US Regulator Orders USAA Bank to Address Compliance Failures

USAA Federal Savings Bank, a financial institution primarily serving military members and their families, has found itself in hot water with regulators. The Office of the Comptroller of the Currency (OCC) has ordered the bank to correct several "unsafe or unsound banking practices" in its compliance risk management and information security programs. This article explores the reasons behind the OCC's intervention and the potential impacts on USAA's reputation, financial performance, and growth prospects.



The OCC first identified these issues in a January 2019 consent order, highlighting deficiencies in all three lines of defense within the bank's compliance risk management program. These include first-line business units, independent risk management, and internal audit. The bank's failure to implement and maintain an effective compliance risk management program and IT risk governance program commensurate with its size, complexity, and risk profile resulted in numerous violations of law, including the Servicemembers Civil Relief Act and the Military Lending Act.

USAA has acknowledged falling short of its high standards and has been working diligently to address the gaps. The bank has hired new expertise, enhanced systems and processes, and invested substantial resources to improve its compliance and risk management programs. However, USAA has admitted that it has not moved fast enough to close all the gaps, indicating that there is still work to be done.



The regulatory issues have had a significant impact on USAA's reputation and financial performance. The bank has faced penalties totaling $140 million for violations of the Bank Secrecy Act, Military Lending Act, and Servicemembers Civil Relief Act. These issues have also led to a "needs to improve" rating in its Community Reinvestment Act evaluation and a decline in total assets, ending a decades-long streak of steady growth.

USAA's regulatory compliance efforts have indirectly restricted its growth. While regulators haven't imposed formal growth restrictions, they've informally advised the bank to hold back on expansion until addressing identified weaknesses. This includes avoiding significant organic growth, new products, services, and fintech relationships. The bank's slowdown in growth compared to peers, such as Navy FCU, which serves the same customer base, suggests that regulatory troubles may be hindering its competitiveness.



USAA's regulatory issues have likely impacted its ability to attract and retain customers, particularly military members and their families. The bank's operational failures and compliance weaknesses may erode customer trust, especially among military families who value reliability and security. To regain customer confidence, USAA must promptly and effectively address these issues.

USAA Federal Savings Bank's regulatory challenges have also influenced its ability to maintain or improve its credit ratings and access to capital. The decline in total assets and the series of regulatory issues, including fines and a "needs to improve" CRA rating, may have weighed on expenses, capital, and regulatory ratings. This could indirectly restrict growth and impact borrowing costs.

In conclusion, USAA Federal Savings Bank faces significant challenges in addressing the identified unsafe practices and restoring its reputation. The bank must work diligently to improve its compliance and risk management programs, regain customer trust, and maintain its financial performance. The OCC's intervention serves as a reminder that financial institutions must prioritize regulatory compliance to ensure the safety and soundness of their operations.