By Jason Stverak
In a stunning about-face, the CFPB quietly dropped a $95-million enforcement order against Navy Federal Credit Union this July – a case it had loudly announced just months earlier.
Navy Federal was accused last November of “illegally harvesting tens of millions of dollars in junk fees,” and the credit union had ostensibly agreed to refund $80 million to members and pay a $15 million penalty. Yet without explanation, the bureau terminated the consent order on July 1, 2025, effectively letting the credit union off the hook.
This whiplash-inducing reversal is more than just a procedural oddity – it’s a vivid example of reckless overregulation and misuse of regulatory power. While Navy Federal is not a member of the Defense Credit Union Council, the CFPB’s actions alarmed us greatly and it was a clarion call for Congress to rein in unelected bureaucrats at the CFPB.
A Case of Regulatory Whiplash: Navy Federal’s Overdraft Saga
Navy Federal’s ordeal started with CFPB’s novel interpretation of overdraft fee practices. The bureau targeted an issue known as “authorized positive, settled negative” overdraft fees. In plain terms, this occurs when a credit union or bank approves a debit card purchase based on an available balance at the time, but by the time the transaction settles (often a day or two later), the account balance goes negative – triggering an overdraft fee. CFPB deemed this a kind of “surprise” or “junk” fee, arguing that consumers didn’t expect it. In its since-removed press release, CFPB claimed Navy Federal wasn’t transparent with members about their true balances and availability of deposits (like those from PayPal or Cash App), thereby making overdrafts more likely. By the CFPB’s account, between 2017 and 2021 Navy Federal collected nearly $1 billion in overdraft fees, including at least $4 million from the questionable practice of showing deposits as “available” before they really were.
What went unsaid in the CFPB’s narrative, however, is that overdraft protection programs are already heavily regulated and opt-in only. Consumers must affirmatively choose to enroll in overdraft coverage for debit transactions under existing law (Regulation E). Navy Federal – like all credit unions – cannot enroll members in overdraft services without their consent. The credit union maintained throughout that its practices “complied with all applicable laws and regulations at the time”. In fact, Navy Federal had stopped the criticized fee practice by 2022 and even proactively refunded some affected customers before the CFPB ever took action. By late 2024, the CFPB swooped in anyway, wielding its enforcement club to impose tens of millions in additional redress and penalties on top of what the credit union had already done to fix the issue. It appears the bureau was more interested in making a headline-grabbing example than in any fair resolution.
The denouement, of course, was the CFPB’s retreat. Under new leadership in 2025, the bureau simply terminated the order – offering almost no rationale. Navy Federal consented to the withdrawal, and a spokesperson affirmed that “[we] complied with all applicable laws and regulations…as we believe we did here,” lauding the CFPB’s decision to drop the case. To observers, this outcome leaves a vexing question: If the credit union truly “illegally” charged millions in junk fees, why on Earth would the watchdog let them off? Either Navy Federal was a villain that got a baffling pass, or – more likely – the enforcement action itself was overzealous and not grounded in clear law. The former CFPB officials who decried the dismissal as unprecedented have it backwards: what’s truly unprecedented is the CFPB’s willingness to stretch its authority so far that even its own new leadership couldn’t stand by the case. This fiasco exemplifies how “regulation by enforcement” can careen out of control.
Regulation By Enforcement: Creating New Rules On The Fly
The Navy Federal case did not occur in isolation – it was part of a wider CFPB campaign to crack down on bank and credit union fee practices, often without clear regulatory footing. Under the prior CFPB director, the agency frequently overstepped its legal authority and “unilaterally advanced a left-wing agenda,” as one analyst put it. Time and again, the CFPB ventured into areas Congress never explicitly authorized it to regulate – from digital wallets and peer-to-peer payment apps, to medical debt credit reporting and, indeed, overdraft fees. Lacking specific statutes or rules to enforce in some of these areas, the bureau resorted to an “aggressive strategy of regulation by enforcement.” In practice, that meant declaring certain longstanding industry practices “unfair” or “abusive” after the fact, and punishing companies accordingly, instead of first going through the normal rulemaking process.
For most regulators, creating a new rule involves proposing it, gathering comments, conducting analysis, and finalizing a clear standard. The CFPB under previous leadership often skipped those steps. Instead, it opted to create regulations out of thin air and thrust them on financial institutions that didn’t even know the rules had changed. It was, as has been aptly said, like rewriting the rulebook in the middle of the game. Navy Federal’s experience is a textbook example. The credit union’s overdraft program was common in the industry and had not been prohibited by any statute or regulation. In fact, regulators had allowed such fees for years under the condition of proper disclosures. By branding them “illegal” retroactively, the CFPB was effectively making new law by interpretation, a move that blindsided even a highly regulated credit union. No credit union or bank should have to endure a regulator inventing new prohibitions on the fly and then treating them as “clearly breaking the law.” That’s not how a nation of laws is supposed to work.
The consequences of this approach go beyond bruised feelings in C-suites – they introduce extreme uncertainty into the financial system. If any routine fee or service can suddenly be declared unlawful by bureaucratic fiat, how can institutions plan their products or ensure compliance? As one commentary noted, under such arbitrary enforcement, financial institutions faced “day-to-day…threat of new enforcement actions that they would have had no way of preparing for.” This climate of regulatory fear chills innovation and legitimate services. Ultimately, it is consumers and small businesses who suffer when institutions, unsure of the “rules,” pull back on offering features, hesitate to extend credit, or increase prices to hedge against the risk of random punitive actions.
Collateral Damage: Hurting The Industry And Consumers Alike
Ironically, the CFPB’s crusade against so-called “junk” fees and aggressive tactics was often justified in the name of protecting consumers. But heavy-handed overregulation can produce perverse outcomes for those very consumers. Overdraft fees, for example, have long been demonized by activists. Yet, when reasonably structured, overdraft protection can be a valuable service that spares people from bounced checks, late bill payments, or resorting to payday loans in a pinch. The Defense Credit Union Council (DCUC) and other credit union advocates have stressed that consumers opt in to overdraft knowingly, and surveys show 84% of frequent overdraft users understand the costs involved. They use the service as a form of short-term safety net.
Blanket suppression of overdraft fees – such as the CFPB’s ill-conceived attempt to cap them at $5 – can backfire. When the CFPB rolled out a new rule in late 2024 slashing the allowable overdraft fee to $5 (down from an industry average of around $35), DCUC strongly opposed it Why? Because such a one-size-fits-all cap ignores the operational realities and costs of providing overdraft services. It jeopardizes the viability of these services and could even incentivize reckless behavior – if fees are negligible, some might overdraft more freely, undermining the financial responsibility that overdraft policies are meant to instill. Moreover, if credit unions can’t recover costs through a fair overdraft fee, they might have to eliminate the service or impose other charges. Consumers could then be hit with more damaging consequences, like bounced payment fees from landlords, utilities, or merchants, which are often much higher than a credit union’s overdraft fee.
“Burdensome regulations like this eliminate valuable programs that have historically protected consumers and encouraged financial readiness,” warned Anthony Hernandez, DCUC’s CEO, when that $5 fee cap was announced. There are always unintended consequences when the government oversteps, and here the risk was that consumers would lose access to a helpful service or be driven toward less-regulated, predatory alternatives. Indeed, if mainstream institutions are shamed or coerced out of offering services like overdraft, many people could end up at the mercy of payday lenders or loan sharks for quick cash needs – hardly a victory for consumer protection.
Navy Federal’s situation illustrates this dynamic. By all accounts, its overdraft program (now adjusted) allowed members – many of them young servicemembers – to “make necessary, everyday purchases without going into long-term debt or turning to payday lenders,” as the credit union noted in defense of its program. This is a critical point: credit unions exist to serve their members’ financial well-being. Overregulation that weakens credit unions doesn’t just hurt an abstract “industry”; it hurts millions of members who rely on affordable, responsible financial services. The CFPB’s overreach in the Navy Federal case sent a chilling message throughout the credit union community that even when you think you’re following the law and serving your members, you could be ambushed by an enforcement action based on a regulator’s “reckless interpretation” of right and wrong. That’s a recipe for fewer services, higher compliance costs passed to consumers, and a distracted focus away from member service and toward fending off arbitrary regulatory attacks.
The CFPB’s Unchecked Power – A Danger To Democracy
How did we get to a point where a single agency can act with such caprice? The answer lies in the CFPB’s unusual structure. This bureau is the brainchild of the 2010 Dodd-Frank Act, designed to be independent of the usual checks and balances. Its funding flows automatically from the Federal Reserve (bypassing Congress’s annual budget process), and for most of its existence it was led by a single director who could only be removed in rare circumstances. Although the Supreme Court made the director removable at will by the President, the CFPB still notably lacks the accountability mechanisms that constrain other regulators. The result: unelected bureaucrats at the CFPB wield enormous power over the economy, essentially legislating through enforcement and regulation without the same democratic oversight that other agencies face.
Under the last administration’s CFPB leadership, we witnessed what happens when that power is pushed to its limits. The bureau’s actions at times betrayed an ideological drive to “punish” financial institutions rather than to neutrally enforce clear laws. When an agency becomes an advocate for a partisan agenda – effectively picking winners and losers – it ceases to function as an impartial regulator. This not only harms the targeted institutions and potentially their customers, it also undermines faith in the rule of law. As a Washington observer quipped, the CFPB in recent years seemed more interested in “advancing a partisan agenda [and] punishing businesses than helping consumers.” That is a far cry from the bureau’s mandate to ensure consumer financial protection within the bounds set by Congress.
There is a growing, bipartisan recognition that CFPB’s structure and approach need reform. Even the new CFPB leadership in 2025 (installed by a new administration) implicitly acknowledged the excesses of their predecessors by rushing to unwind many of their actions. In addition to dropping the Navy Federal case, the Trump-appointed CFPB leaders have withdrawn roughly half a dozen consent orders and settlements that the agency previously reached with financial companies. They froze or repealed “midnight regulations” pushed through at the end of the prior term. This house-cleaning is welcome, but it underscores how unmoored the CFPB had become. If a change in administration can so radically swing the pendulum – from overzealous regulation to abrupt deregulation – it means the agency was operating far outside a stable, consensus-based interpretation of law. Both extremes are not ideal for consumers or providers. We shouldn’t have a Dr. Jekyll and Mr. Hyde regulatory regime that shifts with electoral winds. The rule of law in financial regulation should be consistent and predictable, reflecting laws written by Congress, not the whims of bureaucrats.
Congress Must Reassert Its Authority
It’s time for our elected lawmakers to step up and re-balance the system. The Constitution grants Congress the power to make laws and control the purse strings – powers that, in the case of the CFPB, have been partially ceded to an unaccountable agency. If Congress wants to protect consumers and ensure fair regulation, it must exercise its authority to rein in the CFPB’s excesses. This means, first and foremost, restoring accountability. Placing the CFPB on regular Congressional appropriations would be a good start, ensuring the bureau answers to the people’s representatives for its budget and priorities. Such financial oversight would curtail the agency’s ability to act as a rogue actor insulated from political accountability.
Structural reforms are also on the table. Many in the financial community, including the DCUC, have called for transforming the CFPB’s governance – for instance, replacing the single director model with a bipartisan commission. This would prevent extreme swings in policy and encourage moderation and consensus in rulemaking. Consumers deserve a watchdog that plays by stable rules, not one that acts like a political weathervane.
Crucially, Congress should also clarify the CFPB’s mandate in areas where the bureau has wandered astray. If certain practices (like the timing of overdraft fee assessments) need regulation, then Congress – or at least the formal rulemaking process – should explicitly regulate them. End-running the legislative process via “consent orders in lieu of actual regulation” is not acceptable. No more surprise rulemaking by enforcement press release.
Finally, Congress must remind regulators that their role is to enforce the law, not invent it. The Navy Federal saga is a cautionary tale of what happens when that line gets blurred. Yes, financial institutions – even credit unions – must be held to account if they clearly break the law. No one disputes that. Navy Federal should and would have faced consequences if it blatantly violated a statute or regulation. But that was not the case here. Instead, an ambiguously defined practice was deemed “illegal” by an agency’s reckless interpretation, effectively creating a new rule without due process. No company or consumer should have to endure that kind of regulatory caprice. It undermines confidence in our laws and breeds cynicism about the motives of regulators.
Conclusion: Restore Balance and Accountability
If there is a silver lining to the Navy Federal episode, it’s that it has spotlighted the urgent need for reform. We’ve seen what CFPB overreach looks like: heavy-handed actions, sudden rule changes, and punitive measures that overshoot the mark – followed by unpredictable reversals when the political winds change. This is no way to regulate a vital sector that touches every American’s finances. It’s time to pull the CFPB back to its original mission – protecting consumers through fair and consistent enforcement of clearly defined laws, not through experimental crackdowns. Congress should seize this moment to reassert its constitutional role, bring the CFPB to heel, and ensure that regulators are accountable to the people’s representatives.
As advocates for military-focused credit unions, we at the DCUC know that effective consumer protection and a healthy financial sector are not at odds – they go hand in hand. But striking that balance requires regulators who act within their bounds and lawmakers who provide proper oversight. The Navy Federal case was a warning: unchecked regulatory power is a menace to consumers, industry, and the rule of law. Let’s heed that warning. It’s time to rein in the CFPB’s overreach and demand that our financial regulators enforce the law – not make the law. Congress must act now to ensure no other credit union or bank (or their members) are ever again subjected to such regulatory whiplash and uncertainty. The stakes – for consumer choice, for financial inclusion, and for democratic accountability – could not be higher.
Jason Stverak is the Chief Advocacy Officer at the Defense Credit Union Council.