WASHINGTON -- NAFCU is taking a fight over the issuing of acobranded 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 ConsumerCredit, to raise the issue of the Army and Air Force ExchangeService partnership with JPMorgan to offer a MasterCard-brandedcredit card.

"As you know, on base financial institutions (both banks andcredit unions) already provide a full panoply of financial servicesto the armed services and their families under a contract with eachbase (to include credit cards)," NAFCU wrote. "The on base banksand credit unions are able to develop a relationship with our menand women in uniform and their families and provide them with thenecessary financial education to establish and maintain goodcredit, as well as determine the financial products that are rightfor them. This is in direct contrast to the credit card beingoffered by JPMorgan, which can and will lead to more debt, withoutan upside of promoting savings [and] good financial habits," NAFCUadded.

The AAFES has cut a deal with JPMorgan to issue a cobrandedMasterCard credit card through an agent relationship. Althoughdetails about the contract have not been disclosed, suchrelationships generally mean the bank will own the receivableaccounts from the card and AAFES will take a share of the card'sinterchange and other income.

According to an AAFES press release about the card, the MilitaryStar Rewards MasterCard will build on the existing Military Starcard program, a private-label card program that military personnelcan use in much the same way as they would use any other privatelabel card, solely at AAFES facilities or on AAFES Web sites.Because it would carry the MasterCard logo, card holders would beable to use the card off base as well.

Introduced in early 2008, the Military Star Rewards MasterCardprogram offers more possibilities with the ability to earn twopoints per dollar for qualifying, on-installation purchases and onepoint per dollar for qualifying purchases made off base, the AAFESrelease said.

"The new cobranded card will also incorporate flexible rewardoptions that can be redeemed with as little as 2,000 points. Onceapproved, account holders will be mailed a complete catalog ofreward options such as cash back, free airline tickets and evenexchange gift cards," AAFES added.

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

The credit union position was further bolstered by legalopinions which from the Defense Finance and Accounting Service,which reportedly found the new card in violation of the sameregulations, though the opinion was never released to thepublic.

For its part, AAFES maintained that the new card is not reallynew but simply an upgrade to an existing, privately labeled, chargecard that it offered it military customers for some time. As such,the exchange said, it was in place before the rule barring a basefrom having more than one credit union and one bank serving any onemilitary base. The competing legal opinions and controversy rose tothe level of Department of Defense Comptroller Tina Jonas whodecided on the side of AAFES in letter to NAFCU that arrived June23.

NAFCU's letter to Maloney represents an appeal of Jonas'decision to Congress. NAFCU has worked with Maloney on efforts toprotect service members from what critics have charged arepredatory lending practices NAFCU Associate Director of LegislativeAffairs Javier Sanchez, did not say whether she had been contactedpreviously on this particular issue.

Sanchez argued that NAFCU is particularly concerned by theprecedent set by enabling a bank to circumvent parts of federal lawenacted to protect service members from predatory lending byoffering 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 arenot at a pay grade that would make them good prospects foradditional credit card debt. "We are concerned that the only waythe exchange makes money from this card is through furtherindebtedness of service members and their families," Sanchezadded.

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