For over 60 years, DCUC has successfully advocated for all credit unions serving our military and veteran communities across the globe. No other trade association accomplishes this important mission quite like DCUC. We are proud to do so and remain confident and firm in our mission no matter the situation. As part of this mission, DCUC is always ready to champion innovative solutions that enable our member credit unions to better serve our Nation’s military, veterans, and their families. Yet, innovation needs to still comply with existing rules and regulations that are in place to ensure the security of those we serve.
As with any industry, there will always be challenges and obstacles to overcome. Recently, there have been increased calls for credit union taxation, expanded regulations, and even some efforts to consolidate industry oversight under a single regulatory agency. In addition, there are increasing cyber, market, and interest rate fluctuations. These challenges are nothing new, and DCUC has always been prepared to meet these challenges through relentless advocacy, innovation, and careful management.
Yet, as the market becomes much more competitive and revenue margins are further squeezed, a unique set of internal challenges emerge. For credit unions that serve military installations, the most obvious trend is the rise of incursions onto the base by other financial institutions. As such, the “one bank/one credit union” policy is increasingly under attack from those wishing to dominate the market.
To be clear, DCUC is not opposed to competition within the credit union industry. DCUC believes that healthy competition drives better rates and best-in-class service for our military and veterans. However, there are valid reasons for why this policy was implemented, and why it has endured for decades.
As I’m sure most are now aware, there are some changes happening with the DoD’s Overseas Military Banking Contract. These will not only impact credit unions serving military and veteran communities overseas but also have industry-wide implications.
Since its inception in 1943, DoD’s Overseas Military Banking Program has been operated by banks. Unfortunately, DoD has yet to update the contractual terms making it difficult for banks to operate under the contract and comply with regulatory changes in the 21st Century.
Instead of attempting to work out these regulatory deficiencies, DoD solicited a unique bid from a “not-for-profit” credit union. This is a “first” both within our industry and since the program’s inception. In doing so, DoD failed to consult with industry experts to make sure that this “first” didn’t come with unintended consequences.
As expected, there are several significant weaknesses and contract deficiencies that affect this award. Whether or not DoD foresaw these issues, they have yet to address the concerns in any meaningful way even as this contract was awarded and transition dates were announced.
Prior to the announcement, DCUC had identified many legal hurdles in the way of a credit union fulfilling this contract. Bottom line, in order to make this contract work, changes will have to be made to the Federal Credit Union statute to allow share insurance for non-member deposits as well as eliminate the DoD “one bank/one credit union” policy. Even if these unprecedented exceptions were given, they still may not be legally sufficient for the contract to be viable, and there would likely be “after-the-fact” changes needed in order to cure the bid and accommodate the offeror.
Once any of these exceptions are granted, these regulatory and statutory changes will bleed over into domestic military markets. In simple terms, this contract is a cost-plus, fixed-fee banking contract. According to industry insiders, this contract is estimated to generate approximately $30 million dollars a year (or more) in residual profit!
In other words, for the first time in 80 years, DoD awarded a “not-for-profit” credit union a contract to operate a large for-profit community bank. DoD can only make this work by granting unique exceptions and encouraging one-time interventions by other regulatory agencies to override or change the law.
For now, these legal restrictions are still in place, and it is likely DoD will have to rescind the award. However, DoD has not given up its quest to force the issue after nearly a year of negotiating this contract bid.
DCUC’s immediate concern is the lack of deposit insurance for military members serving overseas and in harm’s way. These military members should have the same consumer protections as everyone else, no matter where they serve--especially when forced to use the bank contract at one of the overseas locations where there is no U.S. credit union.
These concerns and changes are something DCUC cannot fight alone, and industry leaders can no longer afford to sit on the sidelines. Losing regulations such as the long-standing one bank/one credit union policy would open up unbalanced competition against small and mid-sized credit unions by larger, non-local financial institutions that can afford to operate at a loss in order to make inroads into new communities.
DCUC will keep you apprised of any new developments, but now more than ever, I urge you to contact your league and Congressional representatives before it is too late. If you have any questions, please reach out to us!