AUSTIN, Texas—Navy FCU’s problems continue. This time the $181-billion credit union is under legal fire from a small bank that alleges NFCU’s "lax" policies regarding the creation of business accounts have allowed criminals to commit check fraud through the CU.
A 31-page proposed class-action lawsuit alleges Vienna, Va.-based Navy FCU has shown an “intentional disregard” for compliance with Know Your Customer requirements and other federal regulations established to prevent money laundering and financial crime. The class action suit, filed by Texas-based $122-million Buckholts State Bank, states it became a victim of NFCU’s allegedly insufficient KYC procedures after a customer’s check was stolen in the mail and used by fraudsters to open a business account at the credit union, ClassAction.org reported.
The lawsuit, filed in U.S. District Court for the Western District Texas, explains an NFCU business account can be opened online using a member’s personal credentials.
“There is no requirement that says a customer must hold an NFCU account for a certain period before opening a business account, the complaint states. Likewise, there are no rules about how long a business must be in existence before an account can be created under its name, the filing adds,” ClassAction.org said.
Fake Accounts
The only requirements to open a business account are completed NFCU applications and certain proof of existence documents, such as a Certificate of Good Standing from the secretary of state and a notice from the IRS indicating the assignment of an employer identification number, ClassAction.org said.
The filing goes on to state that due to Navy FCU’s allegedly lax policies, fraudsters are able to open fake business accounts with NFCU within hours after committing business identity theft, and can begin to deposit and withdraw fraudulent checks soon after, ClassAction.org said.
Other charges include Navy FCU not requiring proof of address and not taking measures to verify a listed business address, ClassAction.org said.
The complaint, among other charges, alleges Navy FCU has failed to collect and maintain identifying information about its accountholders and their financial behavior in accordance with federal anti-money laundering laws and established banking practices, ClassAction.org said.
The suit seeks to represent any banks and bank customers in the United States and its territories who have suffered financial loss as a result of check fraud facilitated by NFCU at any time since Jan. 10, 2022, ClassAction.org noted.
Navy Fed's Problems
As CUToday.info previously reported, the CFPB last November ordered Navy Federal to pay more than $95 million for charging illegal overdraft fees.
Later that month, during a House Financial Services Hearing on oversight of prudential regulators, Rep. Emanuel Cleaver (D-MO) said he was concerned about redlining practices at Navy FCU. Cleaver pointed out Navy is larger than some banks and should be placed under the Community Reinvestment Act.
And, in December 2023, a class-action lawsuit was filed against the credit union alleging violations of the Fair Housing Act and the Equal Credit Opportunity Act.