Skip to main content

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
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

Comments

Post a Comment

Please no profanity or political comments.

Popular posts from this blog

NCOFCU Newsletter

The Bucket Coach is a financial advice book designed by Fire Services Credit Union, Tronto, Canada. and written exclusively for Fire Fighters It's a practical guide for household financial management, including investments, credit and mortgages, and retirement. Developed with contributions from Fire Fighters," NCOFCU Newsletter : " Kevin Connolly Chief Executive Officer    Fire Services Credit Union Phone: 416-440-1294 ext 301  Toll Free: 1-866-833-3285 E-mail:  kevin@firecreditunion.ca 1997 Avenue Rd Toronto, ON M5M 4A3 
Post a Comment
Read Complete Article HERE>»

CUNorthwest Todd A. Powell Award is SFCU CEO Gayle Furness.

Spokane Firefighters Credit Union Big Enough to Serve. Small Enough to Care. This year’s recipient of the CUNorthwest Todd A. Powell Award is SFCU CEO Gayle Furness. Like Todd, Gayle has been instrumental in the growth, as well as the safety and soundness, of the credit union. Congrats to Gayle for living up to the standard that Todd created for our organization and the greater credit union community. __ ________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board
Post a Comment
Read Complete Article HERE>»

The Shrinking Pool of Small Credit Unions: Why It Matters & What We Can Do About It. - Henry Meier, Esq.

  Henry Meier, Esq. Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at  henrymeieresq@outlook.com . For as long as I’ve been around the industry, I’ve heard concerns about the demise of the small credit union. But I’ve come to realize it’s a lot like the weather: Everyone talks about it, but no one does anything about it. This is unfortunate. We need credit unions of all shapes and sizes to survive, and if we don’t take action soon, it will be too late.  Fortunately, there are steps the industry can take to potentially decrease the rate at which small credit unions are disappearing by making it viable for credit unions to survive by getting larger credit unions interested in making the necessary investments to keep the sma...
Post a Comment
Read Complete Article HERE>»

What Are Your Plans -As Government Shutdown Continues, Credit Unions Expand Offers of Assistance

BILOXI, Miss.— With the federal government shutdown now entering its second week, an increasing number of credit unions across the country are offering relief and financial assistance. All indications are the shutdown is no closer to ending than it has been since it began on Oct. 1. While the House has passsed a continuing resolution (CR) to fund government operations in the short term, the Senate remains at an impasse, even as it has scheduled a vote for today. In addition to the earlier assistance reported by the CU Daily  here , the latest pledges to support members include: • In Biloxi, Miss., Keesler FCU said it is offering paycheck relief for all eligible federal employees affected by the shutdown and will advance the amount of direct deposit paychecks for eligible members during the shutdown for up to 90 days. There is no cost or fee to enroll in the program. • In Nebraska, Cobalt Credit Union is offering furloughed members loans of up to $5,000 with no fees or interest...
Post a Comment
Read Complete Article HERE>»

Sunday Reading - FIRE, 101 - “financial independence, retire early,”

  Retiring at 30     FIRE, 101 Most US workers aim to retire around age 65—but for many followers of the FIRE movement, which stands for “ financial independence, retire early ,” that’s not the case. FIRE followers, who range from low- to high-income workers, typically prioritize high savings rates, relatively frugal living, and aggressive investing strategies in an effort to work less and enjoy life more in the long-term ( see five distinct approaches ). While many proponents argue that the movement is more of a mindset about achieving financial freedom than any ...
Post a Comment
Read Complete Article HERE>»