Federal Insider: Navy Federal to pay $23 million to misled customers; cute dog ads don't compensate

The television commercials for Navy Federal Credit Union are so effective and sincere, you’d never know it’s an operation marked by mendacity, sham and deceit.

Before you get suckered in by the spot with the cute little Pomeranian kissing the big gruff Marine, find out why the Consumer Financial Protection Bureau (CFPB) ordered Navy Federal to pay its victims $23 million and a $5.5 million penalty for shady debt collection activities.

In a consent order issued Tuesday, CFPB presented a litany of offenses by Navy Federal, including violating the law by blocking debit cards, ATM machines and online accounts, and making empty threats to contact clients’ military superiors about overdue debts. The credit union also intimidated customers with false threats to garnish wages.

The only thing worse than an empty threat is a real one. But empty threats can take a toll, too, generating tension, stress and fear. Not all the threats were bogus, however. The credit union disabled electronic access for about 700,000 accounts after customers fell behind on credit payments.

Navy Federal, based in Vienna, Va., and the nation’s largest credit union with assets over $73 billion, serves members of the military, Defense Department employees and contractors, other government employees assigned to the department, and their immediate families.

Rather than following the “honest performance of duties” promised in Navy Federal’s code of ethics, the credit union repeatedly deceived its members about punitive actions they might suffer if they failed to make payments between January 2013 and July 2015.

“Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts,” CFPB Director Richard Cordray said in a news release. “Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so.”

In response to the order, Navy Federal issued a self-serving news release that largely ignored the CFPB findings. “We have a long history of helping members when they are making the effort to pay back their loans, and we will continue to do so,” it said. “Where our Collections practices have come up short in the Consumer Financial Protection Bureau’s estimation, we have made all the necessary changes.”

Navy Federal did not admit wrongdoing in that statement, nor in its signed agreement with CFPB. But in the document signed by Cutler Dawson, Navy Federal’s president and chief executive, the credit union agreed “that the facts described in Section IV of the Consent Order will be taken as true.”