SALT LAKE CITY – In a new legal challenge to NCUA's field of membership rules, the American Bankers Association, joined by its Utah affiliate and four banks, have sued the agency in a federal court here to overturn what the ABA calls NCUA's "arbitrary and capricious" approval of a six-county FOM application of a medium-size Utah CU. Citing what the ABA charges is NCUA's illegal approval of FOM expansion for a community charter of Tooele Federal CU, the ABA complaint, filed in U.S. District Court, seeks to "invalidate" the April 24 application as well as subsequent FOM bids submitted by two other Utah CUs. Those CUs, America First Federal CU and Goldenwest Federal CU, both of Ogden, converted to a federal charter in May arguing the state's anti-CU environment following last March's tax battle made it impossible to grow. The ABA accused NCUA of using the Tooele application as a "stalking horse" or "footprint" for future FOM expansion in Utah and elsewhere in the U.S. by "violating the law and Congressional intent" as well as contradicting NCUA's own guidelines on what constitutes "a well-defined local community." Claiming a gross over-reach by the NCUA, the ABA suit contends the agency's approval of the Tooele application goes far beyond existing law by permitting a community charter to expand into "five additional counties that are home to almost 60% of Utah's population." Tooele FCU with $160 million in assets, is located in a bedroom community 35 miles east of Salt Lake, but the CU maintains its members are now spread across the state. NCUA Chairman Dennis Dollar called the ABA suit ill-conceived and a wasteful expense of time and money, and he vowed to "vigorously defend the agency's position" adding "we are extremely confident the courts will affirm NCUA's actions in this matter." "We are disappointed when our critics choose to pursue the lengthy and costly approach of litigation," Dollar said in a statement. The NCUA Chairman continued, "We have never allowed the fear of a lawsuit to prevent us from taking an action we feel is appropriate for the credit unions we are charged by Congress with the responsibility of regulating." CUNA, along with NAFCU and the Utah League of Credit Unions, quickly criticized the ABA suit as a new form of industry harassment and intimidation and pledged to turn back the legal assault. The suit, which seeks a declaratory judgment against NCUA and asks the court to undo FOM approvals for Tooele, America First and Goldenwest, was assigned to U.S. District Judge Thomas Greene. The ABA all but conceded in a press statement that it faces a difficult job ahead in trying to win the case in court and overturn NCUA'S FOM policy, but it said it had no choice but to pursue litigation "given the egregious nature of the approval." "Bankers are tired of watching NCUA twist, bend and break the rules," complained Edward Yingling, executive vice president of the ABA. "We're committed to stopping NCUA's zealous promotion of ever larger credit unions at the expense of small local financial institutions and taxpayers." In addition to the ABA, also party to the suit are the Utah Bankers Association and four banks: Bank of Utah, Ogden; Liberty Bank and First Utah Bank, both of Salt Lake City and Frontier Bank FSB, Park City. In its statement attacking the lawsuit, the Utah League maintained that CUs will prevail and that "anti-competitive lawsuits such as this cannot kill the credit union initiative to serve consumers in the best possible way." Moreover, the lawsuit will not thwart the continuing trend of Utah CUs to convert to federal charter if they desire. "Credit unions will inevitably do what's best for their members, and if moving to the federal charter is advantageous for the members of a particular credit union, it will switch," said Scott Earl, president and CEO of the League. Earl has been in the public vanguard of the long-running battle with the Utah banking industry over taxing CUs climaxing in the tough state law barring business loans for three state-chartered CUs but eliminating a CU "franchise" tax for now. Tooele's charter expansion, said Earl, "was completed under a set of rules in effect since Congress passed a law back in 1998 – a law that was enthusiastically passed by a Republican Congress and signed by a Democratic president. "The rules that came out of that law, which TFCU's charter was granted under, have been thoroughly challenged by the banks and upheld by the courts," said the League. "We feel extremely confident that our position will be reaffirmed by the courts, as it has been in the past. Congress has spoken; the courts have spoken; the people of Utah have spoken. The problem is that the banks just can't hear." In its statement, the ABA acknowledged that "this is the third time ABA has filed a lawsuit challenging NCUA's membership policies or practices. The first case went all the way to the Supreme Court which ruled in banks' favor." The second lawsuit, continued the ABA, which challenged "new general chartering rules" adopted in 1998 was unsuccessful. In critiquing NCUA policy, Yingling, who is also the ABA's chief lobbyist, maintained that NCUA in the 1998 legislation "added the requirement that community credit unions be `local'" and that "it intended to limit the size of such credit unions." And yet, charged the ABA, "in a series of rule changes and charter approvals, NCUA has continually expanded community credit unions' boundaries." Such a policy, the ABA continued, is leading to the disappearance of small CUs. The ABA also maintained that one of NCUA's three board members, Deborah Matz, dissented from the Tooele approval on the application when she questioned the Mormon tie-in. The Mormon dominance, quoted the ABA, "is a reflection of the entire state and not an indication that these six counties are a community." "Determining what comprises a community should be an objective exercise based on clear criteria," said the ABA. "Instead, it has become a Rorschach ink blot test for NCUA's board members which see a local community in nearly every application, no matter how vast the area or population." The president of the Utah Bankers Association said it actively supports the ABA suit since "we're happy to see any effort aimed at restoring chaos that certain mega-credit unions are creating both locally and nationally." The ABA argued that under NCUA's current FOM policy, liberalized in May, the Tooele application as well as those of America First and Goldenwest are way too broad and do not meet criteria for members "belonging to a single metropolitan statistical area of less than 1 million or regularly do business in the community." James Jardine, a partner in the Salt Lake City law firm of Ray, Quinney & Nebeker, which is representing ABA and the other plaintiffs, said the suit was filed in a Utah court rather than before a District of Columbia federal court because "we felt a judge here would have a much greater understanding of the conditions." "You bring cases like this to an area where the courts are more familiar with factors" which have bearing on the issues, said Jardine. No hearing date has been set for the suit which sources said could take months before hearings could begin. -

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