In response to complaints by three competitors, the Pentagon Federal Credit Union -- the second-largest in the nation -- has been ordered by the Defense Department to halt its aggressive marketing practices or face disciplinary action.
The "cease-and-desist" order cited allegations that Pentagon Federal violated other credit unions' territorial franchises and made loans "with little or no consideration" for borrowers' financial condition. "What we're saying is that they're on someone else's territory," C. V. Toulme, Defense Department banking director, said Friday.
Representatives of Pentagon Federal, which has $1.2 billion in assets, declined to comment Friday on the Aug. 27 order.
The credit union filed a detailed response with the Defense Department last week, and Toulme said no further action will be taken until the response has been analyzed.
The order was prompted by complaints from Andrews Federal Credit Union of Alexandria, Service Federal Credit Union in Portsmouth, N.H., and Finance Center Federal Credit Union in Indianapolis, Ind., Toulme said.
In its complaint, Andrews Federal said Pentagon Federal violated its franchise at the Rhein Main Air Base in West Germany. Defense Department rules permit only one credit union at each overseas military base. They also bar off-base credit unions from advertising at installations where a competing credit union has a facility.
According to Andrews' complaint, Pentagon Federal installed electronic facsimile transmitters at a Rhein Main Air Base auto dealership to enable military personnel to apply for loans long-distance. The loan applications were "handled" by car salesmen who forwarded them electronically to a Pentagon Federal office for speedy approval, the Defense Department alleges.