Questions Lurk Over CFPB and Navy Federal

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.