Overdraft Fees
In re: Navy Federal Credit Union
Date: Nov. 7, 2024
Issue: Navy Federal Credit Union’s consent order with the Consumer Final Protection Bureau (CFPB) over its overdraft practices.
Case Summary: Navy Federal agreed to pay $95 million to resolve CFPB allegations claiming it illegally charged its customers unanticipated overdraft fees.
Navy Federal offers consumers checking accounts and calculates two balances for each consumer’s account — a “ledger” balance, referred to as the “current” balance, and an available balance. Each night, Navy Federal processes the transactions received from merchants that day for settlement. Additionally, Navy Federal offers several options to consumers with checking accounts to permit payments when those accounts become overdrawn including its Optional Overdraft Protection Service (OOPS), a fee-based overdraft product. CFPB highlighted that since 2017, Navy Federal’s disclosures have stipulated that overdraft fees are assessed based on an account’s current balance after the closing of each business day and not the available balance when a transaction is authorized. However, the CFPB claimed the credit union charged overdraft fees contrary to its disclosures.
According to the bureau, Navy Federal charged authorized-positive overdraft fees to consumers. Authorized-positive overdraft fees are fees collected from a consumer for a transaction where the available balance had sufficient funds when the transaction was authorized but insufficient funds when the transaction later settled. Customers who opted into OOPS were allegedly charged a $20 authorized-positive overdraft fee. According to the CFPB, Navy Federal’s collection of authorized-positive overdraft fees constituted an unfair, deceptive, or abusive act or practice (UDAAP) under the Consumer Financial Protection Act (CFPA). The CFPB also claimed Navy Federal’s collection of authorized-positive overdraft fees caused substantial injury because consumers paid at least $80.2 million in such fees from 2017 to 2022. Moreover, the bureau claimed these authorized-positive overdraft fees were not reasonably avoidable because they were caused by counter-intuitive, complex practices consumers did not understand or control and were contrary to consumers’ reasonable expectations. However, the CFPB pointed out that in January 2023, Navy Federal began to refund authorized-positive overdraft fees to consumers after they were incurred.
The CFPB also alleged Navy Federal charged overdraft fees for delayed posting of original credit transactions. Delayed original credit transaction fees are charges imposed on a consumer for a transaction that settled with insufficient funds in the account. These fees apply when the account would have had sufficient funds if the original credit transaction funds had been available at the time of settlement, and the settlement cutoff time was not disclosed. According to the CFPB, Navy Federal allowed consumers to access checking accounts to send or receive original credit transactions using services such as PayPal, Cash App or Zelle. However, the CFPB alleged Navy Federal did not disclose the existence of any cutoff time until December 2020, and as a result, customers incurred unanticipated overdraft fees. In the CFPB’s view, this practice constituted a UDAAP under the CFPA. CFPB acknowledged that Navy Federal addressed delayed original credit transaction fees by refunding fees from 2017 to 2019.
To resolve the bureau’s allegations, Navy Federal agreed to refund over $80 million to its members and pay a $15 million penalty to the CFPB. Navy Federal also agreed to create and maintain a compliance plan, to ensure consumers are not assessed authorized-positive overdraft fees or delayed original credit transaction overdraft fees.
Bottom Line: Navy Federal did not admit to or deny the CFPB’s allegations.
Document: Consent Order
