Claiming unfair competition, a small Los Angeles credit union is suing the government for approving a merger between two other, larger credit unions.

Public Works Employees Credit Union charged that its interests were ignored by the National Credit Union Administration when it approved Lockheed Employees Federal Credit Union's merger with Engineers Federal Credit Union, which also serves Los Angeles County employees.

This is the first time a credit union has sued the NCUA for giving the green light to a merger, said the agency's general counsel, Robert M. Fenner.

In an interview, Mr. Fenner defended the merger approval, saying that the agency had followed normal procedures.

"I don't think this challenge is going anywhere," he said.

In the lawsuit, $28 million-asset Public Works Employees charges the yet-to-be completed merger would allow the $1 billion-asset Lockheed to steamroll other credit unions serving county workers.

"If the planned merger of Engineers into Lockheed is finally completed, Lockheed ... will be unleashed into the market, all to the ultimate detriment of the public employees of Los Angeles County," said the complaint, filed June 26 in U.S. District Court for the Northern District of California, San Francisco.

The merger was to have been consummated on June 30. But that same day the court was to hold a hearing on a Public Works Employees' motion to get a restraining order.

The credit union charged that the NCUA had broken its own rules when considering the merger, which was approved by the agency May 18. It claimed that, in approving mergers, the agency must consider the economic impact of the transaction on other institutions.

A refrain of Public Works Employees' 16-page complaint is that the merger violates the "cooperative nature" of credit unions.

The suit said the four credit unions serving public works employees had cooperated in the past; it charged that Lockheed Employees - which is not named as a defendant - would disrupt this environment with aggressive competition.

Ironically, when NCUA Chairman Norman E. D'Amours questioned the aborted merger of Patelco Credit Union and First Technology Federal Credit Union this year, he suggested it would have introduced too much competition into the credit union industry.

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