A prominent financial firm that assists service members and their families, USAA, has consented to pay $64.2 million to resolve a class-action lawsuit.
In this action involving almost 210,000 service members and veterans, USAA was accused of charging high fees and interest rates, violating federal statutes to protect the military establishment.
What Sparked the Lawsuit?
Service members filed a lawsuit claiming that USAA had violated the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act. These laws are in place to cap loan interest rates at 6% for active-duty service members, easing their financial burdens during deployment.
However, the lawsuit alleged that USAA failed to reduce rates on loans and credit cards, especially for those stationed abroad. As a result, many military families saw their loan balances rise, making it harder for them to manage their finances.
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Key Allegations
The case centered on serious accusations that USAA overcharged military members and ignored critical legal protections under the SCRA. Let’s break down the main points:
Failure to Reduce Interest Rates
The lawsuit claimed that USAA did not lower interest rates on loans and credit cards as required by law. Active-duty service members are legally entitled to a maximum 6% interest rate, but many plaintiffs stated that USAA continued charging higher rates, even when deployed overseas.
These higher rates added to their loan balances, leaving military families struggling with debt.
Applying High Rates After Active Duty
The lawsuit also accused USAA of applying high interest rates after military members returned from active duty. Under the SCRA, once a service member returns from duty, they should no longer be subject to those higher interest rates.
However, some members reported that USAA did not adjust the rates as required—this prolonged period of overcharging placed undue financial strain on veterans and their families.
Poor Communication About Refunds
Beyond interest rates, the lawsuit raised concerns about USAA’s handling of refunds. According to the plaintiffs, USAA sent thousands of refund checks to members who had been overcharged. Yet, these checks were mailed in generic envelopes that many recipients mistook for junk mail.
As a result, many checks went uncashed. The poor communication about these refunds meant numerous service members never received the compensation they owed for improper charges.
This mishandling of refunds created even more frustration for military members already facing financial stress. The checks were intended to make things right, but how they were distributed only added to the confusion.
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Enrolling Members in Unwanted Products
Another allegation was that USAA enrolled military members in products they didn’t ask for, which resulted in additional fees. This issue added to the growing list of complaints, further highlighting that USAA’s practices were not always in the best interest of its members. Many military members felt blindsided by these unexpected fees, which only compounded their financial burdens.
Impact of the Allegations
These accusations reflect a broader concern about how financial institutions treat their military customers. USAA, which has long marketed itself as a champion of military members, faced serious allegations that it fell short in providing the protections those customers deserved.
For service members who are often deployed for long periods, managing finances can already be challenging. When a trusted institution like USAA fails to honor legal protections, the consequences can be far-reaching.
The lawsuit brought attention to these issues, forcing USAA to reconsider its practices and leading to the $64.2 million settlement to compensate affected members.
This breakdown of the allegations paints a clearer picture of the situation, showing why military members needed legal action.
The Settlement
After three years of legal proceedings, USAA decided to settle. Though the company denies the accusations, it agreed to the settlement to avoid a drawn-out legal process. The settlement includes compensation for eligible members:
- 210,000 military members and veterans will receive around $200 each.
- The five plaintiffs who led the lawsuit will get $20,000 each.
- Nearly half of the settlement involves reissuing checks that were previously sent but never cashed (Veteran Hub).
Why the Lawsuit Matters
This lawsuit is part of a more significant effort to shield service members from unethical financial dealings. For active-duty service members, the SCRA provides vital legal protection that ensures they don’t have excessive financial obligations while on duty. Regretfully, this case highlights how certain organizations, even well-known ones like USAA, may fail to meet those protections.
USAA’s Regulatory Challenges
This lawsuit isn’t the first time USAA has faced scrutiny. In 2020, the company was fined $85 million for failing to comply with SCRA standards and other financial regulations. This settlement further adds to the list of regulatory challenges USAA has experienced in recent years (American Banker).
USAA intends to move past the litigation and concentrate on enhancing its services for service members by reaching a settlement. The significance of making sure financial institutions honor their commitments to clients, particularly those who are serving their country, is further highlighted by this settlement.
How Service Members Were Affected
The lawsuit underscores how critical financial transparency is for service members who often face unique financial challenges. Many plaintiffs in the case were military personnel deployed overseas or on active duty. Some had gone through multiple deployments, making staying on top of their finances difficult. The high interest rates, fees, and improper charges put an additional strain on their finances.
For example, Carmin Nowlin, one of the plaintiffs, saw the interest rate on her credit card rise to 11.9% after she returned from active duty, far above the legal cap of 6%. Another plaintiff, Dean Brink, had difficulty cashing his refund check because it was issued to him and his ex-wife together (American Banker).
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What Happens Next?
The settlement still requires approval from a federal judge in North Carolina. It will close the chapter on a three-year legal battle and provide long-awaited compensation to thousands of military members if approved. However, the case highlights the need for better communication and clearer processes when addressing financial errors.
Once approved, further details on the settlement and how affected members can claim compensation will be posted online. USAA has already reissued checks to compensate for prior overcharges, but this settlement ensures that any members who missed those earlier payments will now receive what they are owed.
Conclusion
The USAA membership lawsuit sheds light on the financial challenges that military members often face and how even trusted institutions can fall short of their obligations. The $64.2 million settlement brings closure to this specific issue. However, it also serves as a reminder of the importance of holding financial institutions accountable. Moreover, service members’ economic stability is protected by laws such as the SCRA. It must be upheld to maintain the protections they rely on.
Moreover, financial stability is essential for military families, particularly before, during, and after service. To make up for previous errors and guarantee that service members get the benefits and protections they are entitled to, this settlement is a first step in that direction.