[Federal Register Volume 66, Number 172 (Wednesday, September 5, 2001)]
[Rules and Regulations]
[Pages 46372-46374]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22172]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Parts 230 and 231a

RIN 0790-AG73


Financial Institutions on DoD Installations

AGENCY: Department of Defense.

ACTION: Final rule.

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SUMMARY: This final rule removes regulations on ``Procedures governing 
Banking Offices on DoD Installations'' and revises regulations on 
``Financial Institutions on DoD Installations.'' This rule is being 
promulgated to provide administrative guidelines for the operation of 
banks and credit unions on domestic and overseas installations of the 
Department of Defense and addresses areas such as the solicitation for 
such services, the types of services and the logistics support 
provided.

DATES: This rule is effective June 1, 2001.

FOR FURTHER INFORMATION CONTACT: T. Summers, 703-602-0299.

SUPPLEMENTARY INFORMATION:

I. Background

    Stateside military banking began in 1941 when the Department 
realized that financial services were urgently needed by military and 
civilian personnel on domestic installations. To address this need, the 
Department permitted installation commanders to negotiate with nearby 
local banks to establish branches on their installation. Today, there 
are over 230 domestic installations that have either a bank or credit 
union or both. To ensure consistency between installations in the 
level, cost and types of financial services offered, the Department 
established regulations in parts 230 and 231 to govern the operation 
and oversight of these institutions. These regulations limit the number 
of financial institutions that may operate on an installation to one 
bank and one credit union (with a grandfather provision). The 
regulations require full and open competition for a full spectrum of 
banking services (to include electronic banking services). Policy 
guidance relating to the military banking program, by regulation, is 
the responsibility of the Under Secretary of Defense (Comptroller) 
while operational guidance rests with the Defense Finance and 
Accounting Service (DFAS). To ensure financial services are available 
on our overseas installations, the Department operates the overseas 
military banking program. The DFAS has been assigned the program office 
responsibilities for this effort, which is provided under contract by a 
domestic financial institution. In FY 2000, the overseas military 
banking program contractor operated 110 banking offices and over 250 
automated teller machines in 10 foreign countries. Overseas military 
banks support DoD personnel and their families, disbursing officers, 
appropriated fund activities (such as the Defense Commissary Agency) 
and nonappropriated fund activities (such as the Army and Air Force 
Exchange Service).

II. Comments, and Changes to, the Proposed Rule

    The Department of Defense published the proposed rule on August 11, 
1999 (64 FR 43856). Over 240 comments from 55 entities were received in 
response to the publication of the previously published proposed rule. 
The majority of the comments on Part 230 of the proposed rule focused 
on two areas: (1) Prohibiting the assessment of automated teller 
machine (ATM) surcharging and (2) the establishment of a ceiling for 
other fees and charges. These comments and their disposition are 
specifically addressed below. The remainder of the comments were either 
administrative in nature or suggested that additional clarification was 
needed in certain areas. None of these resulted in any significant 
changes to the proposed rule.

A. Section 230.4(a)(7)(i)

    This section of the previously published proposed rule would have 
required that on-base ATM service offered by financial institutions 
operating on domestic installations and domestic credit unions 
operating on DoD installations overseas be provided without surcharge. 
Forty-nine of the fifty-five entities providing comments objected to 
this limitation. While being sympathetic to the Department's interest 
in shielding lower income military members and civilian employees from 
ATM fees, the comments essentially reflected the belief that the 
freedom from any regulatory constraints relating to a surcharge fee 
structure should be permitted to create an environment by which the 
``economics of the marketplace'' determine the level of any surcharges 
that an institution might consider levying. In this regard, such 
factors as operational expense structures, ATM usage factors and the 
convenience factor should be the litmus test of the extent to which 
surcharges, if any, should be imposed by the financial institution 
installing the ATM. It was also noted that ATM surcharges typically are 
incurred by noncustomers, i.e., by persons who have chosen to use a 
particular financial institution's ATM, but have chosen not to 
establish an account relationship with that institution. Thus, the 
incurring of ATM surcharges is voluntary and an individual can readily 
avoid surcharges by either establishing a deposit account with that 
institution or by only using the ATMs of the individual's existing 
depositary institution. Those entities providing comments on this 
section made a number of compelling arguments to retain the existing 
requirement that requires the banking liaison officer (BLO) and credit 
union liaison officer (CULO) annually review service charges and fees 
(to include surcharges on ATM transactions). As a result, this section 
has been deleted in its entirety.

B. Section 230.4(a)(3)(iv)

    This section of the previously published proposed rule would have 
required that retail fees and services for products (to include related 
minimum balance requirements for noninterest checking, Negotiable Order 
of Withdrawal (NOW) and savings accounts) offered by financial 
institutions operating on DoD installations shall not exceed 110 
percent of the industry-wide averages for banks in the ``Annual Report 
to Congress on Retail Fees and Services of Depository Institutions,'' 
published by the Board of Governors of the Federal Reserve System. In 
its comments, the National Association of Federal Credit Unions (NAFCU) 
took exception to the 110 percent limitation citing that a credit 
union's fee structure is designed to allow credit unions to provide 
members with convenient and efficient services, as well as, a good 
return on their ownership interest. The Department has reviewed the 
concerns expressed and, based on its review, has removed the 110 
percent ceiling requirement.

III. Executive Order 12866, Regulatory Planning and Review

    It has been determined that 32 CFR part 230 is not a significant 
regulatory action. The rule does not:
    (1) Have an annual effect to the economy of $100 million or more or 
adversely affect in a material way the

[[Page 46373]]

economy; a section of the economy; productivity; competition; jobs; the 
environment; public health or safety; or State, local, or tribal 
governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another Agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
this Executive Order.

IV. Public Law 96-354, Regulatory Flexibility Act (5 U.S.C. 601)

    It has been certified that this rule is not subject to the 
Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities. This rule is being promulgated to provide 
administrative guidelines for the operation of banks and credit unions 
on domestic and overseas installations of the Department of Defense and 
address areas such as the solicitation for such services, the types of 
services and the logistics support provided.

V. Public Law 96-511, Paperwork Reduction Act (44 U.S.C. Chapter 
35)

    It has been certified that this part does not impose any reporting 
or recordkeeping requirements under the Paperwork Reduction Act of 
1995.

VI. Section 202, Public Law 104-4, ``Unfunded Mandates Reform Act''

    It has been certified that the rule does not involve a Federal 
mandate that may result in the expenditure by State, local and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more and that such rulemaking will not significantly or 
uniquely affect small governments.

VII. Executive Order 13132, ``Federalism''

    It has been certified that the rule does not have federalism 
implications. The rules do not have substantial direct effects on the 
States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government.

List of Subjects in 32 CFR Parts 230 and 231a

    Armed forces, Banks, Banking, Credit unions, Federal buildings and 
facilities.

    Accordingly, 32 CFR part 230 is revised to read as follows:

PART 230--FINANCIAL INSTITUTIONS ON DOD INSTALLATIONS

Sec.
230.1  Purpose.
230.2  Applicability.
230.3  Definitions.
230.4  Policy.
230.5  Responsibilities.

    Authority: 10 U.S.C. 136


Sec. 230.1  Purpose.

    This part:
    (a) Updates policies and responsibilities for financial 
institutions that serve Department of Defense (DoD) personnel on DoD 
installations worldwide. Associated procedures are contained in 32 CFR 
part 231.
    (b) Prescribes consistent arrangements for the provision of 
services by financial institutions among the DoD Components, and 
requires that financial institutions operating on DoD installations 
provide, and are provided, support consistent with the policies stated 
in this part.


Sec. 230.2  Applicability.

    This part applies to the Office of the Secretary of Defense (OSD), 
the Military Departments, the Chairman of the Joint Chiefs of Staff 
(JCS), the Combatant Commands, the Inspector General of the Department 
of Defense, the Defense Agencies, the DoD Field Activities, and all 
other organizational entities within the Department of Defense 
(hereafter collectively referred to as ``the DoD Components'') and all 
nonappropriated fund instrumentalities including the Military Exchange 
Services and morale, welfare and recreation (MWR) activities.


Sec. 230.3  Definitions.

    Terms used in this part are set forth in 32 CFR part 231.


Sec. 230.4  Policy.

    (a) The following pertains to financial institutions on DoD 
installations:
    (1) Except where they already may exist as of May 1, 2000, no more 
than one banking institution and one credit union shall be permitted to 
operate on a DoD installation.
    (2) Upon the request of an installation commander and with the 
approval of the Secretary of the Military Department concerned (or 
designee), duly chartered financial institutions may be authorized to 
provide financial services on DoD installations to enhance the morale 
and welfare of DoD personnel and facilitate the administration of 
public and quasi-public monies. Arrangement for the provision of such 
services shall be in accordance with this part and the applicable 
provisions of 32 CFR part 231.
    (3) Financial institutions or branches thereof, shall be 
established on DoD installations only after approval by the Secretary 
of the Military Department concerned (or designee) and the appropriate 
regulatory agency.
    (i) Except in limited situations overseas (see paragraph 
(b)(2)(iii) of this section), only banking institutions insured by the 
Federal Deposit Insurance Corporation and credit unions insured by the 
National Credit Union Share Insurance Fund or by another insurance 
organization specifically qualified by the Secretary of the Treasury, 
shall operate on DoD installations. These financial institutions may 
either be State or federally chartered; however, U.S. credit unions 
operated overseas shall be federally insured.
    (ii) Military banking facilities (MBFs) shall be established on DoD 
installations only when a demonstrated and justified need cannot be met 
through other means. An MBF is a financial institution that is 
established by the Department of the Treasury under statutory authority 
that is separate from State or Federal laws that govern commercial 
banking. Section 265 of title 12, United States Code contains the 
provisions for the Department of the Treasury to establish MBFs. 
Normally, MBFs shall be authorized only at overseas locations. This 
form of financial institution may be considered for use at domestic DoD 
installations only when the cognizant DoD Component has been unable to 
obtain, through normal means, financial services from a State or 
federally chartered financial institution authorized to operate in the 
State in which the installation is located. In times of mobilization, 
it may become necessary to designate additional MBFs as an emergency 
measure. The Director, Defense Finance and Accounting Service (DFAS) 
may recommend the designation of MBFs to the Department of the 
Treasury.
    (iii) Retail banking operations shall not be performed by any DoD 
Component. Solicitations for such services shall be issued, or 
proposals accepted, only in accordance with the policies identified in 
this part. The DoD Components shall rely on commercially available 
sources in accordance with DoD Directive 4100.15.\1\
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    \1\ See footnote 1 to Sec. 231.1(a).
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    (4) Installation commanders shall not seek the provision of 
financial services from any entity other than the on-base banking 
office or credit union. The Director, DFAS, with the concurrence of the 
Under Secretary of Defense

[[Page 46374]]

(Comptroller) (USD(C)), may approve exceptions to this policy.
    (5) Financial institutions authorized to locate on DoD 
installations shall be provided logistic support as set forth in 32 CFR 
part 231.
    (6) Military disbursing offices, nonappropriated fund 
instrumentalities (including MWR activities and the Military Exchange 
Services) and other DoD Component activities requiring financial 
services shall use on-base financial institutions to the maximum extent 
feasible.
    (7) The Department encourages the delivery of retail financial 
services on DoD installations via nationally networked automated teller 
machines (ATMs).
    (i) ATMs are considered electronic banking services and, as such, 
shall be provided only by financial institutions that are chartered and 
insured in accordance with the provisions of paragraph (a)(3) of this 
section.
    (ii) Proposals by the installation commander to install ATMs from 
other than on-base financial institutions shall comply with the 
provisions of paragraph (a)(4) of this section.
    (8) Expansion of financial services (to include in-store banking) 
requiring the outgrant of additional space or logistical support shall 
be approved by the installation commander. Any DoD activity or 
financial institution seeking to expand financial services shall 
coordinate such requests with the installation bank/credit union 
liaison officer prior to the commander's consideration.
    (9) The installation commander shall ensure, to the maximum extent 
feasible, that all financial institutions operating on that 
installation are given the opportunity to participate in pilot programs 
to demonstrate new financial-related technology or establish new 
business lines (e.g., in-store banking) where a determination has been 
made by the respective DoD Component that the offering of such services 
is warranted.
    (10) The installation commander shall approve requests for 
termination of financial services that are substantiated by sufficient 
evidence and forwarded to the Secretary of the Military Department 
concerned (or designee). The Secretary of the Military Department (or 
designee) shall coordinate such requests with the USD(C), through the 
Director, DFAS, before notification to the appropriate regulatory 
agency.
    (11) Additional guidance pertaining to financial services is set 
forth in 32 CFR part 231.
    (b) The following additional provisions pertain only to financial 
institutions on overseas DoD installations:
    (1) The extension of services by MBFs and credit unions overseas 
shall be consistent with the policies stated in this part and with the 
applicable status of forces agreements, other intergovernmental 
agreements, or host-country law.
    (2) Financial services at overseas DoD installations may be 
provided by:
    (i) Domestic on-base credit unions operating overseas under a 
geographic franchise and, where applicable, as authorized by the 
pertinent status of forces agreements, other intergovernmental 
agreements, or host-country law.
    (ii) MBFs operated under and authorized by the pertinent status of 
forces agreement, other intergovernmental agreement, or host-country 
law.
    (iii) Domestic and foreign banks located on overseas DoD 
installations that are:
    (A) Chartered to provide financial services in that country, and
    (B) A party to a formal operating agreement with the installation 
commander to provide such services, and
    (C) Identified, where applicable, in the status of forces 
agreements, other intergovernmental agreements, or host-country law.
    (3) In countries served by MBFs operated under contract, 
nonappropriated fund instrumentalities and on-base credit unions that 
desire, and are authorized, to provide accommodation exchange services 
shall acquire foreign currency from the MBF at the MBF accommodation 
rate; and shall sell such foreign currency at a rate of exchange that 
is no more favorable to the customer than the customer rate available 
at the MBF.


Sec. 230.5  Responsibilities.

    (a) The Under Secretary of Defense (Comptroller) (USD(C)) shall 
develop policies governing establishment, operation, and termination of 
financial institutions on DoD installations and take final action on 
requests for exceptions to this part.
    (b) The Under Secretary of Defense (Acquisition, Technology and 
Logistics) (USD(AT&L)) shall monitor policies and procedures governing 
logistical support furnished to financial institutions on DoD 
installations, including the use of DoD real property and equipment.
    (c) The Under Secretary of Defense (Personnel and Readiness) 
(USD(P&R)) shall advise the USD(C) on all aspects of on-base financial 
institution services that affect the morale and welfare of DoD 
personnel.
    (d) DoD Component responsibilities pertaining to this part are set 
forth in 32 CFR part 231.

PART 231a--[REMOVED]

    By the authority of 10 U.S.C. 301, 32 CFR part 231a is removed.

    Dated: August 29, 2001.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 01-22172 Filed 9-4-01; 8:45 am]
BILLING CODE 5001-08-P