Navy Federal Credit Union must pay more than $95 million after an investigation found it charged customers millions in illegal overdraft fees over a five-year period, according to the Consumer Financial Protection Bureau.
The multi-million dollar agreement came after the CFPB reviewed Navy Federal’s overdraft fee practices from 2017 to 2022.
According to the CFPB, Navy Federal charged customers surprise overdraft fees on certain ATM withdrawals and debit card purchases, even when their account showed sufficient funds at the time of the transactions, according to the CFPB.
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Through its “Optional Overdraft Protection Service,” known as “OOPS,’ Navy Federal charged members $20 for most overdraft transactions. The credit union collected nearly $1 billion in overdraft fees over those five years, CFPB said.
According to CFPB, members were illegally charged overdraft fees in two ways:
- Charging illegal, surprise overdraft fees on purchases made with sufficient funds: Navy Federal charged fees to customers who had sufficient funds in their accounts when when making purchases, only to charge fees when the transactions were later processed. Navy Federal collected an average of $44 million a year in these surprise fees. According to the CFPB, in 2015, federal regulators began cautioning financial institutions against charging these surprise overdraft fees.
- Charging overdraft fees caused by delayed peer-to-peer payments with undisclosed processing times: When customers received money through payment services such as 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 a.m. Eastern (and later, after 8 p.m. Eastern) wouldn’t actually post until the next business day. Some customers who tried to use this money were charged overdraft fees as a result, according to the CFPB. The CFPB said Navy Federal collected at least $4 million in feeds through this practice.
Following the CFBP’s review, the agency announced Thursday it ordered 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. This is the largest amount the CFPB has ever obtained from a credit union for illegal activity.
“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.”
Jason Mudd, who works with financial institutions as a public relations consultant with Axia PR, says this is a blow to Navy Federal’s image.
“The optics of this are not good, because you know, their job is to provide trusted financial services for servicemen and women and their families, and this includes veterans, of course,” Mudd said. “Navy Federals had a great reputation for many years, and now they’ve got to rebuild that reputation and rebuild trust.”
Navy Federal released the following statement after reaching the agreement with CFPB.
“Navy Federal fully cooperated with the CFPB’s investigation and we will continue to comply with all applicable laws and regulations, just as we always have and as we believe we did here. Nevertheless, this settlement enables us to focus on serving our members and their families. As a member-owned, not-for-profit credit union, we are focused on putting our members first. That means we prioritize doing right by our members and ensuring they have the resources, tools and support they need to build strong financial futures. We look forward to reinforcing this fact to our members every day through our values, policies and world-class customer service. We will continue to support and invest in our members – including the military, Veterans and their families – to help them meet their financial goals.”
Navy Federal Credit Union
Consumers can submit complaints about financial products and services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).