WASHINGTON — Navy Federal Credit Union, the largest credit union in the country, agreed Tuesday to pay $28.5 million to settle regulatory allegations it engaged in illegal debt collection practices.

The Consumer Financial Protection Bureau assessed the $73 billion-asset credit union, which specializes in lending and services to members of the military, after it found the institution was threatening members who did not pay overdue loans with lawsuits even when it had no intention of filing them.

The credit union also allegedly threatened to inform members' commanding officers of their debt and froze affected members accounts, disabling the majority of electronic services. Additionally, Navy Federal told members that failure to pay loans would lead to difficulty in accessing additional credit — even when it did not know if that was true, the CFPB said.

"Financial institutions have a right to collect money that is due to them, but they must comply with federal laws as they do so," said CFPB Director Richard Cordray in a press release.

Under the settlement, Navy Federal is required to pay $23 million in restitution to affected customers and $5.5 million in civil money penalties. The institution must also correct debt collection practices as well as reactivate any frozen consumer accounts.

A spokesman for the credit union said "where our collections practices have come up short in the Consumer Financial Protection Bureau's estimation, we have made all the necessary changes. We have cooperated with the CFPB throughout the process."

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