U.S. Navy Federal Credit Union to pay $28.5 million over debt collection issues

October 11, 2016 1:12 PM EDT

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By Sarah N. Lynch

WASHINGTON (Reuters) - U.S. consumer protection regulators ordered the Navy Federal Credit Union on Tuesday to pay $28.5 million in restitution and fines to settle civil charges alleging it made "false threats" about debt collection to its members.

The Consumer Financial Protection Bureau also said the credit union, which serves many active-duty and retired members of the military, moved to "unfairly" restrict access when its customers had a delinquent loan.

The Navy Federal Credit Union, which settled the charges without admitting or denying wrongdoing, is the largest credit union in the United States with more than $77.8 billion in assets as of June 30.

In a statement, the Navy Federal Credit Union said it is "proud of its 83-year history" of helping its members fulfill financial goals.

"Where our collections practices have come up short in the Consumer Financial Protection Bureau's estimation, we have made all the necessary changes. We have cooperated with the CFPB throughout the process," the credit union added.

Of the $28.5 million to be paid in the settlement, the CFPB said $23 million will go back to consumers who were harmed, while the remaining $5.5 million will be paid as a penalty.

According to the regulator, the credit union sent letters to some of its members that threatened to take legal action if they did not pay - a threat that rarely materialized.

In some cases, the letters also threatened to garnish consumers' wages, a remedy that is only available through a court order.

From January 2013 through July 2015, the CFPB said such letters were sent to 193,000 customers, yet at the same time, it only filed 5,000 debt collection lawsuits.

In one instance, the CFPB said, the Navy Federal Credit Union also sent letters to 115 consumers threatening to contact their military commanding officers about their delinquencies.

In addition, the regulator said some of the debt collection letters also made false threats, saying for instance that customers would "find it difficult, if not impossible, to obtain additional credit" because of their "unsatisfactory credit rating" with the credit union.

(Reporting by Sarah N. Lynch; Editing by Chris Reese and Alan Crosby)

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