In Rare Scenario, A Public Divide in Credit Unions

WASHINGTON–In a highly unusual departure by a credit union community that almost always puts on a unified front, America’s Credit Unions said it does not support efforts by Navy Federal Credit Union to amend the Federal Credit Union Act in a way that would allow NCUSIF insurance to cover deposits at a military bank it operates.

The issue has been strongly divisive, with Navy FCU working in Congress to have the FCU Act amended, military credit unions strongly opposing the move, and America’s Credit Unions not really taking a strong position as it sought to find a way forward on which everyone could agree.

But as has become clear, there was not going to be an agreement, and the divide between not just credit unions but CU trade groups become prominent enough that ACU President and CEO Jim Nussle has released a video explaining the association has been unable to find a calm harbor. America’s Credit Unions now says it opposes Navy FCU’s bid to amend the FCU Act, which prohibits NCUSIF coverage of any non-credit union deposits.

A Simmering Issue

The divide in credit unions has been simmering in Washington almost from the time the $178-billion Navy Federal won a contract in September of 2023 to operate The Community Bank on military bases overseas.

It won the business after Bank of America chose not to seek to renew its contract to operate the bank, which, as Navy FCU told CUToday.info, technically is not a bank and instead represents what are known as Military Banking Facilities (MBFs). In another unusual twist in the arrangement, the Department of Defense is essentially the “bank’s” regulator.

In all, what is now branded as “The Community Bank, Operated by Navy Federal Credit Union” operates 60 MBFs and 272 ATMs on designated DoD military installations. Unable to get NCUSIF coverage, the deposits in The Community Bank are currently insured by Excess Share Insurance, the Dublin, Ohio-based private share insurer.

Working the Hill

Soon after winning the contract, representatives of Navy Federal began meeting with members of Congress about changing the FCU Act. In October, 2023, as CUToday.info reported here, Navy Federal sent a letter to Sen. Jack Reed (D-RI), chairman of the Senate Committee on Armed Services, in which it stated an “issue” with NCUA “threatens to undermine our ability to provide deposit insurance to servicemembers’ accounts in the Overseas Military Banking Program (OMBP).”

Tony Hernandez, DCUC

Congress was soon hearing from other military credit unions, many of which operate branches on bases where Navy FCU also now has a facility, arguing strongly against expanding NCUSIF coverage. The Defense Credit Union Council (DCUC), which under any other circumstances would be expected to close ranks with Navy FCU, was opposed initially to Navy FCU being permitted to operate the MBFs.

It has since been outspoken in its opposition to any changes to the Federal Credit Union Act, as CUToday.info has reported several times, most recently last week when President and CEO Tony Hernandez said, “This is not an overseas issue or even a defense credit union issue. We believe this language could put the industry’s credit union tax-exemption at risk.”

Another Risk

Also at risk: the unified front credit unions typically have in Washington, especially now that there is only one major trade association. It hasn’t just been the DCUC that has been opposed to Navy Federal’s plans. Earlier this year 40 credit unions sent a joint letter to Rep. Juan Vargas (D-CA), who was backing legislation to provide the FCU Act change Navy FCU was seeking, expressing their strong opposition.

More recently, the Cornerstone league illustrated the risk America’s Credit Unions was facing of becoming isolated on issue of the FCU Act amendment, when it shared a letter authored by Tinker FCU that opposed the move and on which Tinker FCU—which was chartered to serve Tinker Air Force Base—was seeking co-signers.

“We at Cornerstone wholeheartedly agree with the stance that Tinker FCU has taken in this letter, in that it addresses the risks that we also see for the entire credit union movement,” the association said. “What’s more, we agree that this issue isn’t just isolated to our defense credit unions, and many of our other members will also have opinion on it. On behalf of Tinker FCU, we invite you to sign on to the letter to America’s Credit Unions. We want to be sure that our national partner hears your voices…”

‘Opposing Viewpoints’

All of that has had America’s Credit Unions attempting to find a middle ground between the world’s largest credit union—it has 13 million members--and the army of opposition, which it’s CEO, Jim Nussle, made clear it has been unable to find.

In a new video, Nussle says he and the trade group have been in multiple discussions related to the disagreement, and while the industry has a “history of cheering for each other and supporting the movement as a whole, this issue has created some opposing viewpoints that could pit one credit union against another credit union.”

“My team and I have been working hard behind the scenes to find a solution that might bridge the gap and cool down the temperature on this issue,” Nussle says. “We didn't find it.”

Nussle said America’s Credit Unions has informed Navy Federal it does not support any plan to amend the Federal Credit Union Act to allow for The Community Bank deposits to be covered by the NCUSIF.

Even for a credit union with Navy FCU’s clout, the fact the measure doesn’t have support from the nation’s CUs puts it in strong doubt.

‘Still in Disagreement’

Jim Nussle speaking in new video.

Nussle further said efforts to craft an alternative amendment and language have not borne any fruit, as many credit unions are “still in disagreement.”

“I'm telling you all this on a video is because I want you to hear it straight from me,” Nussle says. “A controversial issue like this can be damaging to our movement if we don't provide each other just a little bit of grace and support…My team and I are committed to continuing to work on this issue with all of our members. Credit unions always stepped in and stepped up for communities that need us the most. That's why we have our charter, that's why it exists. What better way to prove the importance of our tax status than by stepping up to serve our men and women who are in uniform overseas?”

Turning Focus to Other Issues

Nussle said he believes Navy Federal Credit Union can “effectively operate” the overseas military banking program, and that he understands “some credit unions don't agree with me on that.”

Nussle closed by directing attention to other issues, saying credit unions face “attacks” on income and on the business model, as well as “regulatory overreach.”

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