“In many cases, consumers were charged overdraft fees and were completely unaware of Navy Federal’s complex processes involved in posting transactions and whether they would incur overdraft fees.”

In a statement Thursday, the Navy Federal said it fully cooperated with the CFPB’s investigation and agreed to the fine. However, Navy Federal added that it believes its overdraft program complies with “all applicable laws and federal regulations.”

“This agreement allows us to focus on serving our members and their families,” Navy Federal said.

Navy Federal’s fine comes after a number of banks found themselves in CFPB overdraft traps. Bank of Regions, TD Bank And Atlantic Union Bank is headquartered in Richmond, Virginia faced fines.

CFPB announced the proposal In January, overdrafts are classified as credit extensions, and the restriction fee charged by the largest financial institutions or organizations with more than $10 billion in assets is $14. Banks vehemently opposed the plan. IN August articleConsumer Bankers Association President and CEO Lindsay Johnson wrote that the CFPB’s hostility toward overdrafts will result in a smaller safety net for cash-strapped consumers who rely on overdrafts to make ends meet.

“Many consumers also reported a lack of credit alternatives, meaning overdraft services allow them to pay their bills without having to sell their household goods or borrow money from friends or family,” Johnson wrote.

Other analysts argue that financial institutions including some credit unionsmade huge profits from overdrafts, saddled low-income consumers and military personnel with tens of millions of dollars in fees. Harper has made studying credit unions’ overdraft practices a priority for the NCUA. Earlier this year, the agency for the first time required credit unions with more than $1 billion in assets to disclose overdraft data on call reports.

In its latest report, Navy Federal said it collected $250.5 million in overdraft fees in the first nine months of 2024. It collected nearly $1 billion in overdraft fees from 2017 to 2021, according to the CFPB.

For its part, Navy Federal said its optional overdraft protection program offers members an alternative to payday lenders and other higher-cost debt. It added that it offers programs aimed at helping members better organize their finances and reduce their reliance on overdrafts. Other benefits, including dividend payments and reduced interest rates, generate or save members more than $450 per year, according to Navy Federal.

Fleet’s action is the second recent high-profile enforcement action taken by the CFPB against a credit union. Last week this imposed sanctions on Vystar credit union with assets of $14.7 billion. in Jacksonville, Florida, for failures in the 2022 rollout of a new operating system that limited members’ access to their accounts for several months.