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Removing Barriers Blog

Navy Federal Enforcement Action Brings to Light Concerns about Lack of Clarity Surrounding Use of UDAAP
Posted October 13, 2016 by CUNA Advocacy

This week, the CFPB released an enforcement action against Navy Federal Credit Union under its UDAAP Authority, asserting violations for deceptive actions surrounding debt collection and unfair restriction of consumers’ electronic account access – blocking debit cards, ATM usage, and online account functions. 

This Consent Order has raised many questions for credit unions, who are seeking clarity about what is considered a UDAAP violation surrounding debt collection, particularly since parts of the Order conflict with NCUA guidance. As Henry Meir of the New York Credit Union Association outlined this morning, restricting access to member services is not prohibited by NCUA Legal Interpretations.  

This interpretation from the NCUA states, 

“Our long standing legal interpretation is that an FCU may limit services to a member who has caused a loss and, as an extension of that interpretation, we believe it is reasonable for an FCU to limit the ability of members to name as joint owners any person who has caused a loss. The FCU Act provides that a member may only be expelled from membership by a two-thirds vote of the members at a special meeting called for that purpose or under a nonparticipation policy. 12 U.S.C. §1764. While an FCU cannot otherwise expel a member, an FCU may limit services to a member who has caused a loss to the fundamental right to maintain a share account and to vote in annual and special meetings. OGC Legal Opinion 96-0530 (June 10, 1996). To prevent persons who caused a loss from circumventing an FCU’s policy limiting services to them, we believe an FCU may limit the ability of members to name as joint owners any person who has caused a loss.” 

As such, CUNA has reached out to the NCUA to seek clarity on this matter to help to determine what guidance credit unions should be following. 

While there are some questionable debt collection practices alleged in the Order, there are also many questions surrounding whether aspects of the Order actually violated the FDCPA, and whether credit unions are required to comply with the FDCPA, since Congress has never required this and did not include such a directive in the Dodd-Frank Act. 

For example, it is not clear whether Navy Federal's practice of including information about potential legal actions in its letters to consumers would have been acceptable to the CFPB if they actually took legal action against more consumers. The FDCPA states, 

§ 807.  False or misleading representations 

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: 

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken. 

The CFPB highlights the concern that Navy Federal did not engage in litigation against consumers 97 percent of the time stating, “Because of the disconnect between Respondent’s narrow litigation practice and its broad letter campaign, the message to consumers-pay or be sued- was inaccurate about 97 % of the time, even among consumer who did not make a payment in response to the letter.” If Navy Federal had followed through on litigating these matters, it is not clear whether this language in the letters would still have been considered deceptive. 

It seems unlikely the CFPB would create public policy encouraging more lawsuits against consumers, but this Order creates ambiguity surrounding that issue. 

Such concerns about lack of clarity are particularly relevant in light of the recent PHH Corp. decision by the D.C. Circuit Court of Appeals finding that the CFPB overstepped when not following established statutory guidance in an enforcement action. 


While CUNA always promotes responsible collection practices, we also hope the CFPB is using its powers judiciously and prudently in this matter. Credit unions are member-owned cooperatives not driven by the pursuit of profits and appeasing shareholders. The actions taken by credit unions are designed to protect all of the assets owned by their members.  


CUNA hopes this was taken into consideration in the CFPB’s action and will continue to seek clarity on ambiguities created by this Order.