Read more of Scott Rodd's coverage of credit unions here.
When Marine Cpl. Jesse Leonard got short notice about a promotional board hearing a few weeks ago, he immediately thought about what he needed to wear.
His superiors would decide whether Leonard should move up to sergeant. Showing up in anything less than a crisp, clean uniform could doom his chances at a promotion.
“Kind of like a write up in the civilian world,” Leonard said. He's been in the Marines for four years and is currently stationed at Camp Pendleton. “It’s part of my job to be in the proper uniform.”
So he rushed down to Dorothy’s Military Shop and Laundry in downtown Oceanside. The cashier rang him up for a $30 pair of pants and Leonard swiped his Frontwave Credit Union debit card. Nothing seemed amiss.
Until later that day, when he saw his checking account was negative nearly $200. The purchase had overdrawn his account, resulting in a $20 penalty. By the time Leonard realized he had a negative balance, he’d racked up a total of $60 in fees. He said Frontwave never notified him about the accumulating charges. (According to Frontwave’s website, members have to manually set up alerts for low or negative account balances.)
Leonard said he prides himself on being financially responsible and wished Frontwave would have simply declined the purchase.
“I got into the Marine Corps right after high school. I did not have a lot of life skills that I was taught, so budgeting has been a new thing,” he said. “If I would have known that I was overdrafting my account, I would’ve switched over to my other card that had the money in it.”
For Oceanside-based Frontwave, these fees are built into their business.
KPBS wants to hear from you
Are you a Marine who's gotten overdraft fees from Frontwave? Or do you have information about the credit union's overdraft practices? Contact reporter Scott Rodd at srodd@kpbs.org.
The nonprofit credit union’s members are primarily Marines and their families. A KPBS investigation found Frontwave systematically enrolls thousands of new Marine recruits each year and then collects substantial fee revenue from the young service members when they overdraft their checking accounts.
For more than 25 years, Frontwave has benefited from an exclusive arrangement with the U.S. Marine Corps. About 20,000 Marine recruits — some as young as 17 years old — go through boot camp at the Marine Corps Recruit Depot (MCRD) in San Diego every year, and the Marine Corps funnels many of them into Frontwave.
The credit union then sets up checking accounts to receive the recruits’ direct deposits. Marines and former Frontwave employees told KPBS that even when recruits have an existing bank account, they’re instructed to use Frontwave.
When a young Marine runs out of money, Frontwave makes a profit. The credit union relies on overdraft fees as a key source of income. In 2022, the company collected about $8 million in overdraft penalties, according to data collected by the state. That represented nearly 12% of its overall revenue — about triple the average among all state-chartered credit unions. A review of Frontwave’s financial records shows it easily could have lost money in recent years without income from overdraft fees.
The Marine Corps declined multiple interview requests. In response to detailed questions emailed by KPBS, a spokesperson defended the Marine Corps’ recruit direct deposit program.
KPBS spoke to several Marines who said they had similar frustrations as Leonard regarding Frontwave’s overdraft practices. Nearly a dozen said they immediately switched to a larger credit union or bank after boot camp.
KPBS also spoke to three former Frontwave employees who said the company in recent years has strayed from its core mission of serving Marines. They each talked about young service members falling into a cycle of negative checking account balances — to the benefit of Frontwave.
“The recruits are just an income stream now,” said one former employee. “Frontwave is just not what they used to be.”
Frontwave CEO Bill Birnie tells a different story. He acknowledged in an interview that the majority of Frontwave members came through the MCRD program, and that they are typically “very young” and “don't make a lot of money.” But he argued Frontwave’s overdraft program — which the credit union calls “Courtesy Pay” — is a benefit for members who need a bridge between paychecks.
“We don't call it a fee,” Birnie said. “We're providing a service that gives them what they need to get through the month.”
(Frontwave’s website, it should be noted, repeatedly refers to Courtesy Pay as a fee.)
Birnie added that overdraft revenue “is an important source of income to us — I just don't think we do it in a predatory way.”
Personal finance experts cast doubt on this characterization of overdraft fees as a benefit for service members.
Instead, they said it fits into a broader history of financial institutions targeting military service members with unfair or potentially predatory financial products. Military bases around the country, for example, are surrounded by payday lenders and used car dealers with steep loan rates. During the wars in Iraq and Afghanistan, some soldiers serving overseas faced improper car repossessions and home foreclosures from unscrupulous lenders.
Susan Weinstock, CEO of the Consumer Federation of America, previously researched how overdraft penalties impact military service members for the Pew Charitable Trusts. Her team’s research found the fees “can cause significant financial hardship,” especially for younger recruits.
“We want to see service members treated well — they're putting their lives on the line for our country,” Weinstock said. “So, the idea that we would take advantage of them is just painful.”
Total control, little choice
From the moment recruits step off the bus at boot camp, the Marine Corps is in total control. It begins with the ritualistic buzzcut and continues with nearly every aspect of their lives — including when they eat, where they sleep and how they dress.
That control can even extend to recruits’ personal finances.
Birnie said “every person that reports to (MCRD San Diego) automatically becomes a member of our credit union.”
A former Frontwave employee said “99%” of recruits were automatically enrolled in Frontwave, because setting up their direct deposit with a different financial institution took advanced planning with a recruiter.
The Marine Corps, however, told KPBS in an email that it “encourage(s) new recruits to bring their existing financial institution information to enroll in direct deposit upon arrival to recruit training.” If a recruit does not have their banking information when they enter MCRD San Diego, they’re then automatically enrolled in Frontwave.
The Marine Corps did not provide KPBS with copies of welcome materials given to recruits explaining their direct deposit options. Additionally, the Marine Corps could not provide data showing how many recruits were automatically enrolled in Frontwave.
KPBS heard from Marines who went through MCRD San Diego and wanted to use an existing bank account but were forced to use Frontwave. Among them was Andrew, a 22-year-old Marine who declined to give his last name. He already had an account with Navy Federal Credit Union when he entered boot camp at age 17.
“They sit you in a room at MCRD and they make you fill out all this paperwork,” Andrew said. “They're like, ‘This is the account you’re gonna use.’ Even if you already have an (existing) account, they kind of force you into that.”
Most Marines who spoke to KPBS declined to give their full names due to fear of professional consequences.
The military views the management of personal finances as a measure of moral and professional fitness. Struggles with debt, according to a recent Congressional report, “can lead to loss of security clearance, administrative sanctions, or even involuntary discharge from the military.”
The total annual compensation for early-career enlisted Marines is between $42,000 and $45,000, according to the website Military-Ranks.org. About half of that comes in the form of housing and food allowances, leaving Marines with limited disposable income.
Weinstock said Frontwave is capturing recruits at a pivotal — and potentially vulnerable — point in their lives.
“They are, maybe for the first time, figuring out a budget,” she said. “This may be their first checking account — they may not really understand how these things work.”
Frontwave’s arrangement with MCRD San Diego dates back to the mid-1990s, when it operated under the name Marine Corps West Federal Credit Union (it has since changed its name twice). The Marine Corps was looking for a financial institution to streamline its direct deposit program at MCRD San Diego.
The agreement has been a boon for Frontwave. It virtually guarantees the enrollment of thousands of young, gainfully employed members every year. The credit union expanded membership eligibility in the early 2000s to anyone living in San Diego, Riverside and San Bernardino counties — but about 60% of its 123,000 current members still came through MCRD San Diego, according to Birnie.
The contract requires the credit union to provide financial counseling services to recruits. In an email, the Marine Corps said recruits receive education that includes budgeting, checkbook balancing and how to watch out for predatory loans.
Birnie said he takes great pride in Frontwave’s educational programs.
“They're starting their lives out, they're forming families,” he said. “So we do the best we can to serve them and educate them.”
However, former Frontwave employees who spoke to KPBS had a different opinion. They suggested the financial counseling was insufficient. One went so far as to say the classes “were an absolute joke.”
In response to a Freedom of Information Act request, the Marine Corps said it had no record of complaints filed against Frontwave at MCRD San Diego since 2019.
KPBS obtained the most recent version of the agreement between Frontwave and the Marine Corps, which was signed in March 2020. The contract raises some potential red flags, said Bill Skimmyhorn, an associate professor at William & Mary's Raymond A. Mason School of Business.
“I am a bit surprised by the whole agreement,” he said.
Skimmyhorn has researched financial literacy among service members and previously served as an aviator and economist in the U.S. Army. He said the military generally avoids pushing specific financial products on service members in order to protect their financial independence.
But the arrangement between the Marine Corps and Frontwave establishes a powerful “default” banking institution that young Marine recruits may stick with for years — even if there are better options available.
“Given what we know from behavioral public policy literature, defaults are exceptionally powerful,” Skimmyhorn said. “I think the people imposing the default better be very certain that it's a good choice.”
‘We needed that money to survive’
Amid the paperwork signed by recruits at boot camp is a consent form for Courtesy Pay, Frontwave’s overdraft fee program.
When a member’s checking account goes negative more than $20, Frontwave charges them a $20 Courtesy Pay fee each time they make a purchase. Frontwave will charge up to five penalties in a day, totaling up $100 in fees. A member’s account can go negative up to $500.
Birnie notes that a $20 fee is less than what many other banks and credit unions charge. Some financial institutions charge up to $35, though many have reduced or eliminated overdraft fees in recent years in response to public and political pressure.
A KPBS investigation last year found some state-chartered credit unions — despite their nonprofit, friendly-neighbor image — generated substantial income from overdraft fees.
While Frontwave charges less than some competitors, the fees represent a growing source of revenue for the company. The credit union collected $7.8 million in overdraft fee revenue in 2022 — up from $6.3 million in 2017, according to data provided by the company.
“We needed that money to survive,” said one former employee.
A class action lawsuit filed in 2022 alleges Frontwave unlawfully collected overdraft fees due to improperly processing debit card transactions. The case in San Diego County Superior Court appears headed toward a settlement. Birnie denied these allegations.
By law, financial institutions must get consent from customers to enroll them in overdraft protection, which comes with fees. Frontwave does this by directing customers to Courtesy Pay, even though the credit union has lower-cost options for overdraft protection.
An explainer on Frontwave’s website states that Courtesy Pay is the “standard” overdraft plan for checking accounts. The explainer notes that Frontwave does offer other overdraft protection plans, including linking a credit card or savings account to cover negative balances, and that these options “may be less expensive” than Courtesy Pay.
However, KPBS determined those other options are in fact less expensive. Frontwave’s fee schedule shows that an overdraft transfer from a savings account incurs only a $2 fee. Linking a credit card to cover overdrafts results in no fees.
Weinstock said Frontwave should be presenting all of these options in equal detail.
“And then it’s very clear to consumers what they’re getting themselves into, and how much it’s going to cost,” she said.
Birnie, however, bristled at the notion that his company may be leaving young service members in the lurch.
“I'm a retired Marine sergeant major,” he said. “I love Marines. There's no way that we would ever get involved in being predatory when it comes to those people that dedicate their lives to serving our country.”
While Frontwave has an exclusive agreement with MCRD San Diego, Navy Federal Credit Union has the contract for recruits at MCRD Parris Island in South Carolina. This is where recruits from the eastern half of the country go for boot camp.
The soldiers-in-training on Parris Island appear to have a better deal when it comes to overdraft fees.
According to the fee disclosures on its website, Navy Federal will first attempt to transfer money from a savings account to cover an overdraft. If a checking account remains negative more than $15, the credit union will charge up to one $20 overdraft penalty per day, and no fees will be assessed on purchases of $5 or less.
Former employees speak out
KPBS spoke at length with three former Frontwave employees who said the company has drifted from its mission of helping Marines. KPBS granted the employees anonymity because they feared lasting professional harm if they spoke out publicly.
The former employees, who had a combined 34 years of experience at Frontwave, said they started working at the credit union because they felt a sense of pride and purpose serving Marines. But they gradually grew disillusioned with how the credit union treated service members.
“I don't think they're doing a great service for the military anymore,” said one former employee.
KPBS spoke to a fourth former Frontwave employee who described having a positive experience working at the credit union. The person acknowledged that Frontwave treated overdraft fees as an important source of revenue, but said the practice wasn’t predatory.
Birnie declined a follow-up interview request to address specific claims from former employees.
The three former employees critical of Frontwave shared similar stories about young Marines racking up overdraft penalties — often on small purchases when they didn’t realize their accounts had gone negative — and how Frontwave became increasingly dependent on this fee revenue.
“On the teller line, I sat across from Marines who came in fresh from MCRD who were confused about why their vending machine purchases were causing them to be overdrafted by hundreds of dollars,” said one former employee.
Recurring subscription services were also a common source of overdrafts.
That’s what happened to Andrew, the 22-year-old Marine. He transferred all of his money from Frontwave to his existing Navy Federal account shortly after leaving boot camp. But he didn’t realize his Netflix subscription was linked to his Frontwave account until he logged in a few months later.
“It was like negative $50,” he said.
Sometimes, Frontwave reverses the penalties. Birnie said Frontwave waived roughly $766,000 in Courtesy Pay fees in 2022. That represented approximately 11% of all Courtesy Pay fees charged that year.
- Federal agency reveals how much credit unions collect in overdraft fees
- Warren calls on Defense Department to review Frontwave Credit Union’s contract with Marine Corps
- Members of Congress launch investigation into Frontwave Credit Union’s treatment of young Marines, following KPBS reporting
- State lawmakers considering bill that would limit credit union overdraft charges
Leonard, the Marine who recently went before the promotional board, got two of his fees reversed after speaking with KPBS.
He was recommended for sergeant — but he won’t be a Frontwave member by the time he achieves his new title. He plans on moving his money to a more established bank.
Many Marines wind up leaving Frontwave. The former employees said the credit union often struggles to maintain members for more than a year or two. It’s been an issue going back two decades.
Some young Marines, however, don’t have that option. It’s hard to leave if you’re drowning in a cycle of negative account balances and fees, the former employees said.
“Marines would fall behind on their bills, and then depend on Courtesy Pay to help cover the next month’s bills,” said one former employee. “They were already in the hole and their direct deposit wouldn’t cover it.”
If an account goes delinquent, the member may wind up in ChexSystems, a consumer reporting database. Once your name is in the system, it’s very difficult to open a bank account elsewhere.
“I feel so sad that we didn’t really give them a hand up,” said one former employee. “We let a lot of them dig themselves into a hole that takes years to get out of.”
