WASHINGTON -- NAFCU is taking a fight over the issuing of a cobranded credit card on U.S. military bases to Congress.

The association has written Rep. Carolyn Maloney (D-N.Y.) chairman of the Subcommittee on Financial Institutions and Consumer Credit, to raise the issue of the Army and Air Force Exchange Service partnership with JPMorgan to offer a MasterCard-branded credit card.

"As you know, on base financial institutions (both banks and credit unions) already provide a full panoply of financial services to the armed services and their families under a contract with each base (to include credit cards)," NAFCU wrote. "The on base banks and credit unions are able to develop a relationship with our men and women in uniform and their families and provide them with the necessary financial education 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 JPMorgan, which can and will lead to more debt, without an upside of promoting savings [and] good financial habits," NAFCU added.

The AAFES has cut a deal with JPMorgan to issue a cobranded MasterCard credit card through an agent relationship. Although details about the contract have not been disclosed, such relationships generally mean the bank will own the receivable accounts from the card and AAFES will take a share of the card's interchange and other income.

According to an AAFES press release about the card, 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, card holders 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 base, the AAFES release said.

"The new cobranded 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 both NAFCU and the Defense Credit Union Council objected, charging that the new card program would violate a number of different Department of Defense regulations, the principal one being a rule which disallows having more than one credit union and one bank serving any one military installation.

The credit union position was further bolstered by legal opinions which from the Defense Finance and Accounting Service, which reportedly found the new card in violation of the same regulations, though the opinion was never released to the public.

For its part, AAFES maintained that the new card is not really new but simply an upgrade to an existing, privately labeled, charge card that it offered it military customers for some time. As such, the exchange said, it was in place before the rule barring a base from having more than one credit union and one bank serving any one military base. The competing legal opinions and controversy rose to the level of Department of Defense Comptroller Tina Jonas who decided on the side of AAFES in letter to NAFCU that arrived June 23.

NAFCU's letter to Maloney represents an appeal of Jonas' decision to Congress. NAFCU has worked with Maloney on efforts to protect service members from what critics have charged are predatory lending practices NAFCU Associate Director of Legislative Affairs Javier Sanchez, did not say whether she had been contacted previously on this particular issue.

Sanchez argued that NAFCU is particularly concerned by the precedent set by enabling a bank to circumvent parts of federal law enacted to protect service members from predatory lending by offering a product though the exchange system.

"We really don't understand the military market for this card," Sanchez said, pointing out that the majority of service members are not at a pay grade that would make them good prospects for additional credit card debt. "We are concerned that the only way the exchange makes money from this card is through further indebtedness of service members and their families," Sanchez added.

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