Regulators in Washington state are making it easier for state-chartered credit unions to serve entire communities.

Since taking office in November as state director of financial institutions, John Bley has allowed eight state-chartered credit unions to take communities into their customer base. More will be on the way, he said.

Mr. Bley said his policy - controversial with bankers and some credit unions - encourages competition and adheres to the law governing the Evergreen State's 108 state-chartered credit unions.

"The statute clearly authorizes credit unions to apply to the department and get a community charter," he said. "We want to create an environment that promotes competition and eliminates unnecessary barriers to business."

His predecessors granted such expansions only if a credit union's sponsor was cutting back or if residents of an area wanted credit union service, he said.

So far the regulator has permitted eight credit unions to serve 13 communities with a population of 324,134. Two credit unions have applications pending.

The new policy riles some credit unions and bankers.

Small credit unions have complained that granting community charters to institutions puts them at a competitive disadvantage. Other officials charge that the policy blurs the distinction between credit unions and banks, which could fuel the banking industry's argument that credit unions should pay taxes.

"A credit union's market share should be its members," said Robert Kane, president of Weyerhauser Credit Union, Longview. "That's different from a credit union saying our market is anyone who does business with a financial institution."

Indeed, Mr. Bley said he thinks these community-chartered credit unions should have to comply with the Community Reinvestment Act.

Bruce Koppe, executive director of the Washington Bankers Association, said the expanding credit unions have exceeded their original purpose and represent unfair competition to small community banks.

Bankers have sued three state regulators for granting credit unions expansions, but Mr. Koppe said the association isn't planning to sue the Washington regulator.

Mr. Bley said the department tries to make sure each expansion is defensible, and it requires each community to be well-defined.

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