Michael Lozoff PA Speaks to Important Lessons from the CFPB-Navy Federal Consent Decree

Important Lessons from the CFPB-Navy Federal Consent Decree

On October 11, 2016, the CFPB issued a consent order citing Navy Federal Credit Union for unfair and deceptive debt collection practices. Navy Federal was ordered to pay a $5.5 million civil penalty and to pay affected members $23 million. The CFPB found that the $77 billion Navy Federal violated the Consumer Financial Protection Act of 2010 (the “CFPAct”) in two principal

First, the CFPB said NavyFed made deceptive representations to members about its intent to take legal action against delinquent debtors, its intention to contact members’ military chains of command about their debts, and the effect of delinquency or repayment on consumers’ credit ratings.

Second, the CFPB charged NavyFed with unfairly restricting members’ electronic account access—blocking debit cards, ATM usage, and online account functions—when the member
had a delinquent credit account.

Credit unions nationwide are wondering whether they should worry about a CFPB examination and, more importantly, what, if anything, they should change in their collection practices. The CFPB has very broad enforcement authority when it comes to the federal consumer financial protection laws and a credit union of any size could be subject to CFPB sanctions for violations of those laws. As a reminder, it’s only the CFPB’s supervisory authority that is limited to credit unions with more than $10 billion in total assets.

After studying the language of the CFPB Navy Federal consent decree, we would like to offer the following recommendations for consideration.

Collection Letters
 The credit union should avoid threatening to bring legal action unless and until the credit union has reached the point that legal action is actually the only remaining last resort.
 The credit union should avoid threatening legal action if, in fact, the credit union has a history of rarely using the judicial system to collect past due accounts.
 The credit union should review its collection letter templates from time to time to ensure that they do not contain improper or abusive terms.

Account Freezes
 If the credit union engages in the practice of freezing member’s electronic account access and/or disabling electronic services after the member becomes delinquent on a credit account, it should disclose this practice with its usual account opening disclosures.
 The credit union should consider giving the member advance warning of an impending account freeze.
 The credit union should probably wait until the account is at least 30 days past due before blocking access.
 The credit union should consider selective blocking, e.g., blocking the member’s ATM or debit card, but not online or mobile web platforms that allow the member to check account balances, transfer funds, and make online payments.

A Word About Loss Policies
Many credit unions have policies that authorize the credit union to restrict services and access to members who have caused a financial loss to the credit union. It is generally viewed that the credit union hasn’t suffered a financial loss until it is required to write off the account as uncollectible. Accordingly, credit unions that freeze delinquent members’ accounts should carefully review their financial loss policies before relying on this rationale.

The suggestions above are only some of the matters credit unions should consider in making certain their debt collection practices comply with the CFPAct. Also, this bulletin should not be considered legal advice as each credit union’s policies and practices differ and so do the ways in which laws and regulations apply to those policies and practices.

The Credit Union Practice Group at Shutts & Bowen stands ready to work with your credit union to make sure it takes steps to avoid sanctions like those imposed on NavyFed.

Mike Lozoff, Chair
(305) 415-9516

Fran├žois Henriquez
(305) 415-9076

Jennifer Newton
(305) 415-9422