SALT LAKE CITY - A last minute add-on provision-unrelated to field-of-membership-to the state's credit union act is at the center of a legal appeal fracas concerning member business lending brewing between Mountain America Credit Union and the state regulator. At issue is the question of whether CUSOs are included in the intent of the MBL-related provisions in Utah Credit Union Act Amendments, S.B. 237 that were passed by the state legislature in 1999 (CU Times, March 31, 1999.) Specifically the law allows that for a CU to approve a member business loan: * a person must be a member at least six months prior to the date of the loan; * an individual cap of $250,000 or $1 million if secured by shares and deposits or federal guarantee' * a credit union's aggregate member-business loan cap is 1.25 times the sum of the actual undivided earnings-lower than the one adopted by NCUA of 12.25% of assets)-and the actual reserves other than the regular reserves. In addition, if a credit union approves a participation loan for a member, the person must have been a member of each of the participating credit unions for at least six months. On one side of the table is Mountain America CU, the second largest credit union in the state. President/CEO Gordon Dames argues that, "the law was designed just for credit unions, there's no mention of CUSOs." Facing Dames is state regulator Ed Leary who is sticking to his premise that, "CUSOs cannot do what credit unions are not allowed to do, even though CUSOs are not addressed in the law." "That's what CUSOs are supposed to do, that's why they're formed," Dames responded, and that's just what Mountain America's CUSO-Mountain American Service Organization, had been doing, until Leary issued his directive. At press time, Bruce Reading, attorney for MACU and MASO said the CUSO had agreed not to make any additional MBLs until there is a final determination. Prior to reaching that agreement, the CUSO had made two MBLs, one for $769,000, another for $525,000. There are no applications pending. Before S.B. 237 was passed, MACU made its own member business loans and they accounted for about 5% of the credit union's $722.6 million in assets. Reading said Mountain America knew in advance of notifying Leary about the CUSO's intent to make MBLs, what the regulator's position was "because of his predilections about credit unions and CUSOs making member business loans which he'd expressed several times previously." The business intent of a CUSO is just one of three issues involved in the case, Reading said. Another concerns the MBL cap. Since there's already a limit on how much a credit union can invest in a CUSO-5% of capital in surplus-that satisfies the legislature's intent, he said. Lastly, Reading explained that the banks' main dispute with credit unions providing MBLs revolved around credit unions' tax-exempt status. Since CUSO's are tax-paying entities, "that interest is satisfied," Reading said. "The law itself is well defined, but there are a lot of peripheral issues that aren't," said Dames. "The CUSO aspect is one of them. The reason of the law was to restrict credit unions from granting member business loans, there is no mention of CUSOs." At press time, Reading intended to file a complaint against Leary's directive in Third District Court on July 6. -
ekingoff@cutimes.com
