The CFPB announced that it has entered into a consent order with Navy Federal Credit Union to settle allegations that the credit union engaged in unfair and deceptive collection practices in violation of the Consumer Financial Protection Act.  The consent order, which appears to be the CFPB’s first consent order involving a credit union, requires Navy Federal to pay a civil money penalty of $5.5 million.

According to the CFPB’s findings of fact and conclusions of law set forth in the consent order (which Navy Federal does not admit or deny), the credit union is alleged to have engaged in the following unlawful conduct:

• The credit union sent letters to members threatening to take legal action unless they made a payment but, in reality, seldom took legal action, with the CFPB finding that the credit union’s “pay or be sued” message “was inaccurate about 97% of the time, even among consumers who did not make a payment in response to the letters.”
• In addition to making similar threats of legal action in telephone calls, the credit union threatened to garnish members’ wages when it had no intention to do so.
• The credit union threatened in letters and telephone calls to contact a member’s commanding officer if he or she did not promptly make a payment when it had no intention to do so.  In addition, the credit union would not have been authorized to make such contacts because the provision in the credit union’s agreements that purported to authorize the credit union to disclose a servicemember’s debts to his or her commanding officer “was not consented to by consumers because the contract clause was buried in fine print, non-negotiable, and not bargained for by consumers.”  Because the credit union was not authorized to contact a member’s commanding officer and did not intend to do so, its threats to members were deceptive in violation of the CFPA’s prohibition of unfair, deceptive, or abusive acts or practices.
• The credit union sent letters to members who had fallen behind on their loans that stated the member “would find it difficult, if not impossible, to obtain additional credit because of your present unsatisfactory credit rating” with the credit union and that the member could repair his or her credit by calling the credit union.  The credit union had no basis for its assertions regarding the member’s ability to obtain additional credit and misleadingly implied that the credit union issued a credit rating as would a credit reporting agency and that it offered credit repair services.
• The credit union froze electronic account access and disabled certain electronic services after consumers became delinquent on a credit product without adequately disclosing this policy to consumers when an account was opened or when the consumer became delinquent.

The CFPB’s finding that members had not consented to the provision authorizing the credit union to contact a member’s commanding officer because it was “buried in fine print, non-negotiable, and not bargained for” could be used to invalidate many provisions contained in consumer contracts.  We are unaware of any terms in consumer contracts that are ever negotiated.  Is the CFPB suggesting that a company may no longer use form contracts?  While we doubt that they intended to send that message, the consent order seems to say that it is unlawful to include a provision in a form contract if the provision is in “fine print.”  Under what circumstances will the print be considered “fine print”?  Must there be a minimum font size?  Finally, to what contract provisions does this “new rule” apply?  Does it apply to all provisions or just those that consumers or the CFPB deem important?  The consent order appears to be another example of the CFPB’s practice of “rulemaking by consent order.”

In addition to payment of the $5.5 civil money penalty, the consent order requires the Navy Federal to pay $23 million in redress to consumers who, between January 1, 2013 and the date of the consent order, made a payment to the credit union within 60 days of receiving a deceptive debt collection letter or received a letter threating to communicate with the consumer’s commanding officer. The credit union is also prohibited from continuing to engage in the practices that are the subject of the consent order, must remove any references to contacting employers, including military employers from its consumer-facing disclosures and agreements, and can no longer restrict electronic account access in the event of delinquencies or overdrafts.