CFPB Sanctions Navy Federal for Improper Overdraft Fees

Joshua Roberts/Bloomberg

UPDATE: A quote from the National Credit Union Administration in this article was changed to remove the word “fraudulent.”

Navy Federal, the nation’s largest credit union with total assets of $181 billion, must pay $95 million in refunds and penalties after the Consumer Financial Protection Bureau cited it for charging illegal overdraft fees.

The Vienna, Virginia-based Navy Federal “harvested tens of millions of dollars in junk fees, including from active-duty service members and veterans,” CFPB Director Rohit Chopra said Thursday in a news release. The agency, which has waged a determined campaign against overdraft practices, invoked two methods in particular: charging fees when a member had sufficient funds at the time of purchase, and when a member relied on a peer-to-peer payment that had not yet been processed.

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The CFPB prevented Navy Federal from charging overdrafts in similar situations going forward. The credit union must also repay $80 million to members and pay a $15 million penalty — the largest the CFPB has ever imposed on a credit union. The CFPB’s enforcement action earned Navy Federal a strong rebuke from National Credit Union Administration Chairman Todd Harper.

“Navy Federal’s approve positive, resolve negative practices and subsequent charging of overdraft fees were not only unfair, but they also caused significant harm to consumers,” NCUA President Todd Harper said Thursday in a news release. “In many cases, consumers were charged an overdraft fee completely unaware of Navy Federal’s complex processes related to accounting for transactions and whether they will incur an overdraft fee.”

In a statement Thursday, Navy Federal said it had cooperated fully with the CFPB investigation and agreed to the fine. However, Navy Federal added that it believes its overdraft program was in compliance with “all applicable laws and federal regulations.”

“This settlement allows us to focus on serving our members and their families,” Navy Federal said.

Navy Federal’s fine comes after a number of banks found themselves ensnared in the CFPB’s overdraft probe. Regions Bank, TD Bank and the Richmond, Virginia-based Atlantic Union Bank have been fined.

CFPB presented a proposal in January, it would classify overdraft as an extension of credit and cap fees charged by the largest financial institutions, or those with more than $10 billion in assets, to $14. The banks have furiously pushed back against the plan. In one August op-edConsumer Bankers Association President and CEO Lindsey Johnson wrote that the CFPB’s overdraft hostility would result in a thinner cushion for cash-strapped consumers who rely on overdrafts to make ends meet.

“Many consumers also reported a lack of credit options, meaning overdraft services allow them to pay their bills without having to sell their household goods, borrow from friends or family,” Johnson wrote.

Other analysts argue that financial institutions, including some credit unionshas reaped a glut of overdrafts, hitting low-income consumers and service members with tens of millions of dollars in fees. Harper has made scrutinizing credit union overdraft practices a priority for NCUA. Earlier this year, the agency for the first time required credit unions with more than $1 billion in assets to disclose overdraft data in call reports.

In its latest call report, Navy Federal reported collecting $250.5 million in overdraft fees in the first nine months of 2024. It collected nearly $1 billion in overdraft fees from 2017 to 2021, according to the CFPB.

For its part, Navy Federal said its optional overdraft protection program offers members an alternative to payday lenders and other more expensive debt. It added that it offers programs aimed at helping members better organize their finances and reduce reliance on overdrafts. Other benefits, including dividends and reduced interest, earn or save members more than $450 a year, according to Navy Federal.

The Navy’s federal action marks the second recent high-profile enforcement action against a credit union by the CFPB. Last week, that sanctioned Vystar Credit Union with an asset of $14.7 billion in Jacksonville, Fla., for errors in the 2022 launch of a new operating system that limited members’ access to their accounts for months.