OCEANSIDE, Calif.–Another California credit union has found itself the subject of negative media coverage over its overdraft practices, in this case for the OD revenue it sees from “young Marines.”
Frontwave Credit Union, whose name reflects its origins as a CU serving the Marine Corps and Camp Pendleton, was featured in a report by KPBS that profiled Marines who were hit with fees after overdrawing their accounts, with the report suggesting many did so unknowingly because they had not set up alerts aimed at making them aware they had a low balance.
Systematic Enrollment
KPBS, which has also earlier reported on overdraft fees at credit unions in the wake of a report from California’s Department of Financial Protection and Innovation on overdraft revenue at state-chartered CUs, said its investigation found the $1.429-billion Frontwave “systematically enrolls thousands of new Marine recruits each year and then collects substantial fee revenue from the young service members when they overdraft their checking accounts.”
It further stated that Frontwave has benefited from an exclusive arrangement with the U.S. Marine Corps as some 20,000 Marine recruits — some as young as 17 years old — go through boot camp at the Marine Corps Recruit Depot (MCRD) in San Diego every year, and the Marine Corps funnels many of them into Frontwave.
Running Out of Money
“When a young Marine runs out of money, Frontwave makes a profit. The credit union relies on overdraft fees as a key source of income,” KPBS said. “In 2022, the company collected about $8 million in overdraft penalties, according to data collected by the state. That represented nearly 12% of its overall revenue — about triple the average among all state-chartered credit unions. A review of Frontwave’s financial records shows it easily could have lost money in recent years without income from overdraft fees.”
KPBS further said it spoke to three former Frontwave employees who claimed the credit union in recent years has strayed from its core mission of serving Marines. “They each talked about young service members falling into a cycle of negative checking account balances — to the benefit of Frontwave,” the report stated.
The CU Responds
In response, Frontwave CEO Bill Birnie acknowledged to KBPS that the majority of Frontwave members came through the MCRD program, and that they are typically “very young” and “don't make a lot of money.”
But he also told the news outlet Frontwave’s overdraft program — which the credit union calls “Courtesy Pay” — is a “benefit for members who need a bridge between paychecks.”
“We don't call it a fee,” Birnie said. “We're providing a service that gives them what they need to get through the month.”
Birnie also told KPBS overdraft revenue “is an important source of income to us — I just don't think we do it in a predatory way.”
Financial Counseling Offered
Birnie further told KPBS its contract requires the credit union to provide financial counseling services to recruits. In an email, the Marine Corps told KPBS recruits receive education that includes budgeting, checkbook balancing and how to watch out for predatory loans.
“They're starting their lives out, they're forming families,” Birnie said. “So, we do the best we can to serve them and educate them.”
Former Frontwave employees who spoke to KPBS, however, told the news outlet the financial counseling was insufficient.
The full report can be found here.
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