Navy Federal Credit Union Fined $95 Million for Illegal Overdraft Fees

The government has ordered America’s largest credit union to repay its customers $80 million.

Navy Federal Credit Union was issued that order Thursday (Nov. 7) by the Consumer Financial Protection Bureau (CFPB) after the regulator found that the financial institution had charged members illegal overdraft fees.

According to the CFPB, those fees — collected between 2017 and 2022 — were collected even when member accounts showed sufficient funds. In addition to the repayment, Navy Federal must also pay a $15 million civil penalty to the CFPB’s victims relief fund, making this the largest amount the bureau has ever obtained from a credit union for illegal activity.

“Navy Federal illegally harvested tens of millions of dollars in junk fees, including from active duty servicemembers and veterans,” Rohit Chopra, the CFPB’s director, said in a news release. “The CFPB’s work to rid the market of illegal junk fees has saved American families billions of dollars.”

According to the release, members were charged illegally in two ways. First, when they made purchases with their accounts showing sufficient funds to cover the transaction, Navy Federal still charged overdraft fees if the account had a negative balance after the purchase was posted.

And when customers got money via services like PayPal, the credit union’s systems showed the money as immediately available to spend, even though payments received at certain times wouldn’t actually post until the next business day, leading customers to be charged overdraft fees when they tried to use that money.

“Navy Federal fully cooperated with the CFPB’s investigation and we will continue to comply with all applicable laws and regulations, just as we always have and as we believe we did here,” the credit union said in its own release. “Nevertheless, this settlement enables us to focus on serving our members and their families.”

The CFPB’s actions come as banks are seeing their overdraft fees decline, falling 24% last year to $5.8 billion, down from the nearly $12 billion peak recorded in 2019.

“Evidence continues to suggest that financial institutions are generally not increasing other checking account fees to compensate for reduced overdraft/NSF revenue,” the CFPB said in April. “Across all reporting banks, combined account maintenance and ATM fees remained flat from 2019 to 2023.”

The oversight on those fees continues, as the CFPB recently stated that it would target banks using “phantom opt-in agreements” — in which banks claim to have customer consent to charge overdraft fees but can offer no proof. The consumer watchdog moved to cap the fees at $3 earlier this year.

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