San Antonio Express-News (Sunday)
‘Unacceptable’ missteps atUSAABank hurt customers
If USAA fired or reassigned anyone over the mess at its bank, the company isn’t saying.
A spokesman said USAA doesn’t discuss personnel matters, adding, “As part of our efforts to address our challenges, USAA is focused on hiring the right expertise.”
The San Antonio insurance and financial services company’s immediate challenge is to wipe out what a federal regulator this week described as “a pattern of misconduct” at USAA Federal Savings Bank.
The bank broke laws that ensure safe banking practices and protect financially struggling military men and women. It shafted an untold number of customers in various ways, including wrongfully repossessing their vehicles and filing “inaccurate” affidavits in default judgments in civil court cases.
Broadly speaking, USAA Bank engaged in “discriminatory or other illegal credit practices.” Evidence points to 546 violations of the Servicemembers Civil Relief Act and 54 violations of the Military Lending Act. Each case involved a real-live customer.
All of this is according to the Office of the Comptroller of the Currency, overseer of federally
chartered banks. On Wednesday, the regulator nailed USAA Bank with an $85 million civil fine.
The OCC first brought the USAA Bank trouble to light in a cease-and-desist order in January 2019. Later that year, in a separate action, the Consumer
Financial Protection Bureau fined the bank $3.5 million and required it to pay $12 million in restitution for reopening customers’ closed deposit accounts without their permission and for failing to honor members’ stop-payment requests on electronic fund transfers.
On Wednesday, the OCC dryly sketched out what it concluded was the root of USAA Bank’s misconduct:
“The Bank has failed to implement and maintain an effective compliance risk management program and an effective IT risk governance program
commensurate with the Bank’s size, complexity and risk profile. The Bank has deficiencies in all three lines of defense (first-line business units, independent risk management and internal audit) in its compliance risk management program.”
Boiled down, USAA Bank had shoddy internal controls.
The day the OCC announced the fine, USAA chief executive Wayne Peacock — who took the helm on Feb. 1 — said: “As we grew quickly over the last decade, we never wavered from our commitment to serve members. However, we did not sufficiently invest in the capabilities and expertise necessary to meet regulatory requirements and evolving business needs.”
USAA Bank’s bad behavior, however, didn’t stem solely from not spending enough on IT and risk-management programs. Humans, too, were at fault — at least some of the ones who were aggressively expanding and maximizing the bank’s business. In addition to bringing in new customers and working to place more loans and credit cards, they squeezed some of their existing members, judging from the findings of the OCC and CFPB.
With the help of a hefty advertising and marketing budget, USAA Bank has grown dramatically;
its total assets surged 45 percent from $69.5 billion in mid-2015 to $100.8 billion in mid-2020, according to quarterly reports filed with the Federal Deposit Insurance Corp.
The bank reported net income of nearly $34 million for the pandemic-blighted quarter ending June 30. The year before, it earned $461 million.
The OCC’s consent order noted that USAA Bank — led by Chad Borton, who took over as bank president in May 2017 — neither admitted nor denied wrongdoing. But that’s beside the point. USAA officials are contrite.
“While we’ve worked diligently to address our challenges by hiring the right expertise and improving systems and processes, we have not moved fast enough to close some gaps,” USAA spokesman Matthew Hartwig said in a statement. “We have made progress, but more work is needed to meet our standards and those of the OCC. That includes continued investment in risk and
compliance systems, processes, controls, people, automation and technology.”
Fixing USAA Bank’s risk and compliance programs, he said, is the company’s “top priority.”
“We deeply regret these issues and the impacts on our members,” Hartwig added. “Even one mistake is unacceptable to us. We have taken and continue to take action to rectify the situation and increase our investment in the people, processes and technology needed to ensure full compliance with these laws and programs.”
What’s most shocking about the bank’s misconduct is that it seems so out of character for USAA.
Granted, there’s a little parochialism involved whenever the subject turns to USAA in San Antonio. The company started here in 1922 when a handful of Army officers got together to self-insure their vehicles. Today, it’s the city’s second largest private-sector employer, with a local workforce of 19,000, and its executives historically have
been go-to civic leaders. USAA employees sit on the boards of nonprofits across San Antonio and put in countless hours of volunteer work.
But what first comes to mind about the company is that it’s military through and through. Its auto and home insurance policies and investment and banking services are open only to active-duty service members, veterans and military retirees and their families.
The company speaks military. With 13 million members, loyalty to USAA often passes from one generation to the next within families.
Brand loyalty is a soapy concept, but a high level of customer service is certainly part of it. However you define loyalty, USAA customers feel it, as survey after survey attests.
A Sept. 10, 2018, article in the trade publication The Financial Brand carried this headline: “Why USAA is The Most Beloved Financial Brand on
Earth.” Cringingly over the top? No doubt. But there’s something
to it.
Customers’ goodwill extends to USAA Bank — to this day.
The bank recently topped American Banker’s annual customer satisfaction rankings for the third consecutive year, though its score slipped 2.4 percent from 2019.
Maybe the bank’s failings were behind the small year-toyear decline. Maybe not. Either way, they’re a threat to USAA’s standing.
The bank’s actions hurt some of its active-duty military members. That clashes with USAA’s credo of honoring the military and the service and sacrifices of its customers.
Hartwig declined to say what, exactly, USAA is doing to shore up the bank’s internal controls, but it’s almost certainly spending millions upon millions on the effort.
The most important thing — if USAA is to keep its sterling reputation — will be for the company to live up to its values.