Navy Federal Credit Union Case Highlights Need to Lower Overdraft Fees
CFPB rule can curb abuse of this insidious junk fee

By Christine Chen Zinner

Last week, the Consumer Financial Protection Bureau (CFPB) ordered the largest credit union in the United States to stop charging its customers illegal overdraft fees. Navy Federal Credit Union has been ordered to refund $80 million back to its customers, many of whom are active duty servicemembers, veterans, and Department of Defense civilian employees. Additionally, the credit union must pay a $15 million penalty to the agency’s victims relief fund. 

Navy Federal customers were unexpectedly being charged overdraft fees even when they had sufficient funds at the time they used their debit card to make a purchase. Debit card transactions can sometimes take days or even weeks to settle, and charging overdraft fees for insufficient funds days or weeks after charges are incurred cost Navy Federal’s customers $44 million in fees every year. Additionally, federal regulators had been advising financial institutions not to charge these types of fees as early as 2015 — a warning Navy Federal continued to ignore. 

The credit union collected another $4 million in surprise overdraft fees every year by punishing customers who were not told that money they received from payment services such as Zelle, PayPal, and Cash App would not be available until the following business day if it was received after 8 PM (and after 10 AM, initially). 

While Navy Federal has been held accountable for its surprise overdraft fees, this latest example demonstrates why the CFPB must finalize its proposed overdraft fee rule so all consumers are protected. Opinion surveys have repeatedly found that  an overwhelming majority of voters support such policies to regulate overdraft fees.

The proposed overdraft regulation would simply close a loophole from the paper check era that allows huge financial institutions to charge back-end junk fees that hit people when they are already down, potentially pushing them out of the banking system. The rule, If finalized, would effectively treat overdraft fees like loans, with most overdraft fees lowered from $35 down to between $3 and $14, saving people $3.5 billion annually in fees. It’s time to finalize the overdraft fee rule and expand protections to everyone.

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