This week I decided I was going to write my column about NAFCU and the Defense Credit Union Council's objections to the Army and Air Force Exchange Services credit card launch through JPMorgan Chase. I was ready to slam the two groups for hypocrisy in their anti-competitive challenge to the card when credit unions are constantly criticizing the bankers for trying to put credit unions out of business merely to eliminate competition.
But after talking with representatives from both groups, I began to see things differently. They made well-reasoned arguments backed by facts (one of which you'll see later was called into question), and it almost worked.
Neither had evidence that JPMorgan Chase had a history of mistreating members of the military, which was one of my first questions, and did not even attempt to raise that argument.
What NAFCU and DCUC are arguing is that it violates the Department of Defense's regulation limiting financial institutions to just one bank and one credit union on each military installation. The credit union groups have a legal opinion from Defense Finance and Accounting Service, the accounting arm for military personnel issues like AAFES, on their side. The AAFES' attorneys beg to differ and have launched their program without waiting for the opinion of the Defense Department general counsel to which the feuding parties have turned.
First, JPMorgan Chase is not going to plop a branch down on every military base; they are precluded by the reg from doing that. And, I don't see how the AAFES' card is all that different from the soldiers signing up for any old Chase card. It's not like they're hard to come by.
The fact that the troops might feel an "affinity" toward the AAFES-branded card has to be part of AAFES' marketing strategy and play into NAFCU and DCUC's fear.
So where does responsibility factor in--the responsibility of the troops, of the card issuers, of the AAFES, of NAFCU and DCUC?
NAFCU and DCUC are rightly concerned about troop readiness. I can understand how financial stress at home can distract a soldier from his very important and highly dangerous mission. I know that many are young, underpaid and not financially savvy. This is why the on-base bank and credit union provide financial education programs and products and services specifically geared toward the troops.
The soldiers also have to take some responsibility. The financial literacy instructors can talk until they're blue in the face, but that doesn't mean the service member can't walk off base and buy a fire-engine red sports car because the payments are low enough when spread out over seven years. Same goes for credit cards offered at every department store with interest rates in the upper 20s and beyond and in every mail box with credit limits in the thousands of dollars.
Creditors share some of this responsibility, too. I'm skeptical but hopeful that the one lesson lenders take away from the subprime crisis is to place the importance of solid underwriting over profits. Certainly, a service member making $2,000 a month (or a lot less) with a spouse and two kids to support making two car payments of $400 each shouldn't carry a lot more debt. But then, the car breaks down and that individual uses a credit card to pay for repairs. When the borrower can't pay even as much as the interest added each month on that card, the creditor shouldn't be that surprised when it spirals out of control. Or if one of the cars is wrecked and the borrower is upside down in a six or seven year loan term, should the lender really expect the borrower to be able to pay on the loan for the useless hunk of metal plus another one to replace it?
As far as AAFES is concerned, it was also organized to help the troops out with lower cost goods and already offered a private label card. AAFES also said it offers an affinity card, which NAFCU claimed it has been unable to produce, but DCUC Executive Director Roland Arteaga has said he is aware of it. (These two that have joined up to fight this card really ought to be on the same page.) AAFES said it is just combining the two, and I'm not sure I see the problem. And the AAFES returns the bulk of its profit to service member services.
I openly admit that I'm a civilian and there could be a cultural aspect of the fight I'm missing but, from where I stand, NAFCU and DCUC are seeking to lock out competition. However, I applaud the groups for explaining their position to me and I do think I have a better understanding of where they are coming from.
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