WASHINGTON-As the nation pauses to honor its military veterans, the credit unions who serve the military are looking to defend their honor.

A recent study by the Pew Charitable Trusts criticized the practices of credit unions and banks that operate on or near military bases, drawing a strong reaction from the head of the Defense Credit Union Council.

The report targeted the fees FIs charge service members, the completeness of disclosures, and practices such as the high-to-low reordering of transactions. It argued that consumer protections are especially important for members of the military, many of whom are selecting a checking account for the first time.

The report looked at more than 100 credit unions and more than 30 banks with branches on or near military bases.

Arty Arteaga, president and CEO of the DCUC, dismissed the report as "erroneous."

"I am shocked at the figures they are throwing out there, specifically the allegation that three-quarters of credit unions reorder transactions to create overdrafts," he told Credit Union Journal. "As of [Nov. 4] I have received 65 responses from our active members, and 97% say they process transactions in the order received, or from low to high."

Arteaga said he asked Pew to forward him the data the organization used to compile its figures. "[Pew] said 27 of the websites explicitly said they were not reordering high to low, two were high to low, but 82 were ambiguous, thereby leaving open the possibility. That is where they came up with the 75% figure-they made an assumption."

"I did not look at the websites, I asked our members for feedback," he added.

Arteaga said the average overdraft fee Pew cited for credit unions-$29-was a little higher than the average he came up with when he polled some DCUC members: $27.

But Arteaga's biggest dispute, he said, is with the overall negativity of the report. "Our folks are not doing anything that is even close to being predatory, which Pew was suggesting," he declared. "We are doing everything by regulation, within the law.
The accusation of reordering was shocking to me. We are there to serve military folks, and no one does that mission better than credit unions."

Arteaga said after speaking with a large number of DCUC-member credit unions, he immediately shared his information with all of the trade group's liaisons at the Department of Defense.

"They have acknowledged my position and agree that credit unions are not reordering transactions," Arteaga said.

Navy, PenFed Defend Practices

Two of the largest credit unions that primarily serve the military, $62 billion Navy Federal Credit Union, Vienna, Va., and $18 billion Pentagon FCU, Alexandria, Va., told Credit Union Journal they keep their members’ best interests at the forefront of what they do.

Michael Christian, Navy FCU’s AVP of savings and checking products, said the credit union is “proud to assist members of the military in avoiding fees, providing financial literacy and offering products specifically designed to help them manage their daily finances.”

“Navy Federal’s overdraft fees and policies are competitive, and our programs are designed to help members in responsible money management,” he said. “We will continue to monitor the regulatory environment, however, at this time we stand behind our overdraft program, as we do all of our products and services.”

Lisa Jennings, senior executive vice president for Pentagon FCU, said, “PenFed has consistently championed low fees and transparency to its members. Indeed, the institution’s fees are among the lowest in the credit union community. PenFed has also collaborated with consumer advocate groups, as well as the Consumer Financial Protection Bureau.”

With regard to overdraft charges specifically, Jennings said PenFed processes items in a way “procedurally designed to minimize fees to the member.” She said the CU has instituted “multiple opportunities for items to clear” rather than to be rejected.

“Illustratively, for military members there is a special program, Warrior’s Advantage, which ensures their items will clear,” Jennings explained, adding enrollment is automatic. “Additionally, the institution has a policy to pay items where there are funds in other accounts or a deposit is scheduled or expected.

“At PenFed, we always look for opportunities to provide value and service to our members,” Jennings added.

The Critique

Among the criticisms cited in the Pew study:

  • Only 2% of CUs and half of banks operating on domestic military installations have adopted a disclosure box meeting Pew's standards.
  • Most of these banks and CUs charge a fee for using out-of-network ATMs.
  • Most of the institutions studied disclose some overdraft and ATM fees, but few disclose all fees.
  • Most of the banks but only about one- fourth of the CUs do not reorder ATM or point-of-sale transactions by dollar amount.
  • Most of the FIs studied disclose some overdraft and transaction processing practices, but few offer complete information.
  • Most banks but few CUs require binding arbitration.
  • Most of the CUs studied do not limit customers' dispute resolution options, but most of the banks do.


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