Navy Federal Credit Union to Pay $95M in Fines and Refunds Due to Unexpected Overdraft Fees

Navy Federal Credit Union will pay $15 million in penalties and return $80 million in overdraft fees to its members, addressing a Consumer Financial Protection Bureau (CFPB) enforcement action related to “surprise” overdraft fees.

The CFPB accused Navy Federal of improperly charging customers between 2017 and 2022 for overdraft fees on certain ATM and debit card transactions, even when the members’ accounts showed sufficient funds at the time of the transaction. The CFPB stated in a press release Wednesday that during this period, the credit union had collected over $1 billion in overdraft fees.

Navy Federal Credit Union, the largest credit union worldwide with a membership of 14 million, caters to Department of Defense and Coast Guard active-duty personnel, veterans, civilian and contractor staff, and their families.

The CFPB has been targeting financial institutions that levy what it describes as “junk” fees. In July 2023, the agency fined Bank of America $170.4 million for misconduct that included wrongful overdraft fees, and in December 2023, it imposed a $6.2 million penalty on Atlantic Union Bank for not properly obtaining customer consent for an overdraft protection program.

The CFPB noted that Navy Federal imposed unexpected overdraft fees in two primary ways. First, the credit union charged members $44 million in fees when their accounts showed enough funds at the time of purchase but displayed a negative balance when the transactions officially posted, sometimes days later.

The second type of improper fees involved payments from services such as Zelle, PayPal, and Cash App. Navy Federal’s system marked these funds as immediately available; however, payments made after a certain time wouldn’t post until the following business day. In such cases, the credit union charged members $4 million in overdraft fees, according to the CFPB.

In response, Navy Federal stated that it had worked with the CFPB during the investigation and maintained that it had “followed all applicable laws and regulations” in applying these overdraft fees. "Navy Federal has continued to comply with evolving expectations—including by automatically refunding certain overdraft fees since January 2023," read the credit union’s statement. 

By fLEXI tEAM