Trio Of Utah CUs Targeted By Bankers All OK'd To Convert To Federal

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In dramatic fashion, NCUA approved within 24 hours of each other the conversions to federal charter for three large Utah credit unions targeted for taxation by the banker-inspired legislation.

The NCUA action will allow all three-America First CU, Mountain America CU and Goldenwest CU-to escape the tax trap and avoid the constant legal and legislative wrangling with the state's powerful banking lobby, which they have endured over the past decade. That period has been marred by costly and time-consuming court and legislative battles over field of membership (FOM) and member business lending, as well as taxation.

"It's not just about taxation," said Fred Nydegger, vice president for Salt Lake City-based Mountain America, at $1.4 billion, the state's second-largest credit union. "It seems like every year we go through the same fights with the bankers, and after awhile the question is, 'What are you going to compromise?' Enough is enough. We don't want to compromise any more."

The speed, fewer than 60 days, and the secretive method by which NCUA approved the three controversial charter conversions for the three credit unions angered the Utah bankers, who were lobbying Congress at the time of the NCUA approvals to rein in NCUA's powers to provide such escapes.

"Congress cannot sit by and watch this happen," railed Howard Headlee, president of the Utah Bankers Association. "This is an affront to the state of Utah; to come in here after our locally elected legislators put its hands around this issue. This is an arrogant, uninformed, typical bureaucratic Washington move."

NCUA Chairman Dennis Dollar would only say, in a carefully worded, written statement, that the three charter conversions were all legal and within conformance with NCUA's rules.

What particularly raised the bankers' ire was the way NCUA approved the new federal charters, two of which, America First and Goldenwest, amounted to the largest community FOMs ever granted by the federal regulator. The conversion of $2.4-billion America First is the largest ever switch to federal charter.

By approving the same FOM, a six-county grant, in open meeting just seven days before for little-known Tooele FCU, the NCUA board was able to delegate authority to its Region Six office to approve the same FOM grants behind closed doors for the two others. The bankers, in threatening to challenge the record-setting 1.6 million FOM grant, charged that the publicly reviewed Tooele FCU grant was a "stalking horse" for the subsequent two.

Brent Allen, vice president at America First, said he was confident the charter conversions will stand up in court. "The UBA has to do what they have to do. We're pretty confident that what has been done is legal and proper," he said.

The conversions to federal charter not only shields the three credit unions from ongoing legislative efforts to tax the state's largest credit unions, but frees them up from newly enacted curbs on their business lending. It also exempts them from more than $2.5 million in state sales tax the three were projected to pay this year, leaving the state to find that revenue elsewhere to meet its statutorily mandated balanced budget.

America First, mindful of the negative publicity the elimination of the sales tax will pose, has agreed to donate the $1.3 million they expected to pay to the state to the Utah League of CUs' newly formed "100% for Kids" educational foundation, which provides grants to schools, school districts and teachers around the state.

Other Cost Savings

All three will also accrue additional cost savings on their conversions by taking advantage of a two-week-old NCUA rule allowing them to continue doing business under the same names, as long as they spell out their new names with the "FCU" in all legal documents, such as loan agreements and correspondence with NCUA. This will allow them to avoid the costly expense of changing signs on branches, ATMs and advertising. "The signage, alone, we figure, was going to cost us a million bucks," said Nydegger.

The loss of the three state charters and the revenue that would have gone to the state, stunned some state lawmakers, including the chief Senate sponsor of the credit union tax. Sen. Dan Eastman (R-Bountiful), co-chair of the 13-member legislative task force studying the tax and other credit union issues, suggested last week as the group was preparing to meet for the first time, the conversions will end the tax fight. "It makes it a moot issue, now that the three credit unions are gone," he said.

Nydegger said one of the main motives of the move by his credit union, which was forced to give up its broad seven-county FOM in favor of an FOM serving about 110 SEGs, was to continue its expanding business lending operations, which were severely curtailed in this year's state legislature.

The 'Big Issue'

"Business lending always was a big issue to them (the bankers). They wanted us to get out of the business," said Nydegger. The credit union, which has built a multi-million-dollar business loan portfolio through its CUSO in recent years, recently qualified as a participant in the U.S. Small Business Administration's guaranteed loan program, which will allow it to attract more business lending customers. "Had we not qualified for a federal charter we would have lost all of that," he said.

For Ogden-based Goldenwest, the smallest of the three with $260-million in assets, the federal charter will allow the 66-year-old credit union to embark on an ambitious expansion. The conversion will allow the credit union to expand to the six counties from its current hybrid FOM serving two counties and railroad employees in Utah.

"Over the next five years you'll see Goldenwest move into all of the additional counties," said Shelly Clarke, president of the credit union. Immediate plans call for a another branch in Davis County and a broad expansion into the capital Salt Lake City. "We have 14% capital so we can afford a pretty aggressive expansion," she said.

The question remains whether the exodus of three main targets of the bankers will end the ongoing battles between the credit unions and the banks.

"I don't know if there is a need for a task force anymore," said Clarke.

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