The nation's federal credit unions are hoping that a grass-roots uprising will help them control the damage from a legal defeat that could cost them millions of members.

Credit union executives are now trying galvanize their members for a letter-writing campaign that would hark back to initiatives that have saved the industry from harmful regulations.

They are worried because federal credit unions could be forced to divest many recently acquired members in the wake of a July 30 federal court decision invalidating the expansion of AT&T Family Federal Credit Union in North Carolina.

The membership ruling, issued by the U.S. Court of Appeals for the District of Columbia Circuit, declared that regulators' approval of field- of-membership expansions had violated the 1934 law authorizing credit unions.

The landmark ruling could affect as many as 10 million credit union members and thousands of so-called select employee groups that have been tacked on to about 2,000 of the nation's 7,244 federal credit unions credit unions since 1982. Many of those groups are small businesses, which are too small to charter their own credit unions. The National Credit Union Association will issue charters only to groups with at least 500 members.

Since many large federal credit unions have added huge numbers of "select employee groups" to their membership rolls, the ruling could directly affect their health.

Already, credit unions are trying to explain the ruling and its potential impact to their members. And just more than a week ago, officials at the National Association of Federal Credit Unions decided to launch a public relations campaign to defend credit unions.

Executives are hoping that by spreading the word they can start a grass- roots campaign to influence lawmakers, if they don't get relief from the courts.

"We have to start laying the groundwork to do something about it," said Patrick Keefe, spokesman for the group. "We're preparing ourselves for something that we think will be timely, extensive, and extremely important."

"We're going to do everything we can to make sure this comes out in our favor," said Roger R. Heacock, president and chief executive of $190 million-asset Black Hills Federal Credit Union, Rapid City, S.D. "I can just assure you that none of us are going to sit idly by and let this happen to us."

"We just know it's something that is going to have to happen," said Lesia R. Bullock, an NCUA spokeswoman, "for credit unions to be able to educate" their members as to how this decision could affect them. "Credit unions are going to have to come together on this issue in order for Congress to really take a stand on it. They need to rely on their grass- roots rallying that they have used so effectively in the past."

Credit union officials are hoping to mobilize support among their 68 million members nationwide, who surveys show to be loyal and passionate defenders of the industry. Such support prompted Congress to allow checking accounts at credit unions in 1980.

If the issue does go before Congress, however, banking officials are promising to go after credit unions' tax-exempt status, which credit union officials vow to defend. Even a massive lobbying effort may not be enough.

"It can affect Congress, but the banking industry is going to fight this like hell, particularly the community banks," said Bert Ely, an Alexandria, Va., financial institutions consultant. "They're screaming like hell about the tax issue, and the two issues are going to get linked. That's just a given."

The ruling could cause a financial crisis, particularly for large credit unions in which select employee groups comprise a significant portion of the membership and contribute a large share of assets.

"If the credit unions were forced to expel them and expel their loans and their savings, it could greatly affect" them, Ms. Bullock said. "And if they aren't allowed to add members, that's going to be a problem growth- wise for them in the long run."

So far, industry officials are betting that the ruling will be overturned, either by the entire appeals court reviewing its panel's decision or by the Supreme Court.

And they're counting on common sense and reasoning to prevail among regulators and lawmakers in finding a way to avert chaos for credit union members.

"I don't think they'll be able to turn over everyone who's expanded," said David A. Barrett, president and chief executive of Bulldog Federal Credit Union in Hagerstown, Md. "It would be just too much hardship on Joe Consumer."

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