Sen. Elizabeth Warren calls on Marine Corps to pause contract with Oceanside-based Frontwave Credit Union

U.S. Sen. Elizabeth Warren is calling for closer scrutiny of the Marine Corps’ relationship with Oceanside-based Frontwave Credit Union, which handles direct deposits for thousands of Marine recruits every year.

In a letter to Defense Secretary Pete Hegseth, the Massachusetts Democrat requested the U.S. Department of Defense (DOD) hold off on renewing Frontwave’s contract with the Marine Corps until the department can ensure servicemembers “have adequate protections in place to prevent excessive overdraft fees and other abusive practices.”

The contract went up for review in March.

A KPBS investigation last year found Frontwave has — for decades — benefited from an exclusive arrangement with the Marine Corps. About 20,000 Marine recruits, some as young as 17 years old, go through boot camp at the San Diego Marine Corps Recruit Depot (MCRD) every year.

The Marine Corps has funneled many of them into Frontwave to process their paychecks. KPBS found the credit union collects millions in overdraft fees every year. Frontwave’s financial records show the credit union relies on the fees as a key source of revenue.

KPBS’ reporting prompted members of Congress to launch an investigation into Frontwave last spring.

A spokesperson for Warren said the senator was unavailable for an interview.

Frontwave did not respond to multiple calls and emails requesting comment.

A DOD spokesperson declined to comment.

Meanwhile, Frontwave has moved to expand its footprint and customer base in Southern California. The credit union entered into an agreement earlier this year to acquire El Centro-based Community Valley Bank and absorb its customers.

The announcement raised concerns among some community-based organizations.

“Frontwave has a history of not taking care of service members, of not taking care of community members,” said Ebony James, chief operations officer at the Logan Heights Community Development Corporation and a Navy veteran.

Ongoing investigation

Over the last three years, Frontwave collected roughly $8 million annually in overdraft fees from its members. The credit union easily could have lost money in those years without income from overdraft fees, according to data collected by the state

Frontwave charges $20 per overdraft penalty and account holders can rack up five penalties per day.

In an interview last year, Frontwave CEO Bill Birnie acknowledged Marine recruit customers 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're providing a service that gives them what they need to get through the month,” Birnie said.

The explanation did not convince members of Congress, who began investigating Frontwave’s practices last April. In a letter spearheaded by Warren, the lawmakers cited KPBS’ reporting and demanded answers from the credit union.

“Frontwave owes service members and the American public an explanation for its deeply exploitative overdraft practices that harm service members and their families,” the letter stated.

It was signed by a bipartisan group of lawmakers that included Bernie Sanders (D-VT), Cory Booker (D-NJ), San Diego Democratic Rep. Sara Jacobs (CA-50) and then-Sen. JD Vance, who now serves as vice president.

The credit union’s responses “revealed several disturbing facts,” according to Warren’s latest letter. The investigation found that, on average, Frontwave customers who overdrew their checking accounts paid more than $200 annually in overdraft fees.

Additionally, Frontwave’s agreement with the Marine Corps does not contain terms and conditions to help protect young recruits from falling into a cycle of negative account balances and facing hefty fees.

“I ask that DOD refrain from renewing its contract with Frontwave until the concerns in this letter are addressed,” Warren’s letter states.

Expanding footprint

In January, Frontwave announced its plan to acquire Community Valley Bank, a small state chartered bank with branches in El Centro, Brawley, Indio, Julian and Borrego Springs.

“The addition of Community Valley Bank will allow us to expand our footprint as we continue living out our mission to make financial dreams come true in the communities that we serve every day,” Birnie said in a press release.

But community groups cast doubt on this rosy picture.

Rise Economy, an advocacy group that promotes investment in low-income communities and communities of color, sent a letter to the Federal Deposit Insurance Corporation that outlined several concerns. The letter claimed Frontwave had not demonstrated an ability to support Community Valley Bank’s existing community investment projects. It also raised concerns about the credit union’s reliance on overdraft fees.

The letter was signed by 35 community organizations, including The Fair Housing Council of San Diego and San Ysidro-based Casa Familiar.

Frontwave’s acquisition is somewhat unusual in the finance industry.

“It’s not very common for credit unions to buy banks,” said Jordan van Rijn, an assistant professor at the University of Wisconsin-Madison who studies credit unions and banks. “The vast majority of bank purchases are from other banks.”

He estimated transactions between credit unions and banks represent about 1% of mergers and acquisitions in the industry.