Updated June 2013
Congress passed the Budget Control Act of 2011, to force a compromise on budget cuts to ensure the fiscal stability of the country. This legislation contained a provision that would force across the board budget cuts, otherwise known as sequestration, for the Department of Defense as well as other agencies if Congress was unable to agree on compromise legislation to implement cuts of the same magnitude. Unfortunately, Congress was not able to come to a compromise and the harsh nonsensical budgets cuts were triggered on March 1, 2013.
The draconian budget cuts did not going into effect immediately. The cuts have been implemented on a gradual basis and the full effects of sequestration will not be felt until the middle of the summer.
To adjust for the draconian budget cuts imposed by the Budget Control Act, DoD initially proposed furloughing many of the 800,000 civilians it employs for a total of 22 days.
Fortunately, Congress passed, and the President signed into law on March 26, a compromise Continuing Resolution to fund the government through the rest of FY2013. Consequently, the fear of a government shutdown, in which servicemembers would be directly impacted, was alleviated. However, the Continuing Resolution did not resolve sequestration.
The Continuing Resolution did not remove the sequester cuts or replace them with more sensible cuts, it did allow for some flexibility with regard to how to implement the cuts. As a result, Defense Secretary Chuck Hagel has announced that the number of furlough days before the end of the fiscal year is being reduced from 22 days to 14 days, and the furloughs which were scheduled to begin in April will now not begin until the middle of June. The number of furlough days was revised once again to 11 days. DoD Comptroller Robert F. Hale, however, announced in a speech on April 1 that furloughs will not continue next fiscal year.
DoD civilian employees will face a financial hardship, and NAFCU recommends that credit unions provide assistance to your members affected. If you are offering special assistance and have not notified NAFCU of it, please send along any information you have to NAFCU Associate Director of Legislative Affairs and Military Liaison, Quincy Enoch at email@example.com.
Financial services of all kinds provided to servicemembers have become
a point of emphasis for consumer advocates. This combined with the efforts of CFPB’s
Office of Servicemember Affairs has raised awareness of the financial challenges
facing servicemembers. This has had both positive and negative consequences.
The new focus on the financial services provided to those in the
military has shown a light on the exemplary fashion in which defense credit
unions serve the members of the military and their families. From the
innovative ways credit unions are delivering financial education to providing
safe short term credit products, defense credit unions are responding to the
needs of servicemembers all around the world.
Unfortunately, it has also led many with good intentions to pursue
remedies to the financial challenges facing servicemembers that would
ultimately restrict access to products and services available to
Some of these issues came up during the FY2013 National Defense
Authorization Act debate. Changes to both the Military Lending Act (MLA) and
Servicemembers’ Civil Relief Act (SCRA) were proposed in the legislation. While NAFCU did not actively oppose the great
majority of the provisions, there were provisions that raised concerns. NAFCU
voiced those concerns and they were addressed during the conference report
stage of the process.
The conference report removed some troubling provisions in the Senate
NDAA which include:
- Requiring DoD to
prescribe policy on all installment loans to servicemembers (under this
proposal DoD could have placed any installment loans at your credit union
under definition of consumer credit and subject them to the caps under the
Military Lending Act).
- Revising the
definition of consumer credit to include vehicle title loans and payday
loans for any duration whether they are open-end or closed-end credit
(Still leaves DoD authority to include other products within definition).
DoD currently has the power to revisit the Military Lending Act
regulations as needed, and DoD is currently conducting a review of the
regulations to ensure servicemembers are protected from predatory lenders which
is the approach NAFCU supports. The provisions above may have forced DoD to
write regulations that could include products that are not predatory and not
intended to be covered by the Military Lending Act, such as overdraft
Additionally, the conference report removed all the provisions in the
House NDAA regarding the Servicemembers’ Civil Relief Act (SCRA) which included:
- Extending SCRA
mortgage protections to:
serving in combat areas and for a year after redeployment.
spouses for a year after the servicemembers death.
disabled veterans for a year after the end of their service.
- Requiring all
financial institutions to designate a SCRA compliance officer.
- Requiring all
financial institutions above $10 billion in assets to maintain a toll free
servicemembers that are forced to relocate as a result of military service
to refinance their mortgages at owner occupied rates.
The SCRA language included in the House bill and removed in conference
had significant implementation problems, and it would have been costly and
virtually impossible for credit unions to comply with the provisions. The
Veterans’ Affairs Committee is looking at addressing those implementation
problems and may take up similar legislation in the next Congress.
Some of the provisions that were ultimately included in the final
conference report are changes to the Military Lending Act. These changes will:
- Clarify a provision
that states that servicemembers cannot be charged more than is allowed by
state law for residents.
- Require DoD to consult
with financial regulators when first prescribing regulations and once
every two years thereafter.
- Add civil liability to
list of penalties under MLA - including actual damage, appropriate
punitive damages and appropriate equitable or declaratory relief (Provides
safe harbor for bona fide errors).
- Give enforcement authority
for current MLA regulations to the CFPB and NCUA.
Base Realignment and Closure (BRAC)
At the beginning of the year the Pentagon requested two rounds of BRAC authority from Congress for 2013 and 2015. The last BRAC took place in 2005, and the BRAC ‘05 Commission recommend that the next round of BRAC take place in 2015. In addition to this recommendation, the recent military funding cuts imposed by the Budget Control Act and the shift in overall military strategy are also driving forces behind the request for authority for 2013 and 2015.
The 2013 request seems very unlikely. Sen. Claire McCaskill (D-Mo), chair of the Senate Armed Services Subcommittee on Readiness and Management Support, said in a hearing last month that BRAC is an area “where there is absolutely no room for compromise this year.” She said she would not support a BRAC process for 2013 (The Hill, March 21). It is much more likely, however, for a mandated Congressional study on the impact of an additional BRAC to be granted instead.
While the timing in which Congress may grant BRAC authority is uncertain at best, the Pentagon is preparing for a host of possible scenarios, as BRAC is likely to advance in the next few years. Credit unions with a significant military membership base should be aware of interaction between the Pentagon and Congress on this issue and begin to plan accordingly.
Consumer Financial Protection Bureau (CFPB) - Office of Servicemember Affairs
On December 13th, 2011 the Office of Servicemember Affairs held a Financial Fitness Forum to examine the financial needs of servicemembers and the best methods to fulfill those needs. The goal of the forum was to have industry share methods in which they are able to serve the military in an exemplary fashion. The complete agenda for the program and links to the available archived sessions of the program are below.
Among the issues discussed were methods to provide financial literacy in forms that would be most effective for the young servicemembers of today. It was acknowledged that the methods of the past will no longer work, and Senior Enlisted representatives from the various branches, as well as CFPB noted that technology must be harnessed to truly capitalize on the value financial literacy information available.
A number of NAFCU members participated in the program on panels including Service Credit Union, Pentagon Federal Credit Union, Pacific Marine Credit Union, and Navy Federal Credit Union. CFPB and particularly the Office of Servicemember Affairs has indicated it is looking forward to working the credit union industry to help set the bar for excellence in providing financial services.
OSA Financial Forum Agenda
The Battle on the Homefront: Personal Financial Readiness of the Military Force
Deputy Assistant Secretary of Defense Robert Gordon's Remarks
The First Lady's message
In an effort to promote the partnership between the CFPB and military leadership, the CFPB and the Judge Advocate Generals of the all the branches and the Department of Defense released a Joint Statement of Principles on July 6th, 2011.
The Judge Advocate Generals and the CFPB, among other things, will work together to identify potential violations of federal consumer financial laws and establish a single point of contact within the CFPB’s Enforcement Division that will allow members of the Judge Advocate Generals’ Corps to share information on consumer complaints from servicemembers and military families. In addition, the Offices of the Judge Advocate Generals and the CFPB – including its Office of Servicemember Affairs and Enforcement Division – will create a formal working group with the goal of achieving a coordinated response to unlawful conduct targeted at servicemembers and their families.
The Office of Service Member Affairs, which was established along with the CFPB by the Dodd-Frank law, will partner with the Department of Defense to bolster financial education, address complaints and questions about financial issues, and work with federal and state agencies to strengthen consumer protection efforts for military families. Holly Petraeus, wife of General David Petraeus, is the head an office within the Consumer Financial Protection Bureau specifically focusing on military service members and families.
Petraeus previously served as director of the Better Business Bureau’s Military Line program, a partnership with the Department of Defense Financial Readiness Campaign. In that position, Petraeus was responsible for providing consumer education to active and retired service members and their families. She also has experience as a volunteer leader in military family programs, working with local, state, and national legislators on issues affecting Army families.
Elizabeth Warren, special assistant to the president and advisor to the Treasury Secretary on the CFPB, said Petraeus’ experience, which also includes being a military spouse for over 35 years, provides her with a special understanding of the "unique financial obstacles" that men and women in the armed forces face. Warren concluded that these qualifications make Petraeus "the perfect person to guide the establishment of the office."
The CFPB became operational on July 21, 2011.
Servicemembers’ Civil Relief Act (SCRA)
SCRA as amended October 2010
The Servicemembers Civil Relief Act (SCRA), formerly known as the Soldiers’ and Sailors’ Civil Relief Act (SSCRA), is a federal law that provides protections for military members as they enter active duty. It covers issues such as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, automobile leases, life insurance, health insurance and income tax payments.
Several of the big banks have been involved in scandals in which they have violated the rights of servicemembers by foreclosing on their home while they were serving our nation both at home and in some cases abroad in combat areas. While we know that credit unions would never commit unscrupulous acts such as these, we have been told by Department of Defense that in many instances of SCRA violations they are committed unknowingly. At NAFCU, we are committed to keeping you educated on this important issue and potential changes that could be made to the statute. If you have questions, please do not hesitate to contact our compliance staff.
DMDC Active Duty Database
The campaign to build wealth and reduce debt could not be more timely. A healthy savings account and a low-to-no debt load is a military family's best approach to overcoming these challenging economic times. Military members' solid benefits and steady paychecks present them with a terrific opportunity to increase their savings and lower their debt each month.
Military Saves is a collaborative effort by the military services, the Department of Defense, non-profit organizations and associations, and financial institutions to provide both a favorable climate for saving money and the attractive accounts in which to save in. People buy what they are offered and Military Saves financial institutions offer military families the absolute best in savings and investment products. The quality and variety of products offered by defense credit unions gets bigger and better every year. In our third year of involvement with the campaign, we have expanded our scope and messaging. We would like to applaud our credit unions for matching our efforts with unbeatable incentives, returns, and member care.
The 2012 Military Saves Week is February 19-26.
Materials are available at: http://www.militarysaves.org/resourcekit/default.asp
AAFES/JP Morgan Chase Credit Card
NAFCU has been working with the Department of Defense (DoD) and Congress to ensure the AAFES/JP Morgan Chase Credit Card does not violate longstanding DoD regulations.
Many members of Congress along with the individual services have expressed concern over the violations of DoD regulations. It is our belief that this card is in violation of DODI 1000.11 par. 4.a, also known as the one bank, one credit union rule. By advertising and providing the application for this card, AAFES adds a third financial institution to the base financial services which violates DODI 1000.11 par. 4.a.
We also hold that as stated in the DoD Financial Management Regulation (FMR), Volume 5 Chapter 34, 340403, Military Exchange Services cannot distribute literature from off-base financial institutions if there is an on-base financial facility. Furthermore, the DoD FMR Volume 5 Chapter 34, 340410-A stipulates that retail banking operations shall not be performed by any DoD component or non appropriated fund instrumentality including the Military Exchange Services and MWR activities.
NAFCU has obtained a copy of the agreement between AAFES and JP Morgan Chase regarding the product, and we will continue to pursue a resolution to these violations of DoD regulations.
Credit unions provide a full range of financial services to the armed services and their families under a contract with each military base. The on-base credit unions develop relationships with our men and women in uniform. These relationships allow credit unions to provide servicemembers with the financial education needed to establish and maintain good credit, as well as determine the financial products that are right for them. This is in direct contrast to the credit card being offered by AAFES, which fails to promote the importance of savings and good financial habits as tools to avoid accumulating more debt.