Navy Federal Settles Non-Sufficient Funds Fee Lawsuit for $16 Million

The $131 billion Navy Federal Credit Union will settle a non-sufficient funds fee lawsuit for $16 million that will reimburse an estimated 700,000 current and former members who were charged NSF fees.

U.S. District Court Judge Liam O’Grady in Alexandria, Va., granted a preliminary approval for the class action settlement on Oct. 27, and it is expected to receive the judge’s final approval in March.

The lawsuit was brought by Navy Federal member Ruby Lambert in January 2019 after writing a $96 check to pay an insurance bill. The Vienna, Va.-based Navy Federal rejected the payment because of insufficient funds in her account and charged Lambert a $29 NSF fee. When the insurance company resubmitted her check for payment a second time, Navy Federal charged Lambert a second $29 NSF fee.

Navy Federal allows merchants to submit a check or debit item for payment up to three times, according to court documents.

Although Lambert acknowledged that Navy Federal was allowed to charge her a single NSF fee, she argued in court documents that the credit union breached terms of member account agreements when it charged her a second NSF fee for the same insurance check payment.

“If the merchant submits the rejected payment request a second or third time – as many do as a matter of course – it [Navy Federal] charges additional fees for insufficient funds,” Lambert’s lawyers wrote in court documents. “Nothing in its [member account agreements] contract authorizes Navy Federal to impose those charges and customers have no notices that they may face two (or more) insufficient funds fees for lacking the funds to make a single payment.”

However, in August 2019, Judge O’Grady granted Navy Federal’s request to dismiss Lambert’s lawsuit because the terms of the member account agreements “unambiguously give Navy Federal the contractual right to impose fees in the way it did.”

O’Grady also noted that when the member account agreements are read together and in context, they unambiguously provide that each time Navy Federal returns a request for payments for insufficient funds, the NSF fee may be assessed without regard to whether the return item was a representment of a previously rejected request.

“As a result, Navy Federal Credit Union did not breach the [member account agreement] contract when it assessed the second nonsufficient funds fee for Plaintiff’s insurer second ACH debit request,” Judge O’Grady wrote.

Shortly after this ruling, Lambert filed an appeal with the Fourth Circuit Court of Appeals in Richmond. During the appeals process, Lambert’s lawyers and Navy Federal agreed to settle the lawsuit over the summer.

The $16 million cash fund will pay for $5.2 million in attorney fees, a $5,000 “service award” for Lambert, and millions in NSF fee reimbursements for an estimated 700,000 current and former Navy Federal members who were assessed a second or third NSF fee for a single payment transaction that was rejected because of insufficient funds in their accounts from Jan. 28, 2014 to Oct. 27, 2020. What’s more, Navy Federal will separately pay all settlement administration costs, which was described in court documents as “a substantial expense.”

According to the settlement agreement, representment NSF fees will be totaled to each account and they will be allocated pro rata for the estimated 700,000 settlement class members based on their number of relevant NSF fees. Payments to current Navy Federal members will be made by crediting their accounts and former members will be mailed a check.

The settlement agreement also called for the credit union to revise the terms of its member account agreements to clarify when representment NSF fees may be assessed to members. In addition to informing members that they may be charged a NSF fee for accounts with insufficient funds, the revised statement also informed members that they may be charged multiple NSF fees in connection with a single debit that has been returned for insufficient funds multiple times.

In the settlement agreement, Navy Federal continueed to dispute the liability of the claims made in the lawsuit and maintained that its NSF fee assessment practices and representations concerning those practices complied at all times with all laws, regulations and the terms of member account agreements.

“Navy Federal does not admit any liability or wrongdoing of any kind by this agreement or otherwise,” the proposed settlement agreement stated. “Navy Federal has agreed to enter into this agreement to avoid further expense, inconvenience, and distraction of burdensome and protracted litigation, and to be completely free of any further claims that were asserted or could possibly have been asserted in the action.”