Service Members Deserve More Transparency From On-Base Banks, Credit Unions

The Military Lending Act attempts to shield military personnel and their families from some predatory lending practices, but a new report from the Pew Charitable Trusts claims that some traditional banks on military bases are nickel-and-diming members of the armed forces with excess overdraft fees, and a general lack of transparency.

Pew’s latest report [PDF], Checks and Balances, Stars and Stripes, found that while some banks and credit unions on military bases employ practices to provide transparency and protect consumer they could do more.

Because military personnel are required to receive their paychecks via direct deposit, it makes opening and maintaining a checking account crucial to their financial well-being.

Unlike some consumers who may have a plethora of options to choose from when looking for banks and credit unions, many active duty military members face unique circumstances such as being deployed or moving frequently between bases that limit their access to banking institutions.

Additionally, under federal regulations, only one bank and one credit union are permitted to operate on a Department of Defense installation at any time, further limiting military members’ options for banking.

For these reasons, officials with Pew says it’s even more important for banks and credit unions that cater to military members and their families to have policies that promote transparency and protect account holders from unsafe and hidden practices and costs.

In the report, Pew analyzed the checking accounts offered by 18 of the 31 Association of Military Banks of America (AMBA) on-installation member banks and 111 of the 134 the Defense Credit Union Council (DCUC) on-installation member credit unions—which, because they are located on Department of Defense bases, primarily cater to service members and their families.

The study found that 42% of banks and 17% of credit unions failed to provide any disclosure information online, making it extremely difficult for deployed service members to access critical information about the terms and conditions governing their accounts.

However, of the banks that did provide account information online, nearly three-quarters of them offered a summary disclosure box and half offered boxes that meet Pew’s criteria for effective disclosures.

Pew’s summary disclosure box was developed to provide consumers with clear and concise highlights of important fees and features for checking accounts.

When it comes to overdraft fees, military personnel are in the same boat many consumers find themselves: high costs and little protection.

Earlier this year, the Consumer Financial Protection Bureau likened overdraft fees as a short-term, high-interest loan. The agency described the typical overdraft situation as comparable to a small dollar loan with a 17,000% interest rate; a rate that far exceeds the Military Lending Act’s 36% interest rate cap.

Pew found that 17 of the AMBA-member banks charge overdraft penalties ranging from $25 to $38.50 per overdraft, with a median fee of $35.

Of the DCUC-member credit unions, 12 don’t disclose information about overdraft fees in their fee schedules or on their websites. The remaining 94 credit unions charge between $20 and $39 for each overdraft, with a median of $29.

In the past, consumer advocates have said the best way to ensure consumers don’t overdraft is to decline transactions that would result in negative balances. However, only two banks and four credit unions decline ATM transactions that would result in negative balances, while only two banks and three credit unions decline point-of-sale transactions that would result in the same outcome.

For the past several years, groups such as Pew and the CFPB have spotlighted one of the more devastating practices banks and credit unions have used to drive up consumers’ overdraft costs: reordering transactions to create the illusion of more overdrafts.

Pew found that more than half of the banks and three-quarters of the credit unions that cater to military personnel reorder transactions in a manner that would result in more overdrafts.

Dispute Resolutions
Pew found that many account agreements provided by the AMBA and DCUC institutions contain clauses that restrict a military members’ ability to seek legal recourse when it comes to disputes over their accounts.

Pew found that nearly 65% of the banks analyzed include mandatory arbitration clauses in their account agreements, while only 6% of credit unions analyzed employ the clauses.

Of the banks that do have mandatory arbitration clauses, four allow consumers to opt out of arbitration before a dispute, but it must be done in writing and within a certain time period after opening an account.

Officials with Pew say the new study, while highlighting some of the good practices banks and credit unions catering to military members have implement, underscores the need for new rules to make checking accounts safer and more transparent for all consumers.

“Safe financial products are essential for all consumers, but they are especially important for Americans serving in the military,” Susan Weinstock, director of Pew’s consumer banking research, says. “We urge the CFPB to take concrete steps to improve checking account safeguards for both military and civilian customers.”

The report suggests that the CFPB could create safer banking products for consumers by implementing rules requiring:

  • Key information about terms and fees should be summarized in a concise, uniform format available online and
    in branches.
  • All overdraft programs, including less costly transfer options, should be clearly disclosed.
  • Customer transactions should be processed in a neutral manner that does not increase overdrafts.
  • Overdraft fees should be proportional to the institution’s cost of providing the overdraft.
  • Account holders should not be limited in their options for legal recourse in the event of a dispute

Have you ever banked at a financial institution on a military base? Let us know about your experience by sending an email to, using the subject line: Military Lending.

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