United Services Automobile Association (USAA) Federal Savings Bank has consented to pay over $64.2 million in a settlement. This payment is to satisfy a class-action lawsuit that claimed that the institution and its subsidiary, USAA Savings Bank, overcharged thousands of service members who were supposed to get reduced interest rates.
The proposed settlement would resolve the case that accuses USAA of violating the Servicemembers Civil Relief Act (SCRA) and another military benefits program.
USAA denied the allegations, which could affect 210,000 active duty service members if the North Carolina-based federal judge approves the settlement. The attorneys suing USAA claimed the settlement was worth the court’s approval and resembled similar cases involving financial institutions Bank of America and JPMorgan Chase. The former had to pay $42 million, while the latter shelled out $62 million.
USAA has been forced to pay the affected service members, claiming immediate action was necessary to compensate them for their money-related damages fully. The bank announced that military customers have already been compensated for the errors, and around 50% of the settlement would be reissuing checks to people who haven’t cashed out.
While USAA is said to be firmly against the proposed class action, they’re pushing through with the settlement to avoid lengthy litigation and further complications. Moreover, USAA would instead focus on providing excellent service to its customers. The bank also claims it has exceeded the SCRA and Military Lending Act by offering lower interest rates than the SCRA requires.
In 2020, USAA was fined $85 million for hundreds of violations of the SCRA in the previous year. USAA was found to have discriminatory auto lending practices and cited the need to improve its Community Reinvestment Act exam in 2022.
In 2021, the USAA lawsuit was filed because the financial institution had continued to fail to honor the SCRA’s reduced interest rates. The SCRA stipulates that active duty personnel can’t be charged more than a 6% interest rate for pre-service debt.
The lawsuit claimed that USAA had overcharged active duty members, allowing them to increase their principal balances and inflating their compound interest.
Carmen Nowlin is among the active-duty personnel affected by this lawsuit. She claimed her interest rate jumped from 4% to 11.9% upon leaving active duty. She had rendered three deployments in Iraq. The lawsuit stipulated that she was sent checks for instances wherein USAA may have overcharged her. However, Nowlin claimed that she never received records that computed the accounting errors.
Another affected service member is Dean Brink, who was once deployed to Afghanistan and Saudi Arabia. He had received checks for the overcharging issue, but the USAA said it still had the money because he couldn’t cash out the check issued to him and his former spouse.
The settlement the USAA agreed to pay was filed at North Carolina’s US District Court for the Eastern District.
Payments like this can be avoided if all parties, including banks, confirm whether their customers are veterans or active duty members.
SCRACVS can help service members obtain proof of their active duty service while assisting companies to verify if the person they’re dealing with is entitled to the SCRA interest rate reduction. Click here to sign up at SCRAVS and verify the active duty status.