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The $190 billion Navy Federal Credit Union in Vienna, Va., has agreed to pay $1.7 million to settle a class-action lawsuit over alleged violations of the Electronic Fund Transfer Act, according to court documents filed last week.
The proposed settlement must receive preliminary approval from U.S. District Court Judge William Q. Hayes in San Diego, Calif.
The lawsuit, filed in October 2023 by Jeffrey Stephenson and his son Billy Smith II, claimed Navy Federal wrongfully denied a fraud claim after Smith’s debit card was stolen from his school backpack. Stephenson submitted a fraud claim, supported by documentation showing nearly $1,000 in unauthorized charges.
The following day, Navy Federal denied the claim, stating it “found the claim to be unsupported.” Stephenson said he submitted three additional requests asking the credit union to explain the denial or review the evidence.
“NFCU mechanically rejected each of Plaintiff’s claims with form denial letters devoid of any factual findings or documentation from its alleged investigation,” the lawsuit stated.
Stephenson contended the denials violated provisions of the Electronic Fund Transfer Act (EFTA) and Regulation E, which require financial institutions to follow specific error-resolution procedures and limit consumer liability for unauthorized transactions.
In its legal response, Navy Federal denied it had failed to provide an explanation or meet the burden of proof to show the disputed charges were authorized.
Nevertheless, as part of the proposed settlement, Navy Federal agreed to revise its written explanation sent to members whose claims are denied and to bolster its procedures for responding to member requests for documents related to those denials.
“Navy Federal’s promise to implement changes to its policies and procedures for handling account-holders’ claims for unauthorized transfers promotes EFTA,” according to the proposed settlement.
Without admitting wrongdoing, Navy Federal agreed to settle the lawsuit given the risks, uncertainties and burdens of continuing the litigation.
Stephenson and Smith will each receive $5,000 for actual damages, along with an additional $5,000 service award for serving as class-action representatives, the agreement stated.
The attorneys who represented Stephenson and Smith will be paid 33% of the settlement amount, or about $561,000.
After these payments, the estimated $1.1 million will be distributed on a pro rata basis to current and former Navy Federal members who submit a valid and timely claim form.
The proposed settlement does not estimate the number of Navy Federal members who may be eligible for compensation.
Peter Strozniak can be reached at pstrozniak@cutimes.com.
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