Federal Judge Grants Final Approval Over Navy Federal’s $16 Million Class Action Suit

U.S. District Court Judge Liam O’Grady in Alexandria, Va., granted final approval last week for a $16 million class action settlement over a non-sufficient funds fee lawsuit that affected an estimated 700,000 current and former members.

The lawsuit was brought by Navy Federal Credit Union 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.

Although Lambert acknowledged that Navy Federal could 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.

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.”

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

The $16 million settlement cash fund will pay for $5.3 million in attorney fees and $26,571 in costs, 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.”

In another separate class action complaint over Navy Federal’s international transaction fees, a California federal judge ordered its dismissal last month.

The lawsuit was dismissed after Navy Federal member Siobhan Morrow of San Diego filed a notice of voluntary dismissal without prejudice, meaning the lawsuit can be brought back before the court.

As a result of that dismissal, U.S. District Court Judge Todd W. Robinson in San Diego also “denied as moot” Navy Federal’s motion to dismiss Morrow’s lawsuit, which alleged the credit union unlawfully charged her a 1% international transaction fee when she bought a product from an overseas retailer using her checking account.

While Navy Federal charges members a 1% International Service Assessment Fee for purchases made overseas, the issue is that Morrow bought the product while she was at her San Diego home, and she did not know the merchant was based in Cyprus.

One of the lawsuit’s main issues centered on the contract term “made in foreign countries,” which Morrow argued is ambiguous because Navy Federal does not define what it means for credit union members to engage in transactions made in foreign countries.

However, Navy Federal argued that its international fee is authorized for all transactions carried out in foreign countries and that any transaction takes place wherever the merchant is located.

As a matter of general practice and common usage, it is the location of the merchant who consummates the transaction that triggers the international fee because that location is where the transaction is legally performed. And because Morrow authorized the transaction to occur in Cyprus, the international fee was applied, Navy Federal said in court documents.