New guidelines approved by the Department of Defense last week for the operation of on-base financial institutions gives credit unions a leg up on their competitors in several areas.
The new guidelines-dubbed a DOD "instruction," rather than a "directive"-will require that all financial education for military facilities be conducted through pre-authorized defense credit unions or military banks.
Otherwise, all financial solicitations, such as the sale of insurance products, must be specifically approved by base commanders.
The new Instruction also prohibits the distribution of literature that competes with on-base credit unions or banks.
It will also require all credit unions and banks operating on base to provide financial counseling services-already a major focus of credit unions-as a key component of their financial services offerings. If the credit union or bank operating on base sells insurance or securities or has any affiliation with a company selling those products the base commander shall consider the credit union's, bank's or company's history of complying with the rule before authorizing them to provide financial education.
"The new instruction goes about as far as you can go in giving credit unions a franchise on-base, as far as providing financial education," said NAFCU President Fred Becker, during the annual Defense CU Summit at last week's NAFCU Convention. "Being a credit union comes with special privileges and a special responsibility you have for being there."
The DOD Instruction, which was more than five years in the making, was prompted by ongoing reports of payday lenders and other predatory financial practices, such as fraudulent life insurance sales, preying on military personnel, according to Becker, whose group lobbied on behalf of the new guidelines.
As a result, the instruction:
* requires base commanders to check with appropriate state or federal regulators to determine a sales agent's license status and complaint history before granting access to the base;
* requires commanders to report incidents involving licensing, compliance with state or federal laws, or how products are marketed, to the proper regulatory authority;
* requires DOD to create a master list, like the Securities and Exchange Commission has, of so-called bad boys, those agents or marketers who have prior records of malfeasance or violations, in order to inform potential customers;
* allows commanders to bar individuals from on-base solicitations;
* bars insurance products from being marketed as investments;
* requires that commercial life insurance products contain written notices to service members of the availability and cost of government subsidized Servicemen's Group Life Insurance;
* bars solicitors from contacting DOD personnel using a government phone, fax or email unless specifically authorized to do so;
* bars the use of commercial sponsorship of DOD welfare, morale or recreation programs to obtain personal contact information;
* requires Installation Finance Officers to enforce a seven-day cooling off period before processing life insurance pay allotments;
* sets guidelines for on-base financial institutions to provide financial education programs;
* requires installation financial counselors to encourage DOD personal to seek legal assistance or other advice from a disinterested third-party before entering into a contract for insurance or securities.
"We were trying to see what we could do that makes sense that would benefit military personnel," Col. Michael Pachuta, director of the Pentagon's Office of Morale, Welfare and Recreation in the office of the Under Secretary of Defense, told the Defense CU Summit. "We played no favorites."
The final guidelines were approved as an Instruction, instead of a Directive, because the DOD has decided against issuing so many Directives, as it has in the past, said Col. Pachuta. But the Instruction has the same force as a Directive.
Final passage of the Instruction comes as Congress is considering several bills that would codify as law several of the same principles. Separate bills pending in the House and Senate would, for example, authorize state insurance regulators to oversee the sale of insurance products on military bases; bar investment companies from issuing periodic payment plan certificates, similar to mutual funds, which have high up-front fees and penalties; and require that all military personnel be informed of the availability and cost of federally subsidized insurance before the sale of private insurance.
The new DOD Instruction is effective immediately.
