Navy Federal Credit Union offers customers — current and former military servicemembers and their families — a wide range of financial products and services, including loans that must be repaid. But when those customers fell behind on those payments, federal regulators allege that NFCU illegally threatened borrowers and restricted access to their accounts. To resolve these allegations, the company must now pay $28.5 million in refunds and penalties.

The Consumer Financial Protection Bureau announced Monday that Virginia-based Navy Federal Credit Union — which restricts membership to people who are or have been U.S. military servicemembers; Department of Defense civilian employees or contractors; and U.S. government employees assigned to the DOD, or their immediate family members — agreed to pay the hefty tab after an investigation found the financial institution engaged in a slew of illegal collection practices in order to get hundreds of thousands of customers to pay on delinquent accounts.

According to the CFPB consent order [PDF], from Jan. 2013 to July 2015 Navy Federal — the largest credit union in the U.S. with more than 220 locations — sent letters and placed misleading, deceptive phone calls threatening legal action against members, and restricted access to unrelated accounts in order to receive payment from clients.

While Navy Federal used a number of letter templates that notified clients that legal action was “recommended” and that if payment wasn’t made the credit union would “have no alternative but to recommend [the account] for legal action” against the customer, the CFPB investigation found that, in reality, Navy Federal seldom took such action. In fact, 97% of the time the “pay or be sued” threat was never followed through on.

In other cases, the Bureau found that Navy Federal reps threatened — via phone and letters — that they would contact commanding officers to pressure servicemembers to repay. The credit union was not authorized and did not intend to contact the servicemembers’ chains of command about the debts it was attempting to collect.

Consumer credit problems can result in disciplinary proceedings or lead to revocation of a security clearance for military members, according to the CFPB.

Additionally, the Bureau found that the credit union sent about 68,000 letters to customers misrepresenting the credit consequences of falling behind on their debt.

The letters notified members that they would find it “difficult, if not impossible” to obtain additional credit because they were behind on their loan. However, the CFPB found that Navy Federal had no basis for the claim, as it did not review consumer credit files before sending the letters.

The credit union also misrepresented its influence on a consumer’s credit rating, implying that it could raise or lower the rating or affect a consumer’s access to credit. While the credit union could supply information to the credit reporting companies, it could not determine a consumer’s credit score.

In some cases, the CFPB investigation found that the credit union improperly froze electronic account access and disabled some electronic services for about 700,000 customers who became delinquent on their debts. By doing this, the company illegally restricted consumer’s debit card, ATM, and online access to the to their checking account.

In order to resolve the CFPB’s allegations that it engaged in illegal debt collection practices, Navy Federal has agreed to pay $23 million in refunds to consumers who received threatening letters. Customers can expect to receive a refund if they were sent a deceptive collection letter and made payment within 60 days. Additionally, credit union members who were told that their commanding officer would be contacted will receive at least $1,000 in compensation.

Navy Federal must also pay $5.5 million in civil penalties to the CFPB Civil Penalty Fund, correct its debt collection practices by creating a plan to address how it communicated with members, and discontinue practices that restrict customer access to accounts.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.