USAA has agreed to pay $64.2 million to settle a class-action lawsuit alleging that its banks improperly charged fees and high interest rates that violated federal protections for service members who held loans.
Under the agreement released Friday, defendants USAA Federal Savings Bank and USAA Savings Bank -- the company's credit card subsidiary that is now part of USAA Federal Savings Bank -- did not admit any wrongdoing but agreed to pay roughly 210,000 members to settle a case filed in November 2021.
In the suit, four plaintiffs alleged the banks did not lower interest rates or fees in compliance with the Servicemembers Civil Relief Act (SCRA), causing improper inflation of customers' principal balances and resulting in calculations of compound interest based on the higher balances.
The banks then "concealed their overcharges from thousands of military families," according to the claimants in Bulls et al. v. USAA Federal Savings Bank et. al.
"Despite their representations to plaintiffs and other class members, defendants failed to comply with the SCRA and the terms of its USAA Military Benefits Program," the lawsuit read.
The Servicemembers Civil Relief Act, passed in 2003 in its current form, is designed to protect troops from financial burdens while they are serving in the U.S. military by suspending, postponing or reducing obligations like loans, rent or insurance costs under certain circumstances.
According to the lawsuit, the U.S. Treasury's Office of the Comptroller of the Currency found 546 violations of the SCRA and 54 violations of the Military Lending Act during a March 2019 performance evaluation of USAA Federal Savings Bank, including failure to protect military reservists from high fees and wrongful repossession of vehicles.
The office issued a cease-and-desist order and required the bank to begin remediation to customers. In 2020, it fined the bank $85 million for failing to implement or maintain an effective program to monitor for compliance or measure information technology risk regarding the laws.
In a statement provided to Military.com, Roger Wildermuth, USAA's director for public relations, said the company "strongly disagrees" with the charges but decided to settle "in the best interest of our membership" and to avoid lengthy, "expensive litigation so we can focus on providing exceptional service."
According to Wildermuth, after realizing the issue, USAA had "already compensated members for errors that may have occurred related to the allegations" before the lawsuit was filed.
"Roughly half of the announced settlement amount is simply reissuing checks we had previously mailed that our members never cashed," Wildermuth said.
The lawsuit alleged, however, that those checks were sent with correspondence that "misleadingly stated that the recipient 'may have' been entitled to 'benefits and/or protections'" and were printed in a way that would prompt recipients to toss them.
"The correspondence was often sent in a nondescript envelope that appeared to many service members as a solicitation or junk mail," according to the complaint.
The settlement, which still requires a judge's approval, could result in each plaintiff receiving slightly more than $200, with the four named plaintiffs -- all former members of the Army Reserve or Army National Guard -- getting an estimated $20,000 each.
The attorneys for the plaintiffs, with Seattle-based firms Smith & Lowney PLLC and Hagens Berman Sobol Shapiro LLP, have requested 27.5% of the settlement, or more than $17 million, for legal fees and expenses.
Members of the class include troops who had a credit card account or loan with a USAA bank while actively serving any time after May 4, 2009, and who would have been subject to interest rate reduction protections under the SCRA and the Military Lending Act.
The settlement does not say whether all affected will be notified, but the only troops included are those who received and deposited a check from a USAA bank as a result of the correction or were identified as being eligible for one.
If approved, details on the settlement, including paperwork to opt out, will be posted on www.USAABankClassAction.com.
USAA is a San Antonio-based insurance company, which serves roughly 14 million service members, retirees, veterans and their families. USAA Federal Savings Bank had roughly 9 million members in 2022.
"USAA is committed to serving our members by going beyond minimum requirements through industry-leading SCRA benefits, such as offering interest rates lower than the law requires and automatically applying benefits for eligible members," Wildermuth said.
Related: USAA Bank Fined $85 Million by Federal Regulators for 'Violations of Law'
