Consumer bureau slaps USAA bank with $3.5 million penalty, orders restitution of $12 million

USAA Federal Savings Bank – one of the largest financial institutions serving active and retired members of the military, and their families – will pay $12 million in restitution and a $3.5 million civil money penalty (CMP) under a consent order filed Thursday by the Consumer Financial Protection Bureau (CFPB), the agency said in a release.

The consent order, the first enforcement action signed by new bureau Director Kathleen (“Kathy”) Kraninger, says that the $82 billion USAA FSB violated the Electronic Fund Transfer Act (EFTA) and Regulation E by “failing to properly honor consumers’ stop payment requests on preauthorized electronic fund transfers, and by failing to initiate and complete reasonable error resolution investigations.” It also says USAA violated the Consumer Financial Protection Act of 2010 (specifically, provisions regarding unfair, deceptive or abusive acts or practices) by reopening deposit accounts consumers had previously closed without seeking prior authorization or providing adequate notice.

The order says that “on numerous occasions” USAA refused to enter stop-payment orders when asked or requiring consumers to first contact merchants initiating the EFTs. In some cases, USAA failed to enter stop payment orders because consumers requested to stop payments to payday loan lenders, it says.

Among the numerous issues cited in the order:

  • Prior to May 2013, USAA did not consistently honor oral stop payment requests for preauthorized EFTs for 14 days (such requests are binding for 14 days under EFTA and Reg E).
  • Until January 2015, USAA lacked a systemic mechanism to stop payment of preauthorized EFTs processed via a debit card.
  • Through May 2015, as a matter of policy USAA did not investigate reported errors unless the consumer asserting the error submitted a completed “written statement of unauthorized debit” (WSUD) within 10 days of USAA sending the consumer the form.
  • Through June 2016, USAA had a separate procedure for consumers who notified USAA of a suspected error concerning a payday loan that included referring them to the payday lender to dispute the payment; refusing to initiate error resolution investigations; and/or requiring that consumers have their WSUDs notarized.
  • Until May 2016, USAA lacked a procedure requiring that a reasonable error resolution investigation occur whenever a consumer notified the bank about a suspected error regarding an EFT.
  • Until November 2016, when USAA received certain types of debits or credits to accounts previously closed by the account holders, it reopened the accounts without obtaining consumers’ prior authorization and providing timely notice to consumers informing them when their accounts had been reopened. Some account balances then became negative and potentially subject to an accumulation of fees.

USAA, the order says, has 60 days to submit a “comprehensive compliance plan designed to ensure that Respondent’s stop payment, error resolution, and deposit account re-opening practices comply with all applicable Federal consumer financial laws and the terms of this Consent Order.” It has 10 days to pay the CMP and establish funds for restitution; and 45 days to submit a “comprehensive written plan” for carrying out the restitution.