Suit filed over credit unions' expansion

0 Comments | Deseret News (Salt Lake City), Jul 16, 2003 | by Jenifer K. Nii Deseret Morning News

The Utah Bankers Association wants a federal court to nullify a recent decision by the National Credit Union Administration allowing three Utah credit unions to expand.

In a lawsuit filed Tuesday in U.S. District Court for Utah, the UBA, American Bankers Association and four Utah-based banks alleged that the NCUA's decision to expand the operating territory of America First Federal Credit Union, Goldenwest Federal Credit Union and Tooele Federal Credit Union violated federal law.

On April 24, the NCUA approved an application from Tooele Federal to expand its operating territory to six counties: Tooele, Morgan, Summit, Salt Lake, Davis and Weber. A week later, the same territories were approved for America First, followed shortly thereafter by Goldenwest.

To operate under a community-based charter, a credit union must show that its members share a "well-defined local community, neighborhood, or rural district." The lawsuit alleges that the three credit unions failed "to explain how the six counties are distinguishable in commonality or interaction when considered with other Wasatch Front counties or other populated areas throughout the state. An entire state cannot be a well-defined local community."

Rather, the lawsuit argued that the NCUA approved Tooele's application "for the sole purpose of 'marking the turf' or 'creating a slippery slope' for other credit unions to claim the same or similar, ever-expanding community fields of membership."

The lawsuit asks the court to void the three credit unions' applications and to enjoin the NCUA from approving any other credit union applications asking for the same six-county area.

Scott Earl, president of the Utah League of Credit Unions, on Tuesday reiterated his belief that the lawsuit is "frivolous, a waste of the court's time."

"The UBA has been telling us that Utah law is way too permissive, that we've allowed credit unions to do too much," Earl said. "So we convert to a federal charter. And suddenly, it's the federal charter that's wrong."

Earl defended the NCUA's action, and the three Utah applicants, stating their request to expand to six counties was thoroughly examined and reasoned. The Tooele application alone was 18 months in the making, he said, and fills three thick three-ring binders.

"It's a wide-reaching, thorough application," Earl said. "And my feeling is that the NCUA acted well within its authority to approve the field of membership. If you live along the Wasatch Front, I think it's pretty easy to see how a federal regulator could see it as one community."

Not so, according to UBA President Howard Headlee.

"They've broken the rules that Congress has given them," he said. "We just want the rules to be enforced.

"Sooner or later, folks will recognize that the rules that are in place are there to protect 'real' credit unions and community banks. When those rules are broken, it's a serious threat to the credit unions in this state. Just look at the numbers, and look at how they're dropping. I'm not making this up. And ultimately, it will leave Utahns with fewer options when it comes to financial services."

The lawsuit is not meant to be punitive and was not a knee-jerk, frivolous action, Headlee said. In part, he said, the groups decided to take action to force Congress to examine the issue.

"Once Congress looks at this, I'm confident they'll come to the same conclusion our Legislature did," he said. "There is a limit. There is a boundary line, and these guys have crossed it. Once Congress come to that realization, then I think we'll be able to say this is over, once and for all."

E-mail: jnii@desnews.com