Junk Fee Wars
If we’ve learned anything over the last few years, it’s that when you really like a tv show at the height of its popularity, with an astounding ensemble cast, and gripping storyline, chances are… the show will be cancelled. But, if we’ve learned anything about the CFPB over the last few years, it’s that the agency has practically declared war on “junk fees.”
To be fair, we were warned a few times. They even have a video! Unlike the creators of Lovecraft Country (bombastic side eye), the CFPB provides multiple updates about how they handle financial institutions imposing surprise junk fees. Surprise junk fees are generally described as fees charged when members reasonably expected they had enough money in their accounts to cover a transaction at the time the bank authorizes it. Or the members didn’t reasonably see these overdraft fees coming. Sorta like I didn’t see the cancellation of Lovecraft Country coming!
There have been a few instances where banks have been reprimanded for imposing surprise junk fees, such as Regions Bank in 2022. However, federal credit unions are not exempt from the CFPB junk fee sweep!
At the top of this month, the CFPB issued a press release on its action against Navy Federal Credit Union for charging members, including servicemembers, illegal overdraft fees.
“From 2017 to 2022, Navy Federal charged customers surprise overdraft fees on certain ATM withdrawals and debit card purchases, even when their accounts showed sufficient funds at the time of the transactions. The CFPB is ordering Navy Federal to refund more than $80 million to consumers, stop charging illegal overdraft fees, and pay a $15 million civil penalty to the CFPB’s victims relief fund. This is the largest amount the CFPB has ever obtained from a credit union for illegal activity.”
Sometimes, credit union staff get confused on what type of overdraft policy would bring a credit union within the CFPB crosshairs. One way to stay clear of junk fee wrath is vicariously learning what not to do. The CFPB described that through its overdraft protection program, ironically named OOPS, Navy Federal illegally charged overdraft fees and violated the CFPA using two methods of fee collection:
“First, when they [members] made purchases with their accounts showing enough money to cover the transaction, the credit union still charged them overdraft fees if the account had a negative balance once the purchase posted to the account, sometimes days later. Navy Federal collected an average of $44 million a year in these surprise fees. As early as 2015, federal regulators, including the CFPB and the Federal Reserve, began cautioning financial institutions against charging these surprise overdraft fees.
Second, when customers received money th[r]ough payment services like Zelle, PayPal, and Cash App, Navy Federal’s systems showed the money as immediately available to spend. However, the credit union failed to disclose that payments received after 10:00 am Eastern (and later, after 8:00 pm Eastern) wouldn't actually post until the next business day. Some customers who tried to use this money were then charged overdraft fees. Through this practice, Navy Federal collected at least $4 million in fees.”
You may recognize the first method by the practice commonly known as "authorize positive, settle negative" (APSN).
Here are copies of the consent order and stipulation to review. Note that the consent order against Navy Federal, which does not admit wrongdoing by Navy, covers a period of time that ended two years ago, after they voluntarily ended the alleged practices once they were highlighted by the regulators.
To be compliant with CFPB regulations, especially concerning junk fees, credit unions should review and tailor their policies to ensure fees are reasonably disclosed and foreseeably charged to a member with the help of credit union counsel.
For any questions concerning this blog or junk fees in general, please email the compliance team at compliance@americascreditunions.org.
In other news, please see the two links below that may provide some helpful insight into the potential changes to the CFPB under the new Trump administration: