Credit unions have overwhelmingly opposed proposals by the federal government that would rein in mergers.

Among other things, National Credit Union Administration proposals issued in October would limit the membership bases of merging institutions; allow competing credit unions to protest mergers; and allow only nearby institutions to merge.

Most credit unions that responded during the comment period for the proposal, which ended Dec. 4, denounced it as overly restrictive.

"Your proposed amendment will create a new paper 'nightmare' and will discourage many small, beneficial mergers," wrote George A. Daft, president of Pioneer Federal Credit Union in Mountain Home, Idaho.

Mr. Daft said the proposed changes would greatly lengthen the approval time for mergers, increase paperwork, and get the agency too involved in the merger process. He predicted "disgust for the bureaucratic process" and an increase in field of membership litigation if the rules become final.

Under one proposal, a credit union would be banned from further exploiting the membership groups of the merging credit union if the groups were outside the surviving institution's operating area, a geographic limit set by the NCUA.

"We do not agree with NCUA's proposal that 'select group additions' must meet operational area requirements in mergers," wrote Jack McGrath, a director at Naval Air Federal Credit Union in Virginia Beach, Va. "In today's world of electronic business, it is not necessary to have an office within 25 miles of a group in order to serve it effectively. We believe that this proposal may also be a deterrent to merger."

Credit unions also said the rise in electronic delivery systems rendered obsolete a proposal to limit mergers to institutions in the same geographic area.

"An arbitrary boundary is an anachronism in the way financial services are delivered today," wrote Michael R. Gomez, chief executive of Los Angeles-based Fiscal Federal Credit Union.

Commenters rejected NCUA's proposal that credit unions have the right to protest if a credit union that shares their membership base is taken over by a larger, more aggressive credit union.

"Mergers do not renew or add an additional overlap, but instead simply replace the existing one," said Ronald Keeler, chief executive of Los Angeles-based Lockheed Federal Credit Union.

In addition, most respondents - except for 25 bank commenters - criticized the agency's plan to tighten rules on admitting senior citizen groups into membership. Bankers sued the NCUA last year for letting a Houston credit union add 500,000 potential members under the current, loose policy. The agency lost its case earlier this year and decided not to appeal.

But some credit unions urged their regulator to ignore the precedent set by the Federal District Court for the District of Columbia.

"In spite of the recent ruling ... I do not believe the proposed policy statement will do anything to stem the war the American Bankers Association has on federal credit unions," said Rick G. Martin, chief executive of Miles Federal Credit Union, Elkhart, Ind. "Therefore, I do not believe this change will have any significant effect on the number of suits filed or interpretation of them."

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