Navy Federal Credit Union allegedly threatened to report those who were late on debt payments to commanding officers, an investigation by the Consumer Financial Protection Bureau (CFPB) revealed Tuesday.
The credit union agreed to repay $23 million repay customers affected by misleading debt collection processes, which included threats to garner wages, file lawsuits, and report debtors up the chain of command, the CFPB said. Navy Federal will also pay a $5.5 million civil penalty for their actions.
“Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts,” Richard Cordray, director of the CFPB, said in a 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.”
Though the credit union threatened 193,000 customers with legal action between January 2013 and July 2015, they only filed 5,000 debt lawsuits, indicating that they had no intention of actually following through with the suit, CFPB claims.
Navy Federal customers who received the misleading letters will receive payment if they “made a payment to the credit union within 60 days of that letter,” CFPB said.
The credit union sent 115 people letters threatening to report delinquent payments to commanding officers, but they never actually contacted anyone up the chain of command from the debtor, the CFPB said in their order. In fact, Navy Federal had no authority to contact commanding officers. Customers who received those letters are eligible to receive at least $1,000.
CFPB said Navy Federal sent 68,000 letters falsely claiming that falling behind on a loan payment would make additional credit “difficult, if not impossible.”
Navy Federal is an exclusive credit union available only to active and veteran U.S. military service members and their families, as well as U.S. Department of Defense employees and contractors.
Navy Federal Credit Union is “proud of its 83-year history” of helping their members with financial goals, and will comply with the CFPB’s fines, the company said in a statement.
“Where our collections practices have come up short in the Consumer Financial Protection Bureau’s estimation, we have made all the necessary changes. We have cooperated with the CFPB throughout the process,” the credit union said.
The decision comes on the same day the U.S. Court of Appeals for the District of Columbia Circuit ruled that the structure of the CFPB is unconstitutional because the director cannot be removed by the president.
The court decided that CFPB may continue operating, however, as long as the regulatory body change the structure to make the director subject to the president’s authority.
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