WASHINGTON–Calling Frontwave Credit Union’s overdraft practices “unconscionable,” a half-dozen members of Congress are calling for an investigation in a letter sent to the credit union.
As CUToday.info has been reporting, numerous credit unions in California, but especially Frontwave CU, have been in the crosshairs of media reports, consumer groups and the state’s banking industry ever since release of a report in October of 2023 from the California Department of Financial Protection and Innovation (DPFI) on the overdraft and nonsufficient funds fees collected by California’s state-chartered financial institutions.
Overall, the report shows state-chartered CUs during 2022 took in $252 million in overdraft and non-sufficient funds fees, and that 30 credit unions earned half or more of their net profit from just overdraft and NSF fees.
Particular Scrutiny
But the $1.4-billion Frontwave CU, based in Oceanside, Calif., has found itself the subject of particularly scrutiny, especially from local station KPBS, because of the fees it earns from “young Marines.” The credit union serves the Marine Corps and Camp Pendleton and KPBS reported that upwards of 15,000 young Marines are automatically enrolled as members in the credit union and in its overdraft program every year.
In an earlier report, KPBS stated, “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. 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.”
Demanding Answers
Now, a bipartisan group in Congress is demanding answers about Frontwave CU’s practices. The letter cites KPBS’ reporting, and states Frontwave’s OD/NSF fees come to approximately $63.73 per member each year.
“Frontwave owes service members and the American public an explanation for its deeply exploitative overdraft practices that harm service members and their families,” the congressional letter to the credit union states. “We seek an explanation of your predatory overdraft practices and urge you to change your unconscionable overdraft and other fee policies.”
Signatories on the letter include Sens. Elizabeth Warren (D-MA), Bernie Sanders (D-VT), Cory Booker (D-NJ), J.D. Vance (R-OH) and San Diego Democratic Rep. Sara Jacobs (CA-50). You can read a copy of the letter here.
‘More Reasonable Alternative’
“While non-usurious overdraft practices may offer a more reasonable alternative to other small, short term loans that often come with high interest rates, that does not give credit unions and other financial institutions the prerogative to implement predatory overdraft fees and policies that unfairly punish customers…” the letter states.
The letter goes on to state, “Frontwave claims that its overdraft program is a ‘benefit for members who need a bridge between paychecks.’ But members are not notified when they have low or negative account balances. According to Frontwave’s website, members have to manually set up alerts for low or negative account balances. Crucially, when a member is late or overdue on a payment for more than 30 days and is therefore considered delinquent, they can end up in ChexSystems, a consumer reporting database, which makes it difficult to open bank a bank account elsewhere…”
Specific Questions
The letter includes a dozen questions for Frontwave Credit Union for which Congress said it wants answers, including:
- How much the average member is paying in fees?
-
What was the maximum per-transaction fee charged over each of the last 10 years?
How are members informed of overdraft policies and their options for opting out (with a request for sample copies of those disclosures)? - Does Frontwave CU charge overdraft fees on debit transactions or ATM withdrawals?
- How did Frontwave become sole provider of financial service on Marine Corp Recruit Depot San Diego?
- What is the contract with the military installation?
- Are recruits undergoing financial services training prior to enrolling in direct deposit program (with a request for the training materials)?
- Does that training specifically mention overdraft fees and NSF fees?
Credit Union Will Reply
KPBS said it contacted Frontwave CU CEO Bill Birnie, but he declined an interview request. But in an email to the news outlet, Birnie told KPBS the credit union would respond. In an email, he said the company would respond to the lawmakers’ questions by their May 10 deadline.
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