Lax Business Account Policies by Navy Federal Credit Union Facilitate Check Fraud, Class Action Lawsuit Claims

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Navy Federal Credit Union (NFCU) faces a proposed class action lawsuit that alleges lax policies with respect to the creation of business accounts have allowed criminals to perpetrate check fraud through the financial institution.

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According to the 31-page lawsuit, NFCU has shown an “intentional disregard” for compliance with “Know Your Customer” requirements and other federal regulations established to prevent money laundering and financial crime. The class action suit was filed by a Texas-based bank that says it became a victim of NFCU’s allegedly insufficient “Know Your Customer” procedures after a customer’s check was stolen in the mail and used by fraudsters to open a business account at the credit union.

As the case tells it, an NFCU business account can be opened online using a member’s personal credentials. There is no requirement that says a customer must hold an NFCU account for a certain period before opening a business account, the complaint states. Likewise, there are no rules about how long a business must be in existence before an account can be created under its name, the filing adds.

Per the lawsuit, the only requirements to open a business account are completed NFCU applications and certain proof of existence documents, such as a Certificate of Good Standing from the secretary of state and a notice from the IRS indicating the assignment of an employer identification number.

Thanks to the defendant’s allegedly lax policies, fraudsters are able to open fake business accounts with NFCU within hours after committing business identity theft, and they can begin to deposit and withdraw fraudulent checks soon after, the suit contends.

The complaint also accuses NFCU of other basic missteps. For one, the credit union does not require proof of address, nor does it take measures to verify a listed business address, the filing asserts.

Moreover, in some cases, a check deposited in a newly opened fraudulent account may predate the existence of the business or include data that is inconsistent with the account, the NFCU lawsuit charges.

Importantly, per NFCU policy, the credit union does not review checks for fraud unless the check exceeds $25,000, the suit says. This procedure is in place despite the defendant’s acknowledgment that “the average single check fraud transaction amount is $10,000,” the case shares.

The complaint alleges that NFCU has failed to collect and maintain identifying information about its accountholders and their financial behavior in accordance with federal anti-money laundering laws and established banking practices.

In addition, plaintiff Buckholts State Bank accuses the credit union of negligently failing to monitor what it purportedly knew was a fake account. Instead of putting a stop to any suspicious or unusual transactions, NFCU “immediately” cleared the deposit of a stolen check into the fraudulent account and allowed the fraudster access to the funds the same day, the filing claims.

Although Buckholts State Bank says it has made multiple claims for reimbursement, NFCU has wrongfully refused to return the funds, the case contends.

The lawsuit looks to represent any banks and bank customers in the United States and its territories who have suffered financial loss as a result of check fraud facilitated by NFCU at any time since January 10, 2022.

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