The nation’s largest credit union must pay a record $95 million for allegedly illegal, surprise overdraft fees and is barred from offering the fees in the future, the federal consumer financial protection agency said Thursday.
Navy Federal Credit Union (FCU), of Vienna, Va. – which holds more than $180 billion in assets and counts more than 13 million members, according to the National Credit Union Administration (NCUA) – was ordered by the Consumer Financial Protection Bureau (CFPB) to refund more than $80 million to consumers, stop charging illegal overdraft fees, and pay a $15 million civil penalty to the agency’s victims relief fund, the agency said.
The CFPB added the combined refund and fine are the largest amount the CFPB has ever obtained from a credit union for illegal activity.
The bureau alleged that the credit union – which serves active duty military members, veterans, Department of Defense (DoD) civilian employees, and their families – charged members surprise overdraft fees on certain ATM withdrawals and debit card purchases from 2017 to 2022. The CFPB said the credit union imposed the charges even when their accounts showed sufficient funds at the time of the transactions.
According to the agency, the credit union’s overdraft protection program – known by its acronym “OOPS” (standing for “Optional Overdraft Protection Service”), the credit union charged consumers $20 for most overdraft transactions, collecting nearly $1 billion in overdraft fees from 2017 to 2021.
“Members were illegally charged overdraft fees in two ways,” the CFPB alleged. “First, when [members] 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.”
The bureau said Navy Federal collected an average of $44 million a year in the 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 agency said.
The second illegal overdraft charge, the agency alleged, was when members received money though payment services like Zelle, PayPal, and Cash App. The CFPB said the credit union’s systems showed the money as immediately available to spend.
“However, the credit union failed to disclose that payments received after 10 a.m. ET (and later, after 8 ET) wouldn’t actually post until the next business day,” the CFPB claimed. It said members who tried to use then money were then charged overdraft fees. “Through this practice, Navy Federal collected at least $4 million in fees,” the CFPB charged.
In banning the credit union from further use of the fees in the future, the CFPB said Navy Federal 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.
In a statement released after the CFPB announced the settlement, NCUA Board Chairman Todd Harper said charging overdraft fees was not only unfair and deceptive, but 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,” he said.
Harper said that the practices of Navy FCU, coupled with an overreliance on overdraft and non-sufficient fees, ran counter to credit unions’ statutory mission of meeting the credit and savings needs of their members, and 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,” Harper added. “The settlement with Navy Federal underscores the importance of ensuring fair and responsible treatment of consumers and protecting consumers from predatory business practices.”