Through the many conflicts our service members have fought over the years, banks that provide financial services on military installations have been a constant and positive presence in the communities they serve.
But military banks now face a compounding set of challenges not only from the regulatory costs hitting all institutions but also increased expenses from operating agreements and leases required by the Department of Defense.
Banks are gradually being forced to close their military branches because they cannot afford to keep them open. Since 2004, almost one-third of Defense installations — 39 of 130 — have seen their military banks close, in part because of increasing lease and service costs. Of the military bank branches still operating on 91 military bases, at least five more will close before the end of 2015.
But there are immediate steps both Pentagon officials and lawmakers can take to reverse that trend. Specifically, policymakers should eliminate banks' obligation to pay rent to operate on a military installation, an obligation that credit unions do not have.
By occupying facilities directly on a military installation, military banks proudly provide services to troops and their families who face unique financial challenges.
Whether a military parent's deployment separates a family, a junior service member struggles under the weight of debt incurred as a result of frequent moves or a community gathers around families whose loved ones have made the ultimate sacrifice, military banks are there to provide financial relief.
Federal regulators recognize the support military banks provide our men and women in uniform. One of their concerns is the prevalence of predatory lenders in close proximity to our troops and their families. Military banks and credit unions are widely seen as effective antidotes to the payday lenders camped outside the gates of most military bases.
On top of its role overseeing military policy, the Department of Defense is also an unlikely bank regulator, supervising military financial institutions through contracts called "operating agreements." Two very important provisions of those contracts establish requirements that distinguish military banks from non-military banks.
First, as a condition of doing business on an installation, each military bank must agree to provide basic financial education to the base population. Here, "population" means everyone assigned to the base, not just the bank's customers. Getting young troops to understand financial management requires sustained, face-to-face education and support that begins at basic training and extends throughout a military career.
It is a benefit that will become even more important if the significant military pay reforms proposed by the recent Military Compensation and Retirement Modernization Commission become law.
For example, among its recommendations is the establishment of a defined contribution retirement program which will give the youngest service members access to funds that will become tempting to withdraw unless they are advised — early and often — of the adverse consequences.
Second, the operating agreement establishes fees military banks must pay for the facilities they occupy and the services they use, such as utilities. Banks must even pay for the "market value" assessments the Pentagon uses to set those fees. For many years, these expenses were reasonable. Lately, they have become more than some military banks can bear.
If these trends of increasing costs and the resulting exodus of banks from military installations continue, it's not hard to imagine the extinction of military banking. Our association's number one goal is to reverse both trends. Our first step has been to engage the Defense Department. It understands and values the role military banks play in the communities they serve. More important, it realizes how their continuing departure from military bases presents a very real danger at a time when the financial readiness of our forces is more critical than ever.
Although we hope DoD will exercise its discretion to eliminate lease costs, we know we ultimately need legislative relief. Such legislation must provide that a bank allowed to operate on military property may do so without charge for rent or services. This is not unreasonable; it's similar to a provision in the Federal Credit Union Act that allows credit unions to operate rent-free on military bases. Language like this would not only enable most military banks to continue operating on military bases, but we hope it would also encourage banks to fill existing vacancies by establishing new branches.
The banking industry, the federal government, and our military communities are partners at a crossroads. The road we're on will drive more banks off bases at a time when their roles are becoming even more critical. The other road — one clearly defined by policy and legislative changes — will mend and strengthen the fabric binding military banks to military communities. We hope our partners will help us travel the second road.
Steven J. Lepper, a retired major general in the Air Force, is president and chief executive officer of the Association of Military Banks of America.