National Consumer News

The biggest credit union in the U.S. will pay $28.5 million for bad debt collection


Bob Sullivan,

Navy Federal Credit Union made threats and restricted account access to delinquent members as part of a pattern of illegal debt collection practices, federal regulators said Tuesday. The credit union, which is the nation’s largest, grants membership only to current and former U.S. military service members, civilians working on military projects and their families.

he Consumer Financial Protection Bureau said Tuesday that the credit union “froze accounts and disabled services for 700,000 accounts after consumers became delinquent on a Navy Federal credit product. That could shut down consumers’ debit cards, online banking and ATM cash access.”

The financial institution also allegedly called and wrote service members saying it planned to contact commanding officers if a payment on a debt wasn’t made promptly.

Consumer credit problems can result in military discipline or loss of a security clearance, and Navy Federal did not actually intend to contact the service members’ chain of command, the CFPB said.

“Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts,” said CFPB Director Richard Cordray in a written statement. “Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so.”

Navy Federal’s settlement

As part of the settlement, Navy Federal will pay $23 million to accountholders who were harmed and a $5.5 million penalty.

In a statement, the credit union said it has “made all the necessary changes” and cooperated with the CFPB “throughout the process.”

The CFPB said hundreds of thousands of consumers were affected between January 2013 and July 2015. Other allegations, per the CFPB’s press release, include 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% 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.

• 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.

As part of the settlement, Navy Federal will be required to address its strategies for communicating with delinquent members. Misleading, false or unsubstantiated threats to contact a consumer’s commanding officer, threats to initiate legal action, or misrepresentations about the credit consequences of falling behind on a Navy Federal Credit Union loan all fall under that purview. Navy Federal Credit Union will also not be allowed to block members from accessing accounts if they are delinquent on one or more. Proper procedures will need to be implemented, the CFPB said.

Remember, if you are ever dealing with a debt collector, it can help to know your rights. Under FDCPA, for instance, collectors can’t call too early or too late, use abusive language or make dire threats, including saying they are going to sue if they don’t actually plan to. And if you do have a delinquent account or an account in collections, it’s important to learn how it may be affecting your credit, You pull your credit reports for free each year at and view two of your scores for free, updated every 14 days, on

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