 By Ray Birch WASHINGTON—Will the awarding of a contract to Navy FCU to provide banking services on military bases stand? Or will the Department of Defense contract be rescinded and then bid back out to another player, likely a bank? It's a critical debate right now, according to the president and CEO of the Defense Credit Union Council, who said the decision by the DoD to award the contract to provide those services to the world’s largest credit union has created considerable controversy, contending it is possible the current agreement with the Department of Defense and Navy FCU will not stand. It's a critical debate right now, according to the president and CEO of the Defense Credit Union Council, who said the decision by the DoD to award the contract to provide those services to the world’s largest credit union has created considerable controversy, contending it is possible the current agreement with the Department of Defense and Navy FCU will not stand.
As CUToday.info reported here, in September, the Department of Defense selected Navy Federal to provide banking services on U.S. military bases overseas, displacing Bank of America, which has held the contract for 40 years. Several Issues Raised As Tony Hernandez of the DCUC noted, the awarding of the contract has raised numerous issues, including:
To Take Effective in April 2024 Effective in April, 2024, Navy FCU is to begin filling the contract to operate some 60 branches of the “Community Bank” and 275 ATMs on bases in Europe and the Pacific for the next 10 years. Navy Federal, which is by far the world’s largest credit union with $165 billion in assets, has 13-million members and more than 350 branches. Hernandez told CUToday.info the DoD has possibly moved too fast on the agreement, awarded a “defective” contract, and that earlier this year he attempted to explain to DoD the issues with having a credit union take over the contract. An Earlier Warning “DCUC member credit unions took a look at the bid a year ago and quickly determined there were too many statutory, regulatory, and operational hazards in operating this contract. Most likely the same reasons bank did not submit a bid,” Hernandez said. “I was also assured none of our members would be submitting a bid, including Navy Federal. “In fact, I spoke with Navy Federal last May and discussed our concerns with the contract,” Hernandez said. “Navy Federal acknowledged these concerns and told me during this meeting they were not sure whether they would submit a bid. However, Navy Federal had already submitted their bid six months earlier.” As more was learned about Navy Federal’s actual bid, Hernandez said DCUC’s primary concern centered around the lack of federal deposit insurance. “And that's bad enough apart from all the other regulatory concerns,” he said. “How could DoD award a contract without a basic consumer protection vehicle?” The Defense Council is pushing back on the award and has called on its member credit unions to join its efforts in raising awareness on this issue, noting that its disagreement isn't with Navy Federal, but with the Department of Defense's changes to long-standing rules. “I guess there were assurances that federal insurance could be obtained,” Hernandez said. “Since we sent our letter to DoD, there have been lots of meetings between all the different parties involved, trying to find a loophole. And yet we still have no credible path forward. The Federal Credit Union Act doesn't have any ambiguity regarding non-member deposits, and NCUA has already told Congress that.” With all the legal hurdles identified prior to its award, it is clear the contract should have never been awarded to a credit union, said Hernandez. “Now, nearly a year since the bid was submitted, we have a self-inflicted crisis of DoD’s own making,” Hernandez said. Help From Capitol Hill As CUToday.info reported, Navy Federal has reached out to Capitol Hill seeking assistance in resolving the deposit insurance matter. CUToday.info has obtained a copy of a letter Navy Federal has sent to Sen. Jack Reed (D-RI), chairman of the Senate Committee on Armed Services, in which the credit union states an “issue” with NCUA “threatens to undermine our ability to provide deposit insurance to servicemembers’ accounts in the Overseas Military Banking Program (OMBP).” That issue is that in order for the contract to work, changes will need to be made to the Federal Credit Union Act to allow deposit insurance from the NCUSIF to cover non-member deposits. The Other Issue Meanwhile, Hernandez turned to the issue of the deal violating the “one credit union/one bank policy” on military bases, which is codified in federal regulations, he said. “It exists to eliminate confusion, prevent predatory lenders from accessing the base, and facilitates competition for the betterment of the members. It does not work if there are only a few choices left in the marketplace. Plus, there is legal consideration between each credit union and the base,” explained Hernandez. “You can't really change a rule to benefit one entity over everybody else, especially if eliminating that rule violates the operating agreements which require ‘not-for-profit’ credit unions to provide DoD many institutional benefits for free,” continued Hernandez. “I think there would be difficulties in doing that. Plus, there is the Administrative Procedures Act, which would require a public comment period, adjudication of the comments, and then someone would have to make a determination. It is hard so see this happening so that a single financial institution could benefit in operating the contract for a guaranteed profit.” Hernandez believes the best path forward is for the DoD to rescind the bid, and then issue it out for rebid. “I don't think the answer is going to be a credit union because, the way the contract is structured, there is too much banking language in it,” Hernandez said. An ‘Alternative Solution’ Hernandez also suggested an alternative solution. “We already have credit unions operating overseas that are doing so at their own expense and without the benefit of a government contract. Why do we need the contract to begin with?” he asked. “There are now 60 locations overseas and 38 of those locations already have a credit union. We're talking about 22 locations that don't have a credit union. All they have is the DoD Community Bank. “Maybe the DoD could reduce contract scope to just cover those 22 areas. Maybe we can downsize this even more and see if any credit unions are interested in obtaining a DoD geographical franchise for those locations, which is how our credit unions got overseas in the first place. See if we can whittle that down from 22 to say 16 or 17?” Hernandez continued. “By doing so, we're saving the government money and we're finding an effective way to keep our troops’ deposits safe and their financial services secure.” Hernandez contends the DoD, in addition to moving too fast on the contract, failed to seek advice from DCUC and the Association of Military Banks of America. “They never reached out and offered to work with the Defense Credit Union Council or my counterpart at the Association of Military Banks of America,” Hernandez said. “I think we could have, and still can, spare them a lot of trouble and above all else, protect our military overseas and in harm’s way.” A ‘Suitable Path Forward’ Hernandez restated he believes the contract with Navy Fed will ultimately be rescinded. “There are too many legal hurdles, and going to Congress to change the law in order to benefit a single financial institution seems unlikely,” he said. “Since DoD is reluctant to trim its budget, I think the final result will be that the contract will be modified enough so that a bank, which already has FDIC authority to ensure those deposits, has the ability to perform the contract. In making those modifications, I hope the DoD will consult with DCUC and AMBA.” Hernandez expects the situation will continue to draw a great deal of attention. "I expect there will be a tendency to shoot the messenger, especially when both facts and the law are not going your way,” he said. “And people will say all kinds of things along the way. However, DCUC is thankful for the growing support from industry leaders as they learn more about what has happened and the implications going forward." CUToday.info has reached out to Navy FCU for comment and has not received a response. Read Full Article >>> Comments are closed.
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