Client Alert: From the Scheer Law Group

To All SLG Clients and Affiliates.

From: Spencer Scheer
Date: October 18, 2016
Client Alert: From the Scheer Law Group:

Subject: CFPB Consent Order with Navy Federal Credit Union is a “Shot across  the Bow” for Collection Managers.

( Disclaimer): The following bulletin refers to legal issues subject to developing case law or regulatory oversight. In the event that you encounter issues covered in this bulletin, you should review the appropriate response with counsel experienced in this area of law and should update the status of any  legislation, regulation or case law mentioned.. The intention of SLG is to give an overview of the subject covered and to highlight trends that are emerging, not to provide advice applicable to any particular case. No permission for the general public to use this Outline is granted by SLG

Under a  “Consent Order filed by the CFPB on October 11, 2016,  the CFPB required Navy Federal Credit Union to pay $28.5 Million dollars in compensation and fines .This was  based on findings of unfair debt collection practices, including findings that the NFCU:

• Falsely threatened legal action and wage garnishment.
• Falsely threatened to contact commanding officers to pressure service members to repay.
• Misrepresented credit consequences of falling behind on a loan:
• Illegally froze members’ access to their accounts.
• In essence, delinquency on a loan could lead to shut down of a consumer’s debit card, ATM privileges and online access to the consumer’s checking account. The only account actions that could continue online were payments on the account.

The consent order can be found at:

http://files.consumerfinance.gov/f/documents/102016_cfpb_NavyFederalConsentOrder.pdf

Credit Unions are allowed statutory liens and a right of offset under both state and federal law.  Using this remedy in conjunction with denying a member electronic access to accounts can be a recipe for disaster, when undertaken in conjunction with questionable collection practices.

While, the CFPB does not directly regulate “smaller credit unions” state regulators will likely take a cue from the CFPB. Every credit union Collections Manager or Loan Service Manager should review the Order and the practices found to be deceptive or abusive, and the CFPB analysis of what training or reprimands should occur.

Please call me if you would like to discuss

Spencer Scheer