Compliance Center: CFPB’s Navy Federal Credit Union Consent Order
October 25, 2016
October 24, 2016
As you may have heard, the Consumer Financial Protection Bureau (CFPB) has ordered Navy Federal Credit Union to pay $28.5 million for improper debt collection practices. The CFPB stated in their press release that Navy Federal:
Falsely threatened legal action and wage garnishment
The credit union sent letters to members threatening to take legal action unless they made a payment. But in reality, it seldom took any such actions. The CFPB found that the credit union’s message to consumers of “pay or be sued” was inaccurate about 97 percent of the time, even among consumers who did not make a payment in response to the letters. The credit union’s representatives also called members with similar verbal threats of legal action. And the credit union threatened to garnish wages when it had no intention or authority to do so.
Falsely threatened to contact commanding officers to pressure servicemembers to repay
The credit union sent letters to dozens of servicemembers threatening that the credit union would contact their commanding officers if they did not promptly make a payment. The credit union’s representatives also communicated these threats by telephone. For members of the military, consumer credit problems can result in disciplinary proceedings or lead to revocation of a security clearance. The credit union was not authorized and did not intend to contact the servicemembers’ chains of command about the debts it was attempting to collect.
Misrepresented credit consequences of falling behind on a loan
The credit union sent about 68,000 letters to members misrepresenting the credit consequences of falling behind on a Navy Federal Credit Union loan. Many of the letters said that consumers would find it “difficult, if not impossible” to obtain additional credit because they were behind on their loan. But the credit union had no basis for that claim, as it did not review consumer credit files before sending the letters. The credit union also misrepresented its influence on a consumer’s credit rating, implying that it could raise or lower the rating or affect a consumer’s access to credit. As a furnisher, the credit union could supply information to the credit reporting companies but it could not determine a consumer’s credit score.
Illegally froze members’ access to their accounts
The credit union froze electronic account access and disabled electronic services for about 700,000 accounts after consumers became delinquent on a Navy Federal Credit Union credit product. This meant delinquency on a loan could shut down a consumer’s debit card, ATM, and online access to the consumer’s checking account. The only account actions consumers could take online would be to make payments on delinquent or overdrawn accounts.
When reading the actual consent order for the last claim if illegally freezing members accounts, one quickly finds out that the CFPB is asserting a violation of the Consumer Financial Protection Act (CFPA). The CFPA is title X of the Dodd-Frank Act which created the CFPB and gave them authority to assert UDAAP claims.
CUNA recently wrote in their blog post:
What the consent order fails to address is whether Navy was limiting services to a member who has caused a loss to the credit union as authorized by the FCU Act. The CFPB claims that Navy violated UDAAP when the credit union froze electronic account access and disabled electronic services for about 700,000 accounts after consumers became delinquent on a Navy Federal Credit Union credit product. This meant delinquency on a loan could shut down a consumer’s debit card, ATM, and online access to the consumer’s checking account. The only account actions consumers could take online would be to make payments on delinquent or overdrawn accounts. In addition to the civil money penalty and required remunerations to affected members, the CFPB has now ordered Navy to “ensure consumer account access” and has prohibited the credit union from blocking its members’ account access if they are delinquent on one or more accounts.
In direct conflict with this are several NCUA legal opinion letters where the agency has said that nothing in the FCU Act or NCUA’s regulations precludes a federal credit union from restricting the availability of certain services (e.g., ATM services, credit cards, loans, share draft privileges, preauthorized transfers, etc.) to members provided there is a rational basis for doing so and as long as the members are aware of the policy. The NCUA opinion letters also state that “any policy limiting services an FCU provides to a member who causes a loss may also be restricted by contract, state, and other federal laws.” What has yet to be determined is whether UDAAP is one of these “federal laws” that could restrict a credit union’s ability to limit member services. CUNA has reached out to NCUA for clarity on this issue and is continuing to study the matter. We will keep you informed of any new developments.
While there are only a limited number of credit unions under CFPB’s supervision, we are hearing rumblings of inquiries about whether and/or how the CFPB’s order could impact other institutions’ business practices. We realize that as a business decision some credit unions may choose to suspend certain services to members that are in default of their loan obligations. Being mindful that suspension of services to members may also be impacted by contract and other state laws, we recommend credit unions consult with local counsel on this matter while the issue continues to evolve.
Compliance Question of the Week
When can we permit a member to waive their right of recission for a loan secured by a member’s principal dwelling?
Right of rescission is almost never waived. For the right of rescission to be waived, the member must have a “bona fide personal financial emergency that must be met before the end of the rescission period.” This law is interpreted very strictly, so it does require an actual emergency situation to qualify. The member’s desire to finish up the paperwork as quickly as possible is not an emergency under this rule.
If there is a bona fide personal emergency, the credit union must receive a dated, written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers that are entitled to rescind.
National Credit Union Administration (NCUA)
The NCUA announced the launch of a new Examiner’s Guide which is aimed at providing examiners with up-to-date supervisory guidance.
The NCUA posted detailed information on its Securities Litigation and Recoveries. The information includes a link to a new website the NCUA created that discusses the details of the 17 institutions that the NCUA has taken action against.
The NCUA announced that it will repay its outstanding borrowing line with the Treasury by October 31.
Consumer Protection Financial Bureau (CFPB)
The CFPB published a blog post about the need for financial coaching for consumers.
The CFPB published its updated amendments to the mortgage servicing rule. The amendments address force-placed insurance, early intervention, and loss mitigation requirements, as well as other clarifications and technical corrections.
Federal Reserve Board (FRB)
The FRB has released the October 2016 update to the Beige Book.
The October issue of FedFlash is now available.
The FRB released the minutes from the August and September Discount Rate Meetings.
Federal Deposit Insurance Corporation (FDIC)
The FDIC announced that it will host an interagency webinar with the other financial regulatory agencies on overdraft protection practices.
Federal Financial Institutions Examination Council (FFIEC)
The FFIEC announced the release of a Cybersecurity Assessment Tool FAQ. The FAQ is meant to clarify points about the assessment and supporting materials.
Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of October 20, 2016. The last update prior to this was October 11, 2016.
Questions? Contact the Compliance Hotline: 1.800.546.4465, email@example.com.