Senators Demand Answers After Case Dropped Against Navy Federal for Charging Troops Overdraft Fees

A group of senators says they have "profound alarm" and are demanding answers over the unprecedented decision by the government's consumer watchdog to drop its case against Navy Federal Credit Union for charging its members -- almost exclusively service members, veterans and their families -- millions in illegal overdraft fees.

"This decision appears to prioritize financial institutions over the very service members the bureau is charged with protecting," the five Democratic senators wrote in a letter, provided exclusively to Military.com, to the head of the Consumer Financial Protection Bureau, Russ Vought.

In November, the CFPB announced that Navy Federal had "illegally harvested tens of millions of dollars in junk fees" and that the financial institution had agreed to a settlement requiring the return of $80 million to its customers and payment of a $15 million fine, before the case was suddenly dropped two weeks ago.

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"Your abrupt reversal of this consent order suggests your stated commitment to service members is little more than lip service," according to the letter, which was led by Sen. Ruben Gallego, D-Ariz.

The letter was also signed by Sens. Angela Alsobrooks, D-Md.; Catherine Cortez Masto, D-Nev.; Tammy Duckworth, D-Ill.; Chris Van Hollen, D-Md.; Elizabeth Warren, D.-Mass.; Raphael Warnock, D-Ga.; and Ron Wyden, D-Ore.

"The CFPB's mission is to protect consumers from unfair, deceptive or abusive practices and to hold lawbreaking companies accountable. Under your direction, it is doing neither," the senators added in the letter.

In a now-removed November news release, the Biden administration-run CFPB explained that, between 2017 and 2021, Navy Federal collected nearly $1 billion in overdraft fees while either failing to be transparent or misleading its members about how much money they actually had in their bank accounts, thus making overdrafts more likely.

Former CFPB officials who spoke to Military.com last week noted that overdraft fees, like the ones that Navy Federal was accused of charging, have become a key part of the business model for banks and credit unions.

Moreover, Navy Federal is not the only military-focused financial institution that has faced allegations of overcharging troops.

Last year, USAA agreed to settle a class-action lawsuit for $64.2 million over improperly charged fees and high interest rates that violated federal protections for service members who held loans.

That same year, KPBS reported that a third credit union, Frontwave, leveraged its access to Marine recruits at the training depot in San Diego, California, to build a huge clientele of Marines and then charge overdraft fees.

In 2022, Frontwave got 12% of its annual profit from overdraft fees -- significantly higher than other credit unions in the state, KPBS reported.

Frontwave's behavior drew the attention of Sen. Elizabeth Warren, D-Mass., who sent the financial institution a letter demanding answers in 2024.

Now, Gallego and other senators are asking the CFPB about whether any of the $80 million in restitution that Navy Federal agreed to pay in the fall of 2024 will actually be paid.

Several days after Military.com asked Navy Federal the same question, a spokesperson for the credit union didn't offer an answer but instead said that they "firmly believe the CFPB's decision to terminate the order was appropriate."

"Navy Federal complied with all applicable laws and regulations at the time and continues to do so," the spokesperson added.

But the group of senators says more needs to be done.

"At a time when families are feeling the strain of higher costs and every dollar is hard-earned, the American people -- especially our service members, veterans and military families -- deserve more," they wrote in the letter.

Meanwhile, former CFPB officials told Military.com that the development likely means troops will just have to look out more for themselves.

"Unfortunately, all consumers are going to have to be that much more vigilant to not be ripped off by their financial institution -- and that's really not a position we should be putting consumers," Eric Halperin, a former enforcement director at the CFPB, told Military.com last week.

Related: After Navy Federal Overdraft Fees Case Dropped, Experts Warn Troops Will Need to Be More Vigilant