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U.S. military bases across the globe are about to see a major change on the financial services front.
The Department of Defense has awarded Navy Federal Credit Union a contract to begin operating the Overseas Military Banking Program later this year. The $3.1 trillion-asset Bank of America in Charlotte, North Carolina, has held the contract for the past 40 years.
The program was established after World War II to provide active duty military members with retail, financial and cash services. It provides access to foreign currency, local ATMs, bill pay, savings and checking accounts, and other products.
“We’re very proud to have been awarded this contract. Supporting active-duty personnel and their families, wherever they are stationed, is at the core of Navy Federal’s mission,” Mary McDuffie, president and CEO of Navy Federal, said in a press release.
Under the contract, the $165 billion-asset Navy Federal — the largest credit union in the world — will operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific. Per federal requirements, the program will be known overseas as “Community Bank, Operated by Navy Federal Credit Union.”
But there are concerns about Navy Federal’s ability to obtain sufficient deposit insurance to fulfill the contract.
In a letter to the Department of Defense, the Defense Credit Union Council said it is “deeply concerned” about some of the terms and the bid selection process.
The group, which advocates for the interests of America’s credit unions serving the military and veteran communities, said it believes there are legal and regulatory compliance issues that could harm military members and their families and erode goodwill with the credit union industry.
At issue, the group said, is the ability for a credit union to obtain mandatory deposit insurance for overseas bank customers and military families that are served through this particular program. The group said that Navy Federal has entered uncharted territory and it is not clear that credit unions, through standard processes, can insure deposits outside of the United States under this contract.
An NCUA spokesman confirmed that the program is not currently insured through the National Credit Union Share Insurance Fund but did not elaborate. The NCUA fund insures credit union deposits in the U.S.
“Executing an overseas banking contract without deposit insurance would be unconscionable given recent bank failures such as Silicon Valley Bank and Signature Bank,” wrote the group’s President and CEO Anthony Hernandez.
Vienna, Virginia-based Navy Federal acknowledged the concerns but said it expects it will be able to address the insurance issue during a transition period. A spokesperson said the contract was awarded in two phases. The first phase will be a transition period where customer accounts will continue to be backed by BofA.
The second phase will begin on April 1 when Navy Federal will take over the program. That should provide “ample time to work alongside the Defense Finance Accounting Service to ensure the safety and soundness of the deposits when Navy Federal assumes responsibility,” the spokesman said.
The contract also contains eight additional one-year options.
Still, “DCUC remains concerned that DoD awarded a contract without federal deposit insurance for military members and their families who are serving overseas and in harm’s way. Our military deserves the same level of protection no matter where they serve,” Hernandez said.
For its part, BofA confirmed it made the decision not to renew its contract with the DoD, though it did not explain why.
“… Upon completion of the terms of the current contract, the decision was made to allow another financial institution to bid for the next global contract term,” BofA spokesman Andy Aldridge said. “Can’t get into the strategy of why we choose to enter or exit any particular business.”
The $35 billion-asset Pentagon Federal Credit Union in McLean, Virginia, operates branches on two military bases overseas — in Okinawa, Japan, and Guam. PenFed did not bid on the DoD contract, President and CEO James Schenck said. This contract is separate from the program that Navy Federal will be taking over.
“Having Navy FCU on overseas bases will give servicemembers several great organizations to choose from … to handle their financial needs while deployed,” he said.
Navy Federal serves all branches of the military, including the Navy, Army, Marine Corps, Air Force, Coast Guard and Space Force. Last year, members visited one of the 354 Navy branches worldwide more than 21 million times.
