State governments are working to update their credit union laws to prevent an exodus to the federal charter, which became more attractive in August 1998 when Congress agreed to lift strict limits on membership.

At least six states - Connecticut, Missouri, New Jersey, Oregon, Utah, and Virginia - have enacted legislation that matches federal law, said Colleen Kelly, vice president of state governmental affairs at the Credit Union National Association. More states are planning to act.

In Maryland, for instance, a legislative task force of credit union executives, regulators, and legislators is drafting a proposal to modernize the state's 71-year-old law. The task force will make a recommendation to the state's general assembly by yearend.

Michael Marschall, director of legislative, regulatory, and governmental affairs for the Maryland Credit Union League, said new legislation is overdue. The Maryland charter, besides limiting membership, prevents state-chartered institutions from buying mortgage loans from other credit unions or charging fees when customers exceed their credit-card spending limits.

"The Maryland law is unfriendly," Mr. Marschall said. "It makes it unattractive to become a state-chartered credit union."

Only 11 of Maryland's 140 credit unions hold state charters, and the last time a new credit union opted for a state charter was 1975, Mr. Marschall said.

Ohio, which has 295 state-chartered credit unions and 348 with federal charters, was among the first to give its state-chartered credit unions the same membership rights as those with federal charters.

Credit unions did not have to go to the Ohio General Assembly. Instead, state regulators last month broadened existing rules to give state-chartered credit unions the same rights as those with federal charters.

"Almost every state needs to modernize its law, and most are working on it," said Paul Mercer, president of the Ohio Credit Union League. "States need to work hard to make sure they create a positive environment for credit unions."

Banks are putting up a fight.

One of the most contentious battles is brewing in Wisconsin, where all but three of the state's 350 credit unions are chartered under a state law written in 1913.

Wisconsin credit unions have introduced legislation that not only would allow them to expand their membership but also would give them the right to set up for-profit subsidiaries to make business loans.

"Credit unions did not receive their tax-exempt status so they can compete for business loans with taxpaying financial institutions," said Harry J. Argue, executive vice president and chief executive officer of the Wisconsin Bankers Association. "They were formed by the government to serve the little person - people who would otherwise have limited access to basic financial services."

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