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Banks pleased with ruling in turf war

Utah bankers weren't crowing "I told you so" Wednesday following their victory in a U.S. Supreme Court ruling on the long-running turf war that banks have been waging with credit unions, but neither were they displeased with the ruling that tossed out a 15-year government policy that has let credit unions accept just about anyone who cared to join.

Howard M. Headlee, president of the Utah Bankers Association, praised the 5-4 ruling that said the government was wrong to allow credit unions to accept new members outside their "common bond" of occupation or location. But he said for Utah banks the real battle is still going on in state court.That's because most of the big credit unions in Utah that the UBA says are competing unfairly with banks are state chartered.

"It's a similar lawsuit, and I expect it will have a similar outcome," said Headlee.

Meanwhile, the credit unions were licking their wounds and vowing to win the war even if they had lost the court battle. Their weapon of choice is legislation introduced in Congress last year that would revise the current law and retroactively authorize such expansions in credit union membership.

Without the legislation, 100,000 Utahns who are members of federally chartered credit unions and some 32 million members nationwide could be told they have to take their business elsewhere, presumably to banks.

"But they don't need to go down and close their accounts today," assured Lisa Howell, spokeswoman for the Utah League of Credit Unions, whichwas fielding calls Wednesday from worried members.

"Right now, it's the status quo as far as current members, but I wouldn't think they (the state's 44 federally chartered credit unions) would be taking on any more (members) at this point."

But win or lose on the legislation in Congress, HR1151, Howell said she understood that a new bill would be introduced that would grandfather all current members.

"Otherwise, I can't imagine the havoc this would wreak. And I can't imagine that lawmakers would let it happen."

If Congress doesn't stop it, it won't be for lack of trying. On Tuesday, House Speaker Newt Gingrich told some 4,000 credit union activists in Washington, D.C., that he will sign on to HR1151 as the 132nd co-sponsor of the Credit Union Membership Access Act.

"I think the credit union movement is a real example of why America is a successful society," said Gingrich. "A strong, vibrant credit union movement is an asset to creating a savings-oriented, investment-oriented America."

Hear, hear, replied Larry Blanchard, coordinator of the Credit Union Campaign for Consumer Choice, a lobbying group representing the nation's 11,500 credit unions. He said Gingrich's support of HR1151 "is just the endorsement we need to pass this important bill."

The group delivered to Capitol Hill Tuesday more than 2.4 million signatures representing voters who "support the right to choose credit union membership." The group vows that hundreds of thousands more signatures will be delivered before the year is out.

According to figures compiled by the Utah League, Utah's representatives in Congress lead the nation for credit union membership in their districts. Rep. Jim Hansen is No. 1 nationally with 293,713 or 51.15 percent of his constituents. Rep. Merrill Cook is second with 246,533 or 42.92 percent. Rep. Chris Cannon is ranked third with 216,000 credit union members or 39.02 percent of his constituents.

UBA president Headlee expressed frustration that bankers are being held up by the credit union advocates as robber barons who are trying to take away the members' rights just so they can make more profits.

"What you have here is a situation where a handful of entities that call themselves credit unions, but aren't, have been competing unfairly. Now the Supreme Court has ruled they aren't credit unions, and that's what we've been saying all along."

Headlee said bankers do not challenge that true credit unions are good things and part of a diverse financial system. But he wonders why Congress wants to rush in, via HR1151, and extend tax and regulatory preferences to what he believes are nothing more than mutual savings banks.

"What HR1151 would do is essentially extend preferences to financial institutions that have no limits and thus can compete unfairly in the marketplace," said Headlee.

While the federal law has to do with the common bond of credit union members, the Utah lawsuit the bankers have filed has to do with geography. The word "county" in the statute has been determined to mean "counties," and that means anyone who lives in a county can belong to a state-chartered credit union. Since everyone in Utah lives in a county, that means everyone can join.

That's what the UBA's lawsuit, currently in state court, is fighting: the lack of limits on credit union membership for entities that are exempt from taxes.

After a year of wrangling, that lawsuit is still in the court system. Headlee said he has had no indication when a ruling can be expected.