The Utah Bankers Association and its national counterpart said Monday that they will file a joint lawsuit against the National Credit Union Administration over its approval of expansion of one Utah-based credit union's charter.
In April, Tooele Federal Credit Union was allowed to add the five additional counties of Morgan, Weber, Davis, Salt Lake and Summit to its existing territory of Tooele County.
Judd Bagley, spokesman for the Utah Bankers Association, said the approval will open the door for other Utah credit unions to expand, particularly Goldenwest Credit Union and America First Credit Union, which received federal charters earlier this year.
"This just kind of opens up a floodgate that will institute a degree of expansion and branching that the markets just aren't prepared for, and community banks in particular are going to suffer," Bagley said. "It's unfair because they have been essentially granted branching and expansion capacity that was never intended by, obviously, their state charter or by normal federal charter guidelines."
Scott Earl, president of the Utah League of Credit Unions, said he finds the proposed lawsuit "frustrating."
"It's frustrating to me, but this is America, and anybody can sue anyone for anything," Earl said Monday. "I guess the real test is whether they can win it. We're very confident that NCUA went through all the proper procedures to approve this field of membership that they approved for Tooele Federal. . . . In my opinion, this is a frivolous lawsuit."
The UBA and American Bankers Association said in a Monday press release that NCUA's current policy states that members of a community credit union should share common interaction and interests, belong to a single metropolitan area of less than 1 million individuals or regularly do business in the community.
"Not a single one of these criteria applies to the residents of all six counties," the statement said.
Utah Bankers Association President Howard Headlee said in a statement that the NCUA's decision "essentially hands two of Utah's mega-credit unions the blank checks they need to roll over Utah's real credit unions and community banks.
"This will eliminate competition and reduce financial options for all Utahns," he said.
Bagley said, "It allows them to expand and branch in ways that are going to be detrimental to community banks, especially if they move up into some of those more rural areas. . . . They'll just be able to establish a really burdensome presence."
Earl said it is frustrating that the UBA claims to represent the needs of small credit unions. "They've done nothing in their history to show they're a friend to credit unions at all, large or small. This does not open up any floodgates."
During the 2003 session, Utah legislators passed a compromise bill that put limitations on state-chartered credit unions' business lending and established a task force to study a bevy of credit union issues, including the possibility of imposing taxes. Since then, several of the state's credit unions have converted to federal charters.
"During the legislative session, (bankers) always talked about these credit unions going beyond the bounds of what a credit union is," Earl said. "Now they say the federal law is the problem. It seems to me the bankers are the problem."
E-MAIL: danderton@desnews.com, gkratz@desnews.com