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
respects.
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
mlozoff@shutts.com
François Henriquez
(305) 415-9076
fhenriquez@shutts.com
Jennifer Newton
(305) 415-9422
jnewton@shutts.com
jnewton@shutts.com
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