Utah bankers, riled over what they see as unchecked expansion by credit unions, are going to court to limit the membership base of community-chartered institutions to one county.

The Utah Bankers Association filed a suit in the Third Judicial Court of Salt Lake County against 17 credit unions, a credit union service organization, and the state regulator.

If the bankers prevail, credit unions that have multicounty operations would have to select one county in which to do business. They would have to drop customers who do not live in the selected county. The state financial services commissioner also would be forbidden to grant charters allowing expansion beyond one county.

"We have credit unions here that are chartered in one county and then get approval to cross county lines, and we think that violates the state law," said Lawrence Alder, president of the Utah Bankers Association.

"Credit unions have a significant presence here in Utah, and this doesn't make for a level playing field."

Residence Rule

Under state law, a field of membership can comprise people who "reside within an identifiable neighborhood, community, rural district, or county." All the credit unions named in the suit have membership bases covering more than one county; six of them are open to any Utah resident, Mr. Aider said.

Multicounty charters have existed 10 years, said G. Edward Leahy de comissioner of financial institutions, who was named in the lawsuit.

"Previous commissioners have said if the credit union listed more than one county for their field of membership, that was authorized under state law," he said.

Shared Branching

The suit also asks for an injunction against shared branching through the Credit Union Service Centers of Utah that extend beyond one county. Shared branching is a practice by which several credit unions can operate out of the same branch.

Mr. Alder said the bankers filed the suit because all other routes of action to check credit union expansion were closed.

"It's a question the state legislature won't address," he said.

Mr. Leahy, who regulates both credit unions and banks, said the litigation troubles him.

Favorable Ruling

"There's a strong competition here between banks and credit unions, so I'm not surprised [by the suit], but I am saddened," he said. "I'd rather see the resources of bankers directed in more profitable areas."

In the wake of a Michigan court decision last week that said a credit union could expand and serve a larger base of customers, credit unions executives say they are optimistic and somewhat surprised that banks are trying to turn back the clock.

"I have a difficult time seeing where the case has a leg to stand on, with their limited interpretation of field of membership," said Brent Allen, vice president of marketing for Riverdale-based America First Credit Union, which is open to all Utah residents and has assets of $850 million. "They're about 10 years too late. I don't understand how they're going to put it back the way it was. There's a lot of water under the bridge."

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