Credit Union Associations Take Up Arms Against Military Retailer's Card
WASHINGTON -- NAFCU and the Defense Credit Union Council are fighting part of the Defense Department over whether it can issue a credit card through an agent issuing program with a bank.
A spokesman for the Army and Air Force Exchange Services (AAFES) described the military retail and entertainment organization as a "military command with a retail mission." Active duty and retired military personnel by goods and services at the more than 140 AAFES retail outlets worldwide, buy food at the more than 2,200 fast food outlets the command owns, and manages and shops at the temporary facilities the command maintains for front line troops in Iraq and Afghanistan.
As a military command, AAFES functions as a not-for-profit, returning much of its income (the command says two-thirds but critics sometimes doubt that) to military morale, welfare and recreation programs on bases, including things like swimming pools and other facilities.
In its role as a retailer, AAFES drew the ire of military credit unions represented by the Defense Credit Union Council and NAFCU when it announced an intention to begin issuing a credit card through an agent program with JP Morgan Chase.
According to an AAFES press release, the Military Star Rewards MasterCard will build on the existing Military Star card program, a private label card program that military personnel can use in much the same way as they would use any other private label card, solely at AAFES facilities or on AAFES Web sites. Because it would carry the MasterCard logo, cardholders would be able to use the card off base as well.
Introduced in early 2008, the Military Star Rewards MasterCard program offers more possibilities with the ability to earn two points per dollar for qualifying "on installation" purchases and one point per dollar for qualifying purchases made "off installation," the AAFES release said.
"The new co-branded card will also incorporate flexible reward options that can be redeemed with as little as 2,000 points. Once approved, account holders will be mailed a complete catalog of reward options such as cash back, free airline tickets and even exchange gift cards," AAFES added.
But NAFCU and the DCUC objected, charging that the new card program would violate a number of different Department of Defense regulations, the principal one being a rule that disallows having more than one credit union and one bank serving any one military installation.
"The JP Morgan Chase MasterCard has already been advertised both at AAFES retail outlets and their Web site," NAFCU wrote in a May 7 letter to Defense Department Comptroller Tina Jonas. "It is not an internal AAFES retail outlet credit program. It is a full-fledged bank-issued credit card product. The issuance of this MasterCard from AAFES and the processing of credit products adds a third financial institution to the base financial services in direct violation of [department regulations]," NAFCU added.
The regulation allows only one credit union and one bank to serve any one military installation, and because AAFES has partnered with J.P Morgan Chase, the credit union associations argue it effectively brings another bank onto the scene.
NAFCU also charged that the AAFES effort to market the card violated other similar military regulations, and NAFCU's director of legislative affairs, Javier Sanchez, suggested that AAFES has already been told to stop moving forward with the card by the Defense Finance and Accounting Service, the accounting arm for military personnel issues like AAFES.
"We know that DFAS agrees with us and they aren't the only ones, so we are not sure why they are still going forward," Sanchez said.
But Roland Arteaga, CEO of the DCUC, said the matter was not that simple, even though he agreed with Sanchez that a legal opinion from DFAS lawyers came down firmly against the card, AAFES lawyers responded with a legal opinion in favor of it.
"So now we have dueling legal opinions," Arteaga said. He suggested that the issue is not falling into the usual bank vs. credit union battleground since his counterpart on the banking side is also on record as opposing the deal on the same grounds.
For its part, AAFES maintains that it has issued an affinity card with a series of banks since 1987, and that, despite what its press release said, the program is not substantially new.
"Since 1987 AAFES has offered both an Affinity MasterCard and Military Star Card," said Lt. Colonel William Thurmond, spokesman for AAFES. "AAFES is simply combining these lines of credits into one simple, convenient piece of plastic."
Thurmond also said that AAFES has a right to market its goods and services and denied that the card would bring a second bank onto the bases where it was offered.
But Sanchez was openly skeptical of the claim, noting that he had never heard of an AAFES MasterCard, only the Star Card, to which, he stressed, NAFCU did not object.
Neither legal opinion from DFAS or AAFES were made public, and both Sanchez and Arteaga agreed that the matter rests in the hands of Defense Departemtn Comptroller Jonas. "She's got it and she will eventually make a decision," Arteaga said.