CFPB Has Little History With Taking Action Against Credit Unions

When the CFPB announced its “action” against the Jacksonville, Fla.-based VyStar Credit Union for the disastrous rollout of its new banking system in 2022, it marked an extremely rare step taken by the Bureau against any credit union. It’s so rare that there’s only one other notable example happening in the history of the CFPB.

Only two times, since its inception in July 2011, has the CFPB taken steps to reprimand and fine a specific credit union. The second instance was Thursday’s announcement for VyStar to pay $1.5 million in civil penalties that will go to the CFPB’s victims relief fund and refund members’ accounts for any fees they were charged as a result of the weeks-long outage in May 2022.

The first instance was in 2016 when the CFPB ordered the Vienna, Va.-based Navy Federal Credit Union ($180 billion in assets, 14 million members) to pay $28.5 million for improper debt collection practices.

The CFPB ordered the largest credit union to pay $23 million to members and a $5.5 million civil penalty for making false threats about debt collection to active-duty military service members, retired service members and their families.

The CFPB investigation found that Navy Federal deceived members to get them to pay delinquent accounts and falsely threatened severe actions when it seldom took such actions or did not have authorization to take them.

Bureau officials also said the credit union cut off members’ electronic access to their accounts and bank cards for failing to pay overdue loans. Hundreds of thousands of members were affected by these practices, which occurred from January 2013 to July 2015, according to the CFPB.

At the time, then-Director Richard Cordray said, “Navy Federal Credit Union misled its members about its debt collection practices and froze consumers out from their own accounts. Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so.”

While Thursday’s action against VyStar by the CFPB does not reach the monetary levels of the Navy Federal case, it does potentially signify the stronger stance the Bureau has taken to monitor and reprimand financial institutions since the U.S. Supreme Court upheld the CFPB’s constitutionality earlier this year.

In May, justices ruled 7-2 to reject an attempt by payday lenders and their credit union allies to dismantle the CFPB through a lawsuit that challenged its funding and governance. Before its merger into America’s Credit Unions, CUNA and NAFCU filed a brief in July 2023 supporting the suit brought by payday lenders.

According to the CFPB, the organization is behind in its enforcement actions due to the months spent waiting for the Supreme Court to issue its ruling. CFPB’s Chopra said after the ruling that the agency “will be firing on all cylinders.”