ICBA Cries Foul as Navy Federal Begins Running ‘Community Bank’ on Military Bases
Navy Federal was awarded Defense Department contract last year
Independent Community Bankers of America, the association representing the nation’s community banks, is asking federal regulators to order Navy Federal Credit Union to stop calling the financial institutions it is operating on military bases abroad “community banks.”
“The Federal Deposit Insurance Corp. and National Credit Union Administration should immediately issue cease-and-desist orders directing the $168 billion-asset institution not to refer to itself as a bank,” ICBA President/CEO Rebeca Romero Rainey said Tuesday.
Romero Rainey said cease-and-desist orders would be in line with NCUA guidance that states that federal law does not explicitly permit insured credit unions to refer to themselves as banks. “Although credit unions may like to present themselves as banks, federal agencies should ward off any attempts to conflate a bank with a credit union, which would likely result in confusion among servicemembers,” she added. She said it is unclear whether the overseas institutions will be examined by the NCUA.
A credit union administering the Military Banking Program does not easily fit under current law. ICBA’s objection is just one of many issues that banking regulators have faced after Navy Federal won the contract to operate 60 military banking facilities and 272 ATMs as part of the Defense Department’s Overseas Military Banking Program.
Last year, before Navy Federal won the contract, Bank of America administered the overseas military banking facilities for more than 40 years, using the term “community bank.” With the switch in operators, Navy Federal officials said the overseas branches will continue to be known as “the community bank,” despite the fact that they are now managed by a credit union.
Although Navy Federal is taking over the administration of the Overseas Military Banking Program from Bank of America, overseas customers do not have to make changes to their accounts. Navy Federal officials said that the Military Banking Program and the credit union will operate separately. They said, for instance, that Navy Federal members will not be able to have their credit union accounts serviced at Military Banking Program locations.
When the contract was first announced last year, NCUA officials made it clear that the agency was not permitted to insure accounts, even though it is operated by a credit union. “As the program is currently proposed, insuring those accounts through the National Credit Union Share Insurance Fund would not be permissible under the Federal Credit Union Act,” a spokesperson said at the time.
As a result, Navy Federal has contracted with Excess Share Insurance and its parent corporation, American Share Insurance, to insure deposits at the community bank. ASI is a private, credit union-owned insurance company that provides deposit insurance. It is licensed and regulated by the Ohio Department of Commerce and the Ohio Department of Insurance, and also regulated by each of the nine states in which the company operates. Company officials said they serve 300 financial institutions, with insured deposits totaling more than $6 billion.