SALT LAKE CITY – A new state law that limits the amount of business loans that a credit union service organization can issue to members has come under fire here. At issue is an amendment to Utah's Department of Financial Institutions' Rule R337-4, Establishment of CUSOs, which took effect Oct. 4 and limits a CUSO's member business loans to $250,000 and caps the total number of business loans that can be disbursed. Borrowers must also be members of a credit union for six months prior to the loan payment. The law only affects state-chartered credit unions. Mountain America Credit Union challenged the new law asking District Judge Dennis Fuchs to issue a temporary restraining order that would bar enforcement of the law by the state regulator until a case could be made to prove that CUSOs were not affected. The judge did not grant the order but at press time was expected to rule on the amendment. Depending on the outcome, the credit union is prepared to sue. "It's a battle that we shouldn't have to fight," said Gordon Dames, president/CEO of Mountain America Credit Union. "This fight isn't necessary because a judge proved that the law did not apply to CUSOs." Indeed, the battle is not a new one for Mountain America. In 2000, the credit union's CUSO, Mountain America Financial Services, issued two member business loans for $768,750 and $525,000 with the understanding that the transactions were allowed under the current state law which allowed CUSOs to originate commercial loans separate from the credit union. At nearly the same time, Dames said the credit union also filed a request with the Department of Financial Institutions for clarification on whether the $250,000 lending limit applied to loans made by the CUSO. When the regulator deemed that the maximum limit did indeed apply to CUSOs, Mountain America sued in court. A district judge ruled in the credit union's favor pointing out that CUSOs are separate entities from credit unions and should not be governed under the same regulations. At the time, the state had yet to adopt any rule governing CUSO lending. Utah's Department of Financial Institutions Commissioner Ed Leary has since adopted a ruling clarifying lending conditions, of which some credit unions have called anti-competitive. "We lost confidence in the commissioner's willingness to treat credit unions fairly," said Scott Earl, president of the Utah League of Credit Unions. "It's interesting, because I like Ed. I really do. He's a good man, and we don't want to fight." Earl pointed to the banking industry as having "a lot more control than credit unions," adding, "I don't know why that's the case, but we feel that credit unions are being treated as the third-class citizens of the financial services industry." Leary told the Deseret News that the amendment was made after nearly a year's worth of consideration. "It remains a continuing balancing act," Leary said. "The rule, as it is going into effect, did not please credit unions or banks. But the department believes this is what the statute allows. After an 11-month process of writing, reviewing and public comment, we've decided to go with it." Meanwhile, Dames said commercial lending through the CUSO is strong with $16 million outstanding loans. The credit union is the second largest in the state with 160,000 members and $1.1 billion in assets. "It's hard to predict what will happen, but we feel pretty good," Dames said. "The judge will hopefully make a decision." -

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