Navigating the Storm: USAA’s Journey to Address Regulatory Challenges
The United Services Automobile Association (USAA), renowned for serving military members and their families, has recently faced significant regulatory scrutiny. In December 2024, the Office of the Comptroller of the Currency (OCC) issued a cease-and-desist order to USAA Federal Savings Bank, highlighting longstanding deficiencies in areas such as risk management, compliance, and internal controls.
This development has raised concerns among members and industry observers alike.
A Legacy of Service
Founded in 1922 by 25 U.S. Army officers, USAA began as a mutual self-insurance company when military personnel struggled to obtain auto insurance due to perceived high risks. Over the decades, it expanded its services to include banking, insurance, and financial planning, exclusively catering to military members and their families.
This unique focus fostered a deep sense of trust and loyalty among its members.
The Cracks Begin to Show
Despite its esteemed reputation, internal challenges began to surface. In 2019, the OCC identified issues related to information technology, compliance management, and risk governance at USAA Federal Savings Bank. Subsequent examinations in 2022 revealed further concerns, particularly in the bank’s anti-money laundering (AML) program, leading to substantial fines.
The December 2024 Order
The December 2024 cease-and-desist order was a culmination of unresolved issues. The OCC cited unsafe or unsound practices related to management, earnings, information technology, consumer compliance, internal audit, and violations concerning suspicious activity reporting. Notably, the order restricts USAA from introducing new products or services and from expanding its membership criteria until comprehensive corrective actions are implemented.
Personal Stories: Members’ Perspectives
John, a retired Marine Corps officer, has been a USAA member for over three decades. He recalls a time when customer service was personalized and efficient. However, in recent years, he noticed a shift towards automated systems, leading to longer response times and a perceived decline in service quality. “It just doesn’t feel special anymore,” John lamented.
Similarly, Sarah, an active-duty Army sergeant, experienced challenges with USAA’s mortgage services. Delays in processing and communication gaps caused her significant stress during a recent relocation. These personal accounts highlight the broader implications of the bank’s internal struggles on its members.
Root Causes of the Deficiencies
Several factors contributed to USAA’s regulatory challenges:
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Rapid Growth Without Proportional Infrastructure: USAA’s expansion in membership and services outpaced its internal control systems, leading to gaps in compliance and risk management.
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Underinvestment in Compliance: Compared to other large banks, USAA’s risk and compliance departments remained understaffed, exacerbating existing issues.
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Technological Shortcomings: Outdated IT systems hindered effective compliance and risk management, making it challenging to adapt to evolving regulatory requirements.
Impact on USAA’s Operations
The regulatory scrutiny has had tangible effects on USAA’s operations:
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Financial Penalties: The bank faced fines totaling $225 million between 2020 and 2022 for various compliance failures.
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Operational Restrictions: The December 2024 order limits the bank’s ability to introduce new products or expand its membership, potentially stunting growth.
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Reputational Damage: Continued regulatory issues have led to a decline in member trust and satisfaction, as evidenced by personal accounts and customer feedback.
Steps Towards Remediation
In response to the OCC’s directives, USAA has initiated several corrective measures:
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Leadership Changes: The appointment of Juan Andrade as the new CEO in early 2025 signals a commitment to addressing internal challenges. Andrade’s extensive experience in the insurance industry is expected to drive the necessary reforms.
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Enhanced Compliance Programs: USAA is overhauling its compliance risk management frameworks, including those for fraud, IT, third-party, and shared services risks. These frameworks aim to establish robust systems for assessing risks, holding managers accountable, and performing root cause analyses.
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Technology Upgrades: Recognizing the role of outdated IT systems in compliance deficiencies, USAA is investing in modernizing its technological infrastructure to better support risk management and regulatory reporting.
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Staff Augmentation: To address understaffing in risk and compliance departments, USAA is recruiting additional personnel and enhancing training programs to ensure adherence to regulatory standards.
Looking Ahead: Challenges and Opportunities
While USAA’s efforts to rectify its regulatory shortcomings are underway, several challenges persist:
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Sustaining Member Trust: Rebuilding trust requires consistent delivery of high-quality services and transparent communication with members.
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Regulatory Oversight: USAA must demonstrate tangible progress to satisfy regulators and lift operational restrictions.
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Cultural Shift: Embedding a culture of compliance necessitates changes at all organizational levels, fostering an environment where adherence to regulations is prioritized.
Conclusion
USAA’s journey through regulatory scrutiny serves as a critical lesson for financial institutions about the importance of strong risk management, compliance, and internal controls. While the bank has long been admired for its commitment to serving military members and their families, its recent challenges highlight the consequences of rapid growth without proportional investment in governance and oversight.
The December 2024 cease-and-desist order from the OCC marks a turning point for USAA. With leadership changes, compliance overhauls, and technological investments underway, the bank is taking steps to rectify its longstanding deficiencies. However, the road to recovery will not be immediate. Rebuilding trust with members, addressing regulatory concerns, and instilling a culture of accountability are essential for USAA’s future success.
For USAA members, the uncertainty may be unsettling, but the bank’s commitment to corrective action offers hope for a stronger, more resilient institution in the years to come. The ultimate test will be whether USAA can not only meet regulatory requirements but also restore the high standards of service that made it a trusted name in the first place.
