The CFPB consent order that cited the $77 billion Navy Federal Credit Union Tuesday with deceptive debt collection practices is raising questions about the world’s largest cooperative and the CFPB’s enforcement actions.

The Vienna, Va.-based credit union was ordered to pay affected members $23 million and a $5.5 million civil penalty.

“I think that questions need to be asked about [Navy Federal’s] incentive structure,” Keith Leggett, retired SVP and senior economist for the American Bankers Association, said. “What was the incentive structure? Were employees’ compensation tied to debt collection? And then you have to ask did this cause employees to overstep and engage in unethical behaviors and was there some direction by managers in the collection department?”

He also questioned how long these debt collections practices were going on because the CFPB investigation looked at the credit union’s internal operations from January 2013 to July 2015.

In addition, what is also unknown is how and why these debt collection practices were initiated, and when Navy Federal’s top executive team became aware of them.

In response to follow-up questions from CU Times, the CFPB said it made no specific findings regarding initiatives from or knowledge held by top management.

However, CFPB Spokesperson Vahey Moira noted that the consent order found Navy Federal’s compliance controls and employee training regarding debt collection communications were inadequate. In addition, the consent order stated Navy Federal lacked documentation that any employee was disciplined, reprimanded, or subject to additional training for disclosing debts to third parties or making threats Navy Federal could not legally take or did not intend to take.

Via email, Navy Federal declined to answer specific questions from CU Times about why and how these collections practices were initiated and when managers and the credit union’s top brass became aware of these issues uncovered in the CFPB investigation.

Interestingly enough, the CFPB consent order shows Navy Federal used “several letter templates” that threatened legal action against members. Some of the template letters, which obviously had to be created by someone in the credit union, said legal action had been recommended. Other letters said if no payment was made, the credit union had no alternative but to recommend the account for legal action. Many of the template letters also threatened garnishment of wages.

These template letters were mailed to 193,000 members, but Navy Federal filed fewer than 5,000 debt collection lawsuits. The credit union’s employees also called members with similar verbal threats of legal action.

What’s more, the credit union also mailed template letters to 115 service members threatening that it would contact their commanding officers if they did not promptly make a payment. The credit union’s representatives also communicated these threats by telephone.

The CFPB investigation found that Navy Federal deceived members to get them to pay delinquent accounts and falsely threatened severe actions when it seldom took such actions or did not have authorization to take them.

However, Robert Foehl, vice president and general counsel for ACA International, the Association for Credit and Collection Professionals in Minneapolis, criticized the CFPB’s practice of regulation by enforcement.

“The rules of the road aren’t always clear for debt collection activities,” Foehl said. “The CFPB hasn’t made them clear to organizations that are collecting legitimately owed debt. What they’re doing is they’re regulating by enforcement, and unfortunately, that’s a very, very difficult thing for organizations that are trying to do the right thing. They just don’t know the rules of the road because the CFPB has not outlined what the rules of the road are. Unfortunately, the CFPB has declined to expressly state what they view as unfair, deceptive or abusive acts or practices in the debt collection context other than what we already know in the Fair Debt Collection Practices Act.”

Marvin Umholtz, president/CEO of Umholtz Strategic Planning & Consulting Services in Olympia, Wash., was dismissive of CFPB’s consent order.

“It’s doubtful that Navy did any shady practices,” Umholtz said. “To me, they were collecting on loans that were made that went bad. Whether they were 100% pure, I don’t know. It’s hard to be 100% pure. A bully of an agency that’s out there expecting compliance to be 100% pure, they can pick on anybody they want to.”

Nevertheless, Leggett pointed out that credit unions under CFPB oversight are experiencing a different regulatory culture.

“You are getting compliance regulators who aren’t from the NCUA but from the Federal Reserve, the OCC and the FDIC, who worked on the regulatory compliance side,” he said. “And I think what is occurring is that this is a culture shock for these credit unions because in my viewpoint the NCUA is the kinder, gentler regulator.”

Leggett also said the CFPB’s consent order also indicates that credit unions should remain subject to CFPB regulations and oversight.

NAFCU and the Defense Credit Union Council did not respond to CU Times’ request for comment on Wednesday. CUNA said it did not have specific knowledge about this matter.

The NCUA said it does not comment on the actions of other agencies. 

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