The country's fifth-largest credit union pulled out of the Credit Union National Association last week to protest the trade group's lawsuit against the federal government.

Pentagon Federal Credit Union president Ronald L. Snellings said CUNA's legal challenge of a regulation limiting shared management between trade groups and liquidity centers is inappropriate and a waste of resources.

"In our opinion CUNA is no longer effectively representing our interest," Mr. Snellings said in a release. "In rare instances it may be necessary to sue the regulator; however, in this matter Pentagon Federal's board felt the issue of interlocking directors could have been resolved by other means."

This year Pentagon was to shell out $70,100 in dues to CUNA, which represents about 3% of the trade group's anticipated dues income. Further, it would have paid out $10,300 to the CUNA-affiliated Virginia Credit Union League, about 1% of that organization's overall budget.

"We hope that Pentagon and a handful of other credit unions that did not agree with our leadership on this issue will continue to dialog with us on other important issues," said CUNA president Ralph Swoboda in a statement.

In a letter to Virginia league president Eugene H. Farley, Mr. Snellings said Pentagon had considered pulling out of CUNA before, but the lawsuit was the last straw.

"Each time the decision has been to continue this affiliation on the basis of the fine work the league and CUNA have performed on behalf of all credit unions," the letter said. "Pentagon Federal's direct benefit has been minimal and is duplicated by the accomplishments of the National Association of Federal Credit Unions."

In the letter, Mr. Snellings warned that other credit unions might follow his institution's lead.

"I have discussed Pentagon Federal's unhappiness with a very large numbers of CEOs of credit unions with assets in excess of $100 million," he said. "More than 65% of these share Pentagon Federal's views."

The Virginia League Corporate Federal Credit Union, which shares management with the league, was a plaintiff in the CUNA suit.

Meanwhile, the National Association of State Credit Union Supervisors filed a separate lawsuit against NCUA over the interlocks rule.

That suit, filed Feb. 28. in the U.S. District Court for the Eastern District of Virginia, argues that the regulation is illegal because it overrides the right of states to govern the 27 state-chartered corporates.

"Congress clearly intended for the state system to continue to function," said C. Stephen Trimmier, general counsel for the state regulators group. The National Credit Union Administration "as insurer, should not abrogate election procedures, field of membership changes, and democratic control proscribed by state law."

The group's membership includes regulators and state-chartered credit unions.

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