The CFPB consent order that cited the $77 billion Navy FederalCredit Union Tuesday with deceptive debt collection practices israising questions about the world's largest cooperative and theCFPB's enforcement actions.

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The Vienna, Va.-based credit union was ordered to pay affectedmembers $23 million and a $5.5 million civil penalty.

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“I think that questions need to be asked about [Navy Federal's]incentive structure,” Keith Leggett, retired SVP and senioreconomist for the American Bankers Association, said. “What was theincentive structure? Were employees' compensation tied to debtcollection? And then you have to ask did this cause employees tooverstep and engage in unethical behaviors and was there somedirection by managers in the collection department?”

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He also questioned how long these debt collections practiceswere going on because the CFPB investigation looked at the creditunion's internal operations from January 2013 to July 2015.

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In addition, what is also unknown is how and why these debtcollection practices were initiated, and when Navy Federal's topexecutive team became aware of them.

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In response to follow-up questions from CU Times,the CFPB said it made no specific findings regardinginitiatives from or knowledge held by top management.

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However, CFPB Spokesperson Vahey Moira noted that the consentorder found Navy Federal's compliance controls and employeetraining regarding debt collection communications were inadequate.In addition, the consent order stated Navy Federal lackeddocumentation that any employee was disciplined, reprimanded, orsubject to additional training for disclosing debts to thirdparties or making threats Navy Federal could not legally take ordid not intend to take.

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Via email, Navy Federal declined to answer specific questionsfrom CU Times about why and how these collectionspractices were initiated and when managers and the credit union'stop brass became aware of these issues uncovered in the CFPBinvestigation.

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Interestingly enough, the CFPB consent order shows Navy Federalused “several letter templates” that threatened legal actionagainst members. Some of the template letters, which obviously hadto be created by someone in the credit union, said legal action hadbeen recommended. Other letters said if no payment was made, thecredit union had no alternative but to recommend the account forlegal action. Many of the template letters also threatenedgarnishment of wages.

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These template letters were mailed to 193,000 members, but NavyFederal filed fewer than 5,000 debt collection lawsuits. The creditunion's employees also called members with similar verbal threatsof legal action.

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What's more, the credit union also mailed template letters to115 service members threatening that it would contact theircommanding officers if they did not promptly make a payment. Thecredit union's representatives also communicated these threats bytelephone.

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The CFPBinvestigation found that Navy Federal deceived members to get them to pay delinquentaccounts and falsely threatened severe actions when it seldom tooksuch actions or did not have authorization to take them.

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However, Robert Foehl, vice president and general counsel forACA International, the Association for Credit and CollectionProfessionals in Minneapolis, criticized the CFPB's practice ofregulation by enforcement.

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“The rules of the road aren't always clear for debt collectionactivities,” Foehl said. “The CFPB hasn't made them clear toorganizations that are collecting legitimately owed debt. Whatthey're doing is they're regulating by enforcement, andunfortunately, that's a very, very difficult thing fororganizations that are trying to do the right thing. They justdon't know the rules of the road because the CFPB has not outlinedwhat the rules of the road are. Unfortunately, the CFPB hasdeclined to expressly state what they view as unfair, deceptive orabusive acts or practices in the debt collection context other thanwhat we already know in the Fair Debt Collection PracticesAct.”

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Marvin Umholtz, president/CEO of Umholtz Strategic Planning& Consulting Services in Olympia, Wash., was dismissive ofCFPB's consent order.

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“It's doubtful that Navy did any shady practices,” Umholtz said.“To me, they were collecting on loans that were made that went bad.Whether they were 100% pure, I don't know. It's hard to be 100%pure. A bully of an agency that's out there expecting compliance tobe 100% pure, they can pick on anybody they want to.”

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Nevertheless, Leggett pointed out that credit unions under CFPBoversight are experiencing a different regulatory culture.

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“You are getting compliance regulators who aren't from the NCUAbut from the Federal Reserve, the OCC and the FDIC, who worked onthe regulatory compliance side,” he said. “And I think what isoccurring is that this is a culture shock for these credit unionsbecause in my viewpoint the NCUA is the kinder, gentlerregulator.”

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Leggett also said the CFPB's consent order also indicates thatcredit unions should remain subject to CFPB regulations andoversight.

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NAFCU and the Defense Credit Union Council did not respond toCU Times' request for comment on Wednesday. CUNA said itdid not have specific knowledge about this matter.

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The NCUA said it does not comment on the actions of otheragencies.

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