USAA Federal Savings Bank will pay more than $12 million to 66,240 military, retiree and veteran account holders to resolve various allegations relating to members’ accounts and resolving errors, in a settlement reached this week with the Consumer Financial Protection Bureau.

The CFPB alleges that USAA failed to properly resolve errors; failed to honor members' requests to stop preauthorized payments through Electronic Fund Transfers; and that it reopened accounts without members’ authorization and without notifying them.

The bureau found the alleged violations during a review of the bank’s practices.

Under the settlement, filed Jan. 3, USAA will pay $181.59 each to the 66,240 members allegedly denied a reasonable investigation of the error they reported. USAA will also pay the Consumer Financial Protection Bureau a $3.5 million fine.

USAA neither admits nor denies the allegations, according to the consent order.

The consent order notes that USAA has been addressing the issues, including changing some policies and procedures in 2015 and 2016. Information was not immediately available about when the CFPB review began.

“USAA has been proactively addressing these issues for more than a year and most are resolved,” said USAA spokesman Matt Hartwig in a statement provided to Military Times.

In 2017, he said, “we began providing restitution payments to some affected members, and improved our procedures.

"None of the issues reflect an intention to take advantage of our members. In fact, we believed our processes would help resolve matters faster. We take responsibility for this situation.”

CFPB alleged that USAA refused to investigate errors in some cases. Until the policy changed in May 2015, the bank didn’t investigate reported errors unless the consumer submitted a “written statement of unauthorized debit” within 10 days after USAA sent the form to the consumer.

USAA also had a separate procedure for those disputing an error regarding a payday loan, requiring the consumer to contact the payday lender to dispute the transaction.

“On numerous occasions, USAA representatives refused to investigate errors because they concerned payday loans,” the consent order stated.

The procedure also required the consumer to have the written report notarized if the error involved a payday lender.

While the Military Lending Act concerning limitations on payday loans applies to active duty members and dependents, it doesn’t apply to military retirees and veterans, who are also eligible to be members of USAA.

USAA also didn’t have a procedure requiring that a reasonable investigation be conducted when a consumer notified them of a suspected error. CFPB noted that in numerous instances when the bank found no error, “a reasonable review of all relevant information within the bank’s own records would have resulted in a determination in favor of the consumer.”

Thus, CFPB contends, these practices resulted in USAA’s failure to adequately address the unauthorized or incorrect transactions, as is required by law.

CFPB also alleged:

  • USAA failed to properly honor customers’ requests to stop payment on preauthorized Electronic Fund Transfer payments. In some of the instances, USAA required their members to contact the merchant who initiated the EFT payments before the bank would implement stop payment orders. In addition, USAA didn’t stop some payments because the payments were made to payday lenders. 
  • Until January 2015, USAA lacked a system-wide mechanism to stop payment of preauthorized EFTs that were processed by a debit card, so the bank failed to block thousands of these transactions after consumers had asked them to do so, according to the consent order outlining the settlement. But since January 2015, USAA has had a system in place that allows the bank to stop debit card preauthorized EFTs at the consumer’s request when the debiting merchant has identified them as “recurring.” 
  • In some instances, USAA required consumers to contact the merchants/creditors who initiated the EFTs before initiating stop payment orders. In some cases, USAA failed to enter stop payment orders because consumers requested stop payments to payday lenders.
  • Between July 21, 2011, and Nov. 1, 2016, the bank reopened 16,980 previously closed accounts without getting consumers’ authorization or providing them timely notice, when the bank received certain types of debits or credits to those accounts. This resulted in 5,118 accounts incurring fees estimated at more than $269,365. Reopening those accounts caused some to be overdrawn and subject to fees. It also gave creditors the opportunity to initiate debits to the accounts and draw down the funds. That included entities related to previous disputes or stop payment requests. In July, 2017 USAA reimbursed those customers $270,521 — the amount of the fees plus interest.

As part of the settlement, USAA must, among other things, grant stop payments to all consumers who contact the bank within three days of future preauthorized EFTs asking for that action; implement the requests without requiring consumers to contact the merchant first; honor the stop payment requests for EFTs free of charge for a period of two years from the settlement; conduct prompt, thorough and reasonable investigations of reported errors, whether or not consumers have submitted a written statement; and stop requiring customers to get their written statement notarized.

Also, once a customer has closed an account, USAA can’t process any additional transactions to that account except for transactions originated before the account was closed, or when USAA has to accept the transaction under federal requirements.

For those accounts that USAA reopened without authorization and notification, if the bank furnished any information to a credit reporting agency they must notify them to delete that information.

“At USAA, our mission is to facilitate the financial security of our members. One way we work to achieve that mission is operating in compliance with applicable laws and regulations, and ensuring that we have the systems, people and processes in place to be compliant,” USAA’s Hartwig said. “For 96 years, we have stood by our members. We continue to do so with a focus on making sure our operations adhere to our expectations and those of our members.”