San Antonio-based USAA Federal Savings Bank Fails Regulator Test. Sounds Familiar.

San Antonio’s USAA Bank receives failing grade from bank regulator

Originally Published; Oct 5, 2020 | LIT Republished; Oct 9, 2020

San Antonio-based USAA Federal Savings Bank has received a failing grade from a bank regulator over evidence of “discriminatory or other illegal credit practices.”

The Office of the Comptroller of the Currency lowered USAA Bank’s overall Community Reinvestment Act performance evaluation rating from “satisfactory” to “needs to improve” after uncovering evidence of 600 violations involving customers.

The CRA, enacted in 1977, requires regulators to assess a bank’s record of helping to meet the credit needs of the community, including in low- and moderate-income neighborhoods.

The OCC found evidence of 546 violations of the Servicemembers Civil Relief Act, including failure to provide protections to military reservists as the act requires, wrongful repossession of vehicles and the filing of “inaccurate” affidavits in default judgments in civil court cases.

The act provides protections for service members in the event their military service impedes their ability to meet financial obligations. Among other things, it protects them from default judgments.

The regulator also found evidence of 54 violations of the Military Lending Act relating to collection of past due amounts from members. The act protects service members and their families from lending practices that could pose a threat to military readiness and hurt service member retention.

“We are committed to serving every USAA member with excellence and in accordance with all applicable laws and regulations,” USAA spokesman Matt Hartwig said in an email Monday.

“The rating by the OCC does not reflect our ongoing commitment to lend to and invest in local low- and moderate-income communities,” he added. “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 OCC oversees all national banks and federal savings associations. It is an independent bureau of the U.S. Treasury Department.

USAA Bank had about $100.8 billion in assets as of June 30, which places it among the 35 largest banks in the country.

The OCC completed its evaluation of USAA Bank last year, but the findings were released only last week. The bank is a subsidiary of insurance and financial services giant USAA, which has about 13 million members made up of current and former members of the military and their families.

Kenneth H. Thomas, a Miami banking analyst who is president of Community Development Fund Advisors, said USAA Bank’s CRA evaluation was “rare” and “surprising” because only 2 percent of banks receive a failing grade.

USAA gets an “A” for its ubiquitous television advertisements to bring in members of the military as customers but gets an “F” for compliance with regulations, Thomas said. The ads tout that it’s “doing right by its members.”

“They’re spending a lot of money on TV ads, huge amounts of money,” he said. “They need to spend a lot more money in the area of compliance. We’re in banking. We’re the most heavily regulated industry in the world. That regulation means you’ve got a license, and as part of that license, you’ve got to go along with the compliance laws. They’re just not doing a good job of that.”

The violations were “especially egregious” because of the number and those who were affected — members of the military, Thomas said. The bank needs to be held to a higher standard, he added.

“It’s not just a big bank — it’s a big bank that takes care of our military,” he said. “We always talk about vulnerable populations now. This is a very vulnerable population not just because there are a lot of minorities, (but many are of) low to moderate income. For that reason, we have to be extra careful in dealing with them.”

Blue Star Families, a nonprofit organization that supports military families, conducted a survey in 2018 that found enlisted servicemen and servicewomen experience financial barriers, including lower wages than the civilian population. That hurts their ability to save for emergencies, manage debt and qualify for loans. The survey, sponsored by USAA, was mentioned in the OCC’s report.

The failing grade marks the latest black eye for USAA Bank.

Earlier this year, as the federal government sent stimulus checks to Americans as a small financial cushion during the widening coronavirus crisis, USAA Bank kept portions of the checks deposited into some customer accounts that were overdrawn or had negative balances.