California Credit Union Responds to Congressional Letter Over Marine OD Fees

Perhaps there is no better person to respond to a letter from 10 members of Congress than Bill Birnie after they criticized Frontwave Credit Union’s overdraft fees charged to young U.S. Marine members. After all, he has served as president/CEO of the Oceanside, Calif.-based credit union for more than eight years, and he has also served in the Marine Corps for 25 years, retiring at the highest enlisted rank of Sergeant Major.

His eight-page letter was a detailed response to federal lawmakers, whose letter was primarily based on a media report that Frontwave has been exploiting young Marine service members by charging them millions of dollars in predatory and exorbitant overdraft fees. But Birnie’s response letter contended that the credit union’s overdraft fee is far lower than the industry average and worked as a lifeline for members to pay their other bills, avoiding late-payment fees, disrupted services and financial insecurity.

The congressional letter signed by Senators Elizabeth Warren (D-Mass.), JD Vance (R-Ohio), Laphonza Butler (D-Calif.), Richard Blumenthal (D-Conn.), Tim Kaine (D-Va.), Cory Booker (D-N.J.), Ben Cardin (D-Md.), Mazie Hirono (D-Hawaii), Bernie Sanders (I-Vt.) and Rep. Sara Jacobs (D-Calif.), also asked Birnie numerous questions about the credit union’s overdraft practices, which he answered, and then some.

According to a media report from KPBS in San Diego cited by the congressional letter, when a member’s account is overdrawn by more than $20, they are charged a $20 fee every time they make a purchase — up to a negative $500 account balance. Every year, around 20,000 Marine recruits, some as young as 17 years old, go through boot camp at Marine Corps Recruit Depot (MCRD) in California.

Approximately 99% of recruits are automatically enrolled with Frontwave. On average, the base pay for newly enlisted Marines is around $1,800-$2,200 per month before taxes. Many recruits are navigating managing a budget and a checking account for the first time. A $500 debt to Frontwave, compounded with interest, could take years for a recruit to repay — and could make it impossible for them to open bank accounts elsewhere when their credit score plummets. Frontwave’s credit union members are primarily Marines and their families and, for more than 25 years, the credit union has “benefited from an exclusive arrangement with the U.S. Marine Corps,” according to the media report and congressional letter.

Birnie’s letter noted the MCRD in San Diego approached Frontwave in 1996 to participate in the Recruit Direct Program.

“The Marine Corp Recruit Depot fully supports Frontwave’s presence and the programs we offer. As a result, Frontwave has become an invaluable member of the MCRD community,” Birnie wrote. “When the RDD program began, the Marine Corps advised us that they estimated the program would save the Corps $4 million per year in administrative cost and manpower. Thus, over the 28 years we have participated in the program, Frontwave has saved the Marine Corps and the American taxpayers an estimated $112 million.”

Regarding the $20 overdraft fee, Birnie noted it is a fee that is significantly lower than the industry average of $33 in 2021, $29 in 2022 and $26 in 2021, according to Statista. In addition, Frontwave’s fee has not increased since its inception in 2011.

The credit union calls its $20 overdraft fee a Courtesy Pay service and cited that Frontwave’s members have found this service helpful when more money is needed for an expense than is currently deposited in their account.

“Prior to the advent of overdraft protections such as our Courtesy Pay, member transactions would be simply rejected for insufficient funds,” Birnie wrote. “As a result, rent payments, car payments, grocery payments, utility payments, etc., would all be rejected, and merchants would charge additional fees to offset the costs of collection of those failed payments. For many, overdraft protection provides a lifeline that bridges the gaps between paychecks and covers essential expenses. Without this service, our members would face embarrassing situations, increased fees, disrupted services and financial insecurity.”

What’s more, Birnie noted the Courtesy Pay enables members to avoid predatory, debt-driving payday lenders that charge excessive interest rates.

“Our members trust that Frontwave will be there if they need to utilize Courtesy Pay, and they understand the cost of the service,” he wrote. “Frontwave charges a reasonable — and well below market — fee for the service, which is fully disclosed upfront.”

But the congressional letter said Frontwave’s members are not notified when they have negative or low account balances and that members have to manually set up alerts for low or negative account balances.

Birnie’s letter said members have alternatives to Courtesy Pay. The first is that members can choose to establish automated transfers from a separate checking, savings, credit card or overdraft line of credit to protect from overdrawing their accounts. His letter also acknowledged that Frontwave does not extend overdraft protection service for debit card transactions or ATM withdrawals unless the member has affirmatively opted in to the service. Currently 8% of Marine members have opted in for the ATM/debit service and members may choose to opt out of the Courtesy Pay service at any time.

Read More: Frontwave Credit Union’s Response to the Congressional Letter