Navy Federal Gets Overseas Bank Contract, but NCUA Can’t Insure Deposits

Credit union trade group says contract should be voided.

David Baumann


Oct 13



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David Baumann

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David Baumann

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Navy Federal Credit Union logo

The Defense Department has awarded a contract to operate the Overseas Military Banking Program to Navy Federal Credit Union, but there is one lingering problem—the NCUA said it cannot insure the credit union accounts in the program.

The Overseas Military Banking Program provides banking and financial services through the operation of Community Bank—a partnership between the DoD and a financial institution. The program offers traditional banking services and country-specific banking services to make banking easier while personnel serve overseas. It provides access to foreign currency, ATMs, savings and checking accounts, and other products.

Bank of America operated the program for more than 40 years.

On Sept. 25, Navy Federal was awarded the contract, which includes a transition period, followed by a base year and eight additional one-year options.

Navy Federal said it plans to operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific.

NCUA Can’t Insure Accounts

However, an NCUA spokesperson said that the NCUA—the agency that insures Navy Federal accounts—cannot insure accounts under the new program.

“As the program is currently proposed, insuring those accounts through the National Credit Union Share Insurance Fund would not be permissible under the Federal Credit Union Act,” a spokesperson said. “The NCUA continues to engage with the Department of Defense in their efforts to ensure a successful transition of the Overseas Military Banking Program.”

It currently is unclear what agency would insure the accounts.

DCUC Warned Pentagon

The Defense Credit Union Council warned the DoD about the issue even before the contract was awarded.

The council, in an Aug. 23 letter signed by President/CEO Anthony Hernandez, said that there would be significant problems if a credit union were to be selected to operate the program.

“There are explicit legal, contractual and regulatory mandates which restrict a credit union’s ability to obtain deposit insurance if selected for the overseas banking contract,” he wrote to DoD Under Secretary Michael McCord.

He cited sections of the Federal Credit Union Act, which states, “In general, no insured credit union may be sponsored by or accept financial support, directly or indirectly, from any Government-sponsored enterprise, if the credit union includes the customers of the government-sponsored enterprise in the field of membership of the credit union.”

He added that executing a contract without deposit insurance would be “unconscionable,” and that it would threaten the financial readiness of servicemembers.

What Now?

In an interview, Hernandez said, “DoD should rescind the award since it lacks federal deposit insurance, fix the contractual terms and restart the bidding process.”

In his letter, Hernandez suggested that if DoD did not rebid the contract, the DoD could enlist the support of those credit unions already located on overseas bases without the need for an all-encompassing contract.

Transition Period Cited

When asked how Navy Federal will resolve the issue, a spokesperson said the overseas bank program aligns with the credit union’s strategy and core values.

“The contract was awarded in two phases,” the spokesperson said, in a statement. “During the transition-in phase customer accounts will continue to be backed by the current contractor.  Per the contract award, Navy Federal will begin the second, operations phase, to support the OMBP on 1 April 2024, providing ample time to work alongside the Defense Finance Accounting Service (DFAS) to [ensure] the safety and soundness of the deposits when Navy Federal assumes responsibility.”

The statement did not address how that might be accomplished.

ICBA’s View

As is often the case with controversies in the credit union industry, a banking trade group has weighed in, as Independent Community Bankers of America President/CEO Rebeca Romero Rainey noted that under the contract, Navy Federal’s overseas operation would be known as “Community Bank.”

“While imitation is the sincerest form of flattery, Navy Federal appears to be trying to mask the fact that it is a global financial institution that does not pay taxes or meet the same level of regulatory standards as real community banks,” she said. “Community bankers don’t buy it, and neither should policymakers.”

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