Federal banking regulators fined USAA Federal Savings Bank $85 million on Wednesday for “engaging in unsafe or unsound banking practices.”
The Office of the Comptroller of the Currency found USAA's internal controls and information technology systems did not comply with certain guidelines. A statement from the OCC explained that the financial institution also failed to implement and maintain a sufficient risk management program.
USAA Bank is a subsidiary of San Antonio insurance and financial services company USAA.
Last week, the OCC announced that it lowered USAA Bank’s overall Community Reinvestment Act performance evaluation rating from “Satisfactory” to “Needs to Improve.”
The same evaluation gave USAA outstanding marks for its investment services and high marks for overall service. It ended on the lower end of Satisfactory for its lending services.
The evaluation was conducted last year, but its findings were released last week.
The CRA requires the OCC to evaluate a bank’s record of meeting the credit needs of its local community.
The office reported the rating was lowered as a result of the extent and nature of evidence of discriminatory and illegal credit practices, as described in the Fair Lending and Other Illegal Credit Practices.
The OCC found evidence of 546 violations of the Servicemembers Civil Relief Act, including failure to provide SCRA protections to military reservists, wrongful repossessions of vehicles, and the filing of inaccurate affidavits in default judgment cases, according to an evaluation posted online.
The OCC also found evidence of 54 violations of the Military Lending Act for using remotely created checks to collect past due amounts from members who were covered borrowers, the evaluation stated.
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Michael Taylor, a financial columnist with the San Antonio Express-News, said $85 million penalty is not "financially threatening" to USAA, he explained. The insurance giant has about $150 billion in assets.
However, Taylor said, the punishment is "reputationally" significant. He said USAA enjoys an image as a "very mission oriented bank" that serves veterans, and so he felt the symbolism of the penalty could be "troubling" to its executives.
"The Service Members Relief Act is quite focused on protecting folks who are in the active military from certain types of collection actions, certain types of high interest payments, foreclosures and aggressive collections tactics," Taylor added. "The fact that USAA was sanctioned for those — it admitted that there were some violations there — is [also] reputationally troubling for them."
USAA would not break down the number of members it has among its banking, insurance, investments and retirement product divisions, but it does have 13 million members in total.
USAA responded to TPR's questions about the evaluation last week in a statement:
“We are committed to serving every USAA member with excellence and in accordance with all applicable laws and regulations,” the statement explained. “The rating by the OCC does not reflect our ongoing commitment to lend to and invest in local low-and-moderate-income communities. Our mission calls us to help ensure the financial security of all our members. We have higher expectations of ourselves and are focused on restoring our CRA ratings to previous levels.”
The agency said it considered the nature, extent and strength of the evidence of the practices.
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The OCC said it will consider any alleged information that USAA engaged in discriminatory or other illegal credit practices provided to the OCC before the end of the bank’s next performance evaluation.
This was not the first time the company has seen trouble. USAA ended last year with a couple of other major complaints about its customer service.
TPR reported in January 2019 that the company was ordered to pay millions of dollars in restitution to customers related to electronic transfers. The Consumer Financial Protection Bureau found the bank failed to honor consumers’ stop payment requests on preauthorized electronic transfers. The bureau also reported the bank reopened deposit accounts of consumers that had previously been closed without asking or providing notice.
The $12 million in restitution went to consumers who were found to be denied a reasonable error resolution investigation. USAA said most of the cases over a five year period, between 2011 and 2016, were resolved. It also agreed to pay $3.5 million in civil penalties.
In December 2019, TPR reported the Better Business Bureau gave USAA a grade of “F” for its efforts at settling consumer complaints and for government action taken against the company. The bureau reported that 50 consumer complaints against the company remained unresolved.
Last January, USAA reached a settlement with federal regulators and agreed to pay more than $15 million in restitution to consumers and in civil penalties.
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The latest developments came the same week that USAA announced that it committed $50 million to nonprofit organizations over the next three years. The funds were meant to help improve racial equality and address the employment, educational and economic disparities that exist within communities of color and low-income military communities.
In the first phase of contributions this year, USAA donated nearly $7 million to national and San Antonio-based nonprofits, including supporting the expansion of its scholarship programs and education-based philanthropic endeavors focused on building a pipeline of Black business talent.
It explained that contributions will also support non-traditional loans with low interest rates for Black/Hispanic entrepreneurs and help low-to-moderate income Black/Hispanic San Antonians receive upskilling/reskilling training within in-demand STEM professions.
USAA has also responded to the realities of the COVID-19 crisis. Earlier this year, it returned hundreds of millions of dollars in premiums to auto insurance policyholders. It said it recognized that shut down workplaces, stores and schools meant fewer drivers on the road, which meant fewer accidents and fewer claims.
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Norma Martinez, Lauren Terrazas, Steve Short and Dan Katz contributed to this report.
