Checks and Balances, Stars and Stripes

Banking practices at financial institutions serving the military

Checks and Balances, Stars and Stripes

An earlier version of “Checks and Balances, Stars and Stripes,” a report on checking account practices of banks and credit unions on military installations, included several incorrect or incomplete statements and data points regarding transaction ordering. We take accuracy very seriously. The original report and accompanying news release, published on October 28, were revised and published on November 7. View the updated report and release. The specific changes are presented here.

Service members, like all consumers, need access to concise, easy-to-understand documents that lay out the key terms, conditions, and fees associated with their checking accounts. Clarity and transparency are especially important for Americans and their families serving in the military, who face unique challenges associated with repeated deployments and frequent relocations. 

This report highlights the account practices that Pew has identified as having a significant impact on account holders and documents their prevalence among banks and credit unions located on military installations. Institutions were evaluated on how well their disclosure, overdraft, and dispute resolution practices align with Pew’s policy recommendations. 

The report found some areas in which banks and credit unions with an on-installation presence were excelling, but many areas that require improvement, demonstrating the need for new rules from the Consumer Financial Protection Bureau to make checking accounts safe and transparent for all consumers.

Download the full report.


Safe financial products are important to all consumers but especially to Americans serving in the military. All military personnel are required to receive their paychecks via direct deposit, which in turn requires them to open and maintain a checking account. For some young service members, this means selecting a checking account, and learning about the fees and features, for the first time.

The lack of familiarity with the terms and conditions of checking accounts, particularly overdraft programs, can cause significant financial hardship to the uninitiated. Account holders can quickly accumulate substantial debt, sometimes over the course of several days, before even realizing they have incurred a single overdraft fee. The situation can be compounded by additional fees that begin accruing if the debt is not repaid within a few days.

Relief organizations working directly with service members have highlighted this issue, as have consumer advocates, regulators researching the financial circumstances of military personnel, and the Department of Defense. According to The Wall Street Journal, “the Pentagon considers debts incurred by military members to be a significant morale and readiness issue." 

Appearing before the Senate Committee on Banking, Housing, and Urban Affairs in 2011, Steve Abbot, a retired admiral and president of the Navy-Marine Corps Relief Society, testified, “Banks and credit unions on and near military bases continue to charge exorbitant and multiple fees associated with overdraft protection.”

A 2012 survey by the Financial Industry Regulatory Authority Investor Education Foundation found that a quarter of service members occasionally overdraw their checking accounts. Because service members face unique circumstances, such as being deployed abroad and moving frequently between bases, policies that promote transparency and protect account holders from unsafe or hidden practices and costs are especially important.

In addition to the wide array of banking options available to civilian consumers, service members and their families often have access to a bank or credit union located on a military installation and to specialty accounts made available only to military personnel. Per federal regulations, only one bank and one credit union are permitted to operate on a Department of Defense installation at any time. 

These financial institutions must be approved by the secretary of the branch of the military that operates the installation, the base commander, and the appropriate regulatory agency, and deposited funds must be insured by the Federal Deposit Insurance Corporation or National Credit Union Administration.

Previous research from The Pew Charitable Trusts examined key checking account terms and conditions offered by the nation’s largest depository financial institutions. In this report, Pew has extended the analysis to banking options available exclusively to service members. 

Pew studied the checking accounts offered by Association of Military Banks of America (AMBA) on-installation member banks and 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. For a complete list of all AMBA- and DCUC-member institutions studied, see Appendix B.

To analyze these accounts, Pew attempted to collect the account agreements from each of these financial institutions through their websites and was able to do so for banks and credit unions operating on nearly threequarters (71 percent) of all domestic Department of Defense installations. Thirteen of 31 banks (42 percent) and 23 of 134 credit unions (17 percent) do not provide any disclosure information online, making it difficult for deployed service members to access critical information about the terms and conditions governing their accounts.

Similar to Pew’s market review of national banks, each institution is weighted equally, regardless of the number of on-installation branches it has or its wider off-installation presence. Pew found some areas where banks and credit unions with an on-installation presence excel but also found areas that need improvement. For example, the DCUC-member credit unions are more likely to provide at least some of their disclosures online, while the AMBA-member banks provide clearer and more thorough disclosures overall. 

Additionally, the banks have more complex overdraft programs than the credit unions, often charging customers more for an overdraft but also disclosing additional ways to avoid those charges. Finally, credit unions are significantly less likely than banks to limit access to legal recourse by requiring their customers to undergo arbitration in the event of a dispute.

  • Summarize key information about terms and fees in a concise, uniform format.
  • Provide account holders with clear, comprehensive terms and pricing information for all available overdraft options.
  • Make overdraft penalty fees reasonable and proportional to the financial institution’s costs in providing the overdraft loan.
  • Post deposits and withdrawals in a fully disclosed, objective, and neutral manner that does not maximize overdraft fees.
  • Prohibit pre-dispute mandatory binding arbitration clauses in checking account agreements, which prevent account holders from accessing courts to challenge unfair and deceptive practices or other legal violations.

The Department of Defense has explicit authority to regulate all aspects of military installations that relate to service members’ morale and welfare, including checking account overdraft and other products offered by onbase financial institutions, and should act to protect service members. However, it is the Consumer Financial Protection Bureau that has broad oversight of banks and credit unions nationwide and the authority to improve checking accounts for both military and civilian customers. 

Pew urges the bureau to write rules addressing the issues noted in this report to create a more transparent and competitive marketplace for such an essential financial product.

Key Findings

  • Online disclosure

    42% of banks that Pew studied on U.S. military installations provide no disclosure information online.

    The credit union figure was 17 percent. The absence of any disclosure information makes it difficult for deployed service members to access critical information about the terms and conditions governing their accounts.

  • Use of Pew disclosure box

    50% of banks on military bases adopted a checking disclosure box meeting Pew’s standards.

    Only 2 percent of the credit unions Pew studied adopted the disclosure box. Pew developed a model disclosure box to clearly and concisely highlight important fees and features of a checking account. Clear disclosure of key account terms and conditions is fundamentally important to both customers and the establishment of a transparent marketplace to make it easy to comparison shop.

  • Transaction reordering

    44% of banks on military bases disclose that they do not reorder any transactions from high to low.

    For credit unions, the figure was 24 percent. Processing transactions from high to low will deplete an account more quickly and can result in more overdrafts.

  • Mandatory arbitration

    65% of banks on military bases include mandatory arbitration clauses in their account agreements.

    Here the comparable figure for credit unions was 6 percent. Pew recommends predispute binding mandatory arbitration clauses be prohibited in checking account agreements because these clauses limit customers’ legal recourse by requiring arbitration in the event of a dispute.


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