The Consumer Financial Protection Bureau yesterday announced an enforcement action with one of the nation’s largest credit unions for charging illegal overdraft fees that will see the institution pay $95 million in fines and restitution to members.
Driving the news: Navy Federal Credit Union has been ordered by the CFPB to refund more than $80 million to consumers and pay a $15 million civil penalty for charging illegal overdraft fees on checking accounts from 2017 to 2022. The CFPB’s action follows findings that Navy Federal charged consumers unexpected overdraft fees even when their accounts showed sufficient funds at the time of authorization.
Why it matters: Overdraft fees have been a major focus for the CFPB, which has been working to rid the financial sector of what it calls “junk fees.” The penalties imposed on Navy Federal represent the largest ever obtained from a credit union for such practices.
What happened: Navy Federal’s “Optional Overdraft Protection Service,” branded as “OOPS,” allowed the credit union to collect $20 for most overdraft transactions. However, the CFPB found that overdraft fees were being charged in two key scenarios where members had reason to expect no fees:
- Authorized-Positive Overdraft Fees: When consumers made purchases or withdrawals with sufficient available funds, they were still charged overdraft fees if their accounts had a negative balance when the transaction settled, sometimes days later. This practice, according to the CFPB, represented an unfair act or practice, leading to significant unanticipated charges for consumers.
- Delayed Posting of Original Credit Transactions: Navy Federal also failed to disclose that payments received after certain cutoff times would not post until the next business day. Consumers who relied on money received via services like Zelle, PayPal, or Cash App faced unexpected overdraft fees when attempting to spend these funds, as the credit union delayed the actual posting of such deposits.
Between 2017 and 2020, Navy Federal collected an average of $236 million annually in overdraft fees. Approximately $80.2 million of these charges are attributed to the unlawful practices highlighted in the CFPB’s findings.
The big picture: Navy Federal’s settlement also includes mandatory policy changes to prevent future occurrences of these unfair overdraft fees. The credit union will no longer be able to charge overdraft fees in situations where transactions were authorized with sufficient funds, nor for delays in processing peer-to-peer payments.
What they’re saying: “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.”
In response, Navy Federal stated that while it fully cooperated with the CFPB and is committed to complying with all applicable regulations, the settlement allows them to focus on serving their members. The credit union emphasized that they have already taken steps to eliminate non-sufficient fund fees starting in early 2025 and aim to improve member experiences moving forward.
