A cobranded card agreement between a military retailer and JPMorgan Chase & Co. has raised the ire of banks and credit unions that say the deal infringes on their exclusive contracts to provide financial services on bases.

The Army and Air Force Exchange Service, a Defense Department "joint command" that runs all nongrocery and nonrecreation retail shops on Army and Air Force bases, introduced its Military Star Rewards card, a MasterCard Inc.-branded product issued by JPMorgan Chase, last month.

The retailer said the new card combines a private-label Military Star card and an affinity card it has offered since 1987, currently through JPMorgan Chase.

The credit unions and banks that operate on military bases have asked the department to shut down the program, arguing that the agreement with JPMorgan Chase violates a 2000 policy that permits "no more than one banking institution and one credit union" to "operate on a DoD installation."

In a May 7 letter to Tina W. Jonas, an under secretary and the comptroller and chief financial officer for the department, the National Association of Federal Credit Unions said, "The issuance of this MasterCard from AAFES and the processing of credit products adds a third financial institution to the base" and violates the "one bank, one credit union" rule.

By offering the card and advertising it at its stores and its Web site, the retailer has violated regulations prohibiting military retailers from distributing "literature from off-base financial institutions if there is an on-base financial institution," the trade group said.

Javier Sanchez, the group's associate director of legislative affairs, said in an interview Monday that these regulations were "established so the Department of Defense has more visibility, and the base commanders have more control over products extended to our base members" and their families.

All the banks and credit unions authorized to operate on military installations have submitted to an approval process, and the new card could set a precedent "for anybody to come in and just circumvent the system," Mr. Sanchez said.

A AAFES spokesman wrote in an e-mail that it is "empowered to market products that it offers to its military customers on installations."

It also is "fully engaged with DoD leaders as this issue is being discussed in official channels," the spokesman wrote. "We look forward to resolving any misunderstanding regarding" this product.

JPMorgan Chase (which has some contracts to operate on-base branches) said in a response to questions from American Banker that it is "proud of its long-standing partnership with AAFES, and we have been a longtime supporter of the military."

The Association of Military Banks of America protested the card in a letter submitted to the Defense Department last month. Andrew M. Egeland Jr., a retired Air Force major general and the trade group's president and chief executive, said in an interview that the "one bank, one credit union" rule is meant "to protect the contributions" of financial institutions that sometimes go "above and beyond" to serve military communities, such as maintaining automated teller machines "in areas where they're not profitable" or offering extended hours.

"All those things that are necessary to support the military within the base" provide reasons for the military to protect those banks and credit unions "to a certain extent, from outside competition," Mr. Egeland said.

He rejected the suggestion that the policy reduces competition for banks and credit unions on bases. Members of the military "can bank with anybody," he said. The rule is "not a monopoly, and it doesn't deny members access to other financial institutions."

Tim Kolk, a managing partner at Brookwood Capital LLC, a consulting firm and card receivable brokerage that has advised JPMorgan Chase on military issues in the past, said the rule is due for scrutiny.

"There's an argument to be made that the military folks are a special class, with special stresses and the need for a little more protection than your average consumer," he said. "Credit unions as a rule do a pretty good job of not necessarily trying to get every nickel out of their members," and military installations "have always been a fairly solid base" for them.

Mr. Sanchez said the NAFCU is meeting with different Defense Department agencies and waiting for a response. The credit unions' argument is "with the process itself, not with JPMorgan Chase."

Spokespeople for the department did not return calls for comment.

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