San Antonio-Based Bank Settles Claims Over Payday Loan Disputes

Inside Subprime: Jan 7, 2018

By Lindsay Frankel

USAA has agreed to pay more than $15 million in fines and restitution to customers after the Consumer Financial Protection Bureau alleged the bank neglected customers’ stop-payment requests and failed to investigate errors in payday loan transfers.

In the consent order, the CFPB also claimed that the bank reopened customer accounts without prior authorization, causing some customers to incur fees. More than 16,000 accounts were affected by this practice, and 5,118 customers were charged about $270,000 in fees, which the bank reimbursed with interest in July of 2017.

The San Antonio-based bank, which has more than $82 billion in assets, will pay a $3.5 million fine in addition to $12 million in restitution to 66,000 people for violating the Consumer Financial Protection Act of 2010, the Electronic Fund Transfer Act, and Regulation E.

Regulation E mandates that financial institutions promptly conduct investigations of customer-reported errors and communicate the results within 10 business days. But the bank allegedly failed to start an investigation unless the customer submitted a written statement, according to the consent order. Furthermore, the bank used separate procedures for payday loan transfer disputes than other types of payment errors. “On numerous occasions, bank representatives refused to investigate errors because they concerned payday loans,” the order reads.

Bank representatives also told customers there would be consequences if the disputed debit was found to be authorized, even threatening changes in membership status. According to the consent order, representatives were told to say: “If we determine that the ACH debit in question was authorized, you will be putting your USAA membership at risk. What this means to you is that you may become ineligible to purchase additional USAA products and that existing USAA accounts may be closed. Also, please understand that it is a federal crime to make a false statement to a bank and this is punishable by a fine of up to one million dollars or imprisonment for up to 30 years, or both.”

Bank spokesman Matt Hartwig said the bank has already begun paying restitution and has been working on correcting its procedures. “None of the issues reflect an intention to take advantage of our members,” Hartwig said in an emailed statement. “USAA has been proactively addressing these issues for more than a year and most are resolved. We take responsibility for this situation.”

In response to the issue of reopening closed accounts without notifying customers, USAA said this practice was used to resolve disputes over charges or to process previously authorized transactions. “The procedure is purely administrative and does not relate to sales goals, nor does the Bank offer any employee incentives tied to the practice,” Hartwig said.

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