Financial fracas: banks and CUs battle at the federal level.

• Author: Smith, Jason Matthew
• Position: Businesstrends

DEPENDING ON WHOM YOU ASK, IT'S either an old-fashioned David and Goliath story, or a postmodern variation of the tale in which David is a rebellious upstart, thumbing his nose at the rules and deserving of a solid thump by the giant. But one thing's for sure, the legal and PR boxing match between credit unions and banks has polarized Utah's financial community; sparked a trend for credit unions in Utah to switch charters; and has now pushed questions of fairness, competition and managing growth in the financial sector to the federal level.

[ILLUSTRATION OMITTED]

Credit unions and banks had been bumping heads for years, but the battle heated up in 2003 when Utah legislators passed House Bill 162 at the urging of the state's bankers. The bill sought to slow the growth of Utah's largest credit unions--America First, Mountain America, and Goldenwest--while also attempting to levy applicable taxes on them (credit unions are non-profit organizations), initiating a flurry of legal battles between credit unions and banks. The tax provision of the bill was put on hold, but most credit unions believed the political tide was turning and felt that Utah was quickly becoming hostile toward them.

Since credit unions can choose to be regulated by either the state or the federal government, the larger institutions began switching to a federal charter--thus, federal oversight. Scott Simpson, president of the Utah League of Credit Unions, says that banks were--and still are--trying to control credit unions through political wrangling. "Their goal has been to put us in boxes," he says.

Yet from the banks' point of view, it wasn't so cut and dried. Utah's banking industry believed that credit union branches were popping up like mushrooms in a freshly mown lawn. It appeared the credit unions were almost predatory in their growth, breaking or bending regulations of their charters and defined fields of membership to build branches and solicit new members.

Banks saw this as flaunting the rules--particularly on the part of large credit unions. In other words: unfair competition. "Anybody can see that a couple of the large credit unions have taken huge advantages from a competitive standpoint," says Howard Headlee, president of the Utah Bankers Association (UBA), who believes that banks are simply attempting to level the playing field. This requires taking the battle from Utah to the federal level, and finding a way to close the loophole so that Utah credit unions...