In case you thought the CFPB’s functions were going to slow down to a halt after PHH Corp. v. CFPB came out last week, think again. The CFPB has ordered Navy Federal Credit Union – the largest credit union in the U.S. – to pay a $5.5 million fee to the bureau’s Civil Penalty Fund.
The CFPB had determined that the credit union made deceptive representations regarding its debt collection activities, specifically about “its intention to take legal action against delinquent debtors, its intention to contact consumers’ military chains of command about consumers’ debts and the effect of delinquency or repayment on consumer’s credit ratings.”
Navy Federal conducted its collection activities through telephone calls and letters. The CFPB stated that Navy Federal used letter templates that contained threats of legal action and other statements that legal action had “been recommended.”
“Between January 2013 and July 2015, [Navy Federal] sent letters to approximately 193,000 consumers creating the net impression that [Navy Federal] intended to sue the consumers if they failed to remit payment as instructed in the letter,” the consent order states. “The reality, however, was that [Navy Federal] seldom recommended or took legal action against its members.”
During the period, Navy Federal filed less than 5,000 debt collection lawsuits.
“In a sample of 239 accounts involving consumers who did not communicate with or remit funds as demanded by [Navy Federal] in a problematic letter, [Navy Federal] filed just eight debt collection lawsuits,” the consent order stated.
The CFPB also determined that Navy Federal’s process for evaluating accounts for potential legal action was not sufficiently connected to, or coordinated with, the separate process for determining when to send the letters.
“Rather than engage in any account-specific review prior to sending such a letter,” the consent order stated, “[Navy Federal] treated all charged-off accounts ‘recommended for litigation’ for purposes of sending collection letters threatening legal action. Despite that blanket treatment, a very small subset of those accounts would actually be recommended for litigation if the delinquency remained uncured.”
The CFPB also alleged unfairness under its UDAAP authority after determining that Navy Federal “unfairly restrict[ed] consumers’ electronic account access – blocking debit cards, ATM usage and online account functions – when the consumers had an overdrawn deposit account or delinquent credit account.”
Navy Federal neither admitted or denied these findings, but agreed under the consent order to pay roughly $23 million in compensation to consumers who received threats, create a “comprehensive plan” to address how it communicates with its members about overdue debt, as well as cease blocking members from accessing all of their accounts if they are delinquent on one or more accounts.