Credit unions and the military have a long shared history, and financial institutions based on bases are paying particular attention to proposed new rules some worry could limit how they extend credit to credit-challenged service members.
Now in the comment phase, here’s how the changes are described in the September announcement from the Department of Defense: “The new proposed actions are designed to apply the protections of the Military Lending Act to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards.”
The NCUA says the changes go beyond that agency’s own rules and could shut down some alternative lending programs that credit unions currently offer service members. Military-focused credit unions generally say they’re in a wait-and-see mode on the new rules, and several told creditunions.com their products wouldn’t run afoul of the new rules anyway.
However, many are working with the trades and the DoD to offer input and limit the potential fallout from the rules, which could take effect sometime next year. A leader in that effort says credit unions on and around military installations already do the right thing, especially in protecting members against predatory lenders. “We feel the rules in place today have been effective,” says Arty Arteaga, president/CEO of the Defense Credit Union Council.
“Our credit unions are all about protecting their members,” Arteaga says, noting that credit unions have been working with the military since at least 1928 at the Navy shipyard in Norfolk, Va. He says the DCUC has canvassed its 200-plus member credit unions, seeking input on what impact the changes would have on their products and services.
“The one thing for certain is that we don’t want any unintended consequences to occur because of this proposal,” says Arteaga, a 28-year veteran who retired in 1999 as commander of the U.S. Army Finance Command. “We’ll determine that once we see their answers.”
Brad Smith, chief of staff at Pacific Marine Federal Credit Union ($691.6M, Oceanside, CA), says, “I always get nervous when the DoD begins making rules in areas where they have no expertise, but they have done a fairly decent job in avoiding unintended consequences so far.”
PMCU serves the Marines’ huge operations in the San Diego area, including Camp Pendleton, and offers several credit-building and payday lending alternative loans. “None of these rules really affect us because we are well within any guidelines and truly have the troops’ best interest in mind when we develop products and services,” Smith says.
No Way To Say No
Taking up for service members also goes a step further at Security Service Federal Credit Union ($8.1B, San Antonio, TX). The rule there is that if a military member or military family member comes to a front-line staffer with a problem, “you’re not authorized to say ‘no,’” says John Worthington, the big Texas credit union’s executive vice president/chief communications officer. “The issue always has to be escalated, all the way to the president. That’s the rule and it’s regularly reiterated throughout the enterprise.”
As for any impacts from the proposed DOD changes, Worthington says, “If and when they become rule, we’ll have some systems and procedural changes to make, but it’s kind of early to say what that would be yet.” Worthington, himself a 26-year Air Force veteran and former commander of the Air Force Broadcasting Service, says SSFCU has approximately 33,500 active military families among its 900,000 members. SSFCU operates primarily in Texas and Colorado.
Meanwhile, Navy Federal Credit Union ($62.5B, Merrifield, VA) says none of its products would fall under the new rules, as does Belvoir Credit Union ($317.3M, Woodbridge, VA). There, Chief Marketing Officer Jason Lindstrom, says, “We expect it to have little or no impact. We don’t do payday lending. We do offer 0% APR ARK loans to active duty military members through the PenFed Foundation.”
Lindstrom says his suburban Washington, D.C., credit union will rely on the DCUC for guidance on the issue, as does DCUC board member Frank Padak, president/CEO of Scott Credit Union ($1B, Collinsville, IL), which has approximately 6,000 active duty members at Scott Air Force Base. He says, “As for the actual DoD rules, we’re still trying to wade through the proposal to determine what if any impact the proposed changes might have on us.”
The DoD is accepting comments until Nov. 28, although NAFCU has asked for an extension.