USAA Members Can be for the Firm and For Financial Reform

As a consumer advocate and a military brat, I have long been a huge fan and a lifelong member of USAA. USAA is an insurance company that was set up to assist military families and their dependents. It has a reputation for low rates and great service, but I am disappointed in the firm this week for its clumsy foray into the world of lobbying.

USAA was founded in 1922 by a group of U.S. Army officers to self-insure each other after they were turned down by insurance firms for being a “high-risk” group. USAA is a Fortune 500 firm, but it has an unusual structure under Texas law that allows it to be an insurance company with a banking arm and an investment arm. Since there are no shareholders, profits are retained to maintain the institution's financial strength, or they are returned to the members. When I got into my first car accident last year, USAA was on the case within the hour, had my car repaired and all issues taken care of within two weeks.

But as Reuters has reported, USAA has taken a wrong turn on financial reform. As a client, I along with millions of others received an unusual email from the firm entitled “USAA CEO requests your help today.” The email argued that the firm should be exempt from provisions in the financial reform bill being debated in Congress because it would "Prevent USAA from managing the Association's portfolio as we have for the past 87 years" and "limit our ability to return money to our members." Yikes. They asked me to call my member of Congress and tell them to exempt USAA from the "Volcker Rule." Tens of thousands of responsible USAA members promptly did so.

I am asking my fellow USAA members to pause and consider why every consumer group in America is a huge supporter of the Volcker Rule.

USAA Members Should Support the Volcker Rule

The idea was developed by former Federal Reserve chairman Paul Volcker as a modern way to restore depression-era “Glass-Steagall” consumer protections that set up a firewall between Wall Street gambling and Main Street banking.

The spotlight in Washington has been on Wall Street vultures who used their proprietary trading desks to bet that the housing market would collapse. They bet on catastrophe and won, but in the process they mislead their investors and their reckless trading amplified the crisis for the rest of us. Now those same firms have been reorganized and enjoy the backing of the federal government and American taxpayers. In other words, now when they gamble, taxpayers are on the hook for their lousy bets. Americans for Financial Reform, an organization made up of 250 public interest groups fighting to crack down on Wall Street, believe this is a impossible situation that should not continue, thus they support the Volcker Rule.

The Volcker rule separates most forms of proprietary trading from the federal guarantee. In other words, you can gamble, but if you do, you have to do it with your own money. The Volcker Rule is a critical reform to the financial system. The fact that such rules may also require smaller, well-managed firm like USAA to slightly change their organizational structure is not a sufficient reason in my mind to give USAA an exemption. The next thing you know, other firms will start to organize themselves to look like USAA and the whole fiasco starts all over again.

But for those of you who think an exemption is the best way to go, there is a solution that allows for a fix without undermining the rules that rein in the Goldman Sachs and AIGs of the world.

Concerned USAA Members Can Get Behind the Merkley-Levin Amendment

Rather than taking a position that is considered by some as a vote “against” reform, USAA members can support meaningful financial reform. Tell you Senator that you support an amendment proposed by Sens. Merkley and Levin. The Merkley-Levin amendment would allow an insurance company like USAA, whose trading desk is subject to state level regulation, to continue its insurance business without being subject to the Volcker Rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator like AIG did, then it would be subject to the restrictions.

Right now, calls and emails critical of the bill are being counted against financial reform, but USAA members can support USAA and support reform. Dare I say, it could be a win win for all of us?

Learn more: read Americans for Financial Reform’s letter on the amendment here.