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SALT LAKE CITY – Utah credit unions have scored a victory of sorts in turning back the highly contentious backer-backed bill to levy a 5% franchise tax this May on three large credit unions, but the bitterly-fought measure still contains an onerous ban on business lending for the three CUs under attack. Even without the tax, the banking lobby hailed passage of the bill as “a giant step forward in finding solutions to the inequities in the market between large credit unions and community banks” and the bill’s passage acknowledges that large CUs “have gone beyond their traditional role.” Apart from a halt to member business loans for the three CUs, the House-passed bill, which cleared the state Senate on a 22-6 vote on March 4 and is to be signed into law within days by Gov. Michael Leavitt, creates a two-year legislative task force to study taxation for CUs and banks. The three CUs directly impacted by the bill are the $2 billion America First CU, Riverdale; the $1.1 billion Mountain America CU, Salt Lake City; and the $267 million Goldenwest CU, Ogden But the legislation has long been seen as having both state and national implications and demonstrating banking’s perseverance in attacking CUs on the tax front. In an eloquently worded statement on the bill’s passage and its campaign to defeat the bill, the Utah League of Credit Unions said that while “this is not a solution we have chosen or sought” nor is it “a victory,” there was never a question the public was on the side of CUs. “There was only question of whether their elected representatives would listen and at least some did,” said the League statement which went on to warn that the Utah Bankers Association will not be satisfied until it can cripple CUs. There is no reason, said the League, “we should be forced to come up here year after year to defend our very right to exist” adding that now “we will see some of our finest financial cooperatives opt for the federal charter and that will be a loss for our state.” Commenting on the bill’s passage, ULCU President/CEO Scott Earl said, “This is not a victory. It will only be a victory when credit unions no longer have to fight for their lives each session on Capitol Hill.” The three CUs affected by the bill because of their size and multi-county operation-under language drifted by the bankers-have said they are moving toward a federal charter. Mountain America officials met two weeks ago in Washington with NCUA brass during CUNA’s GAC regarding its chapter application. America First, the state’s largest, said it will consider a federal charter application at a board meeting March 11 and Goldenwest said it also has been proceeding with an application. In filing its application, Fred Nydegger, senior vice president of Mountain America, said the Salt Lake CU expects to seek a multiple employee SEG charter from NCUA under a process which could be accomplished at the regional level within 60 days. “We will not be going the community charter route,” he said, noting the application process is more expedient at the regional level and in light of the CU’s links to Utah SEGs . Expressing disappointment with the Senate vote and the “hostile environment” existing for state-chartered CUs now and in the future, Nydegger said the citizens of Utah “received a raw deal” in being denied available credit which includes member business loans. Brent Allen, executive vice president of America First, said while his CU “is pleased there is no tax and that is an important issue,” the bill represents a setback to CUs trying to serve the community. “Utah needed to hold the line on taxes on a national basis and that we did,” said Allen, who added that America First would “put a final pencil” to the charter decision on March 11. He said if a decision is reached, “we would be looking at a community charter” which would require a longer application process and require NCUA hearings. As written, the Utah bill bars the three CUs “from making member business loans” starting May 5 and also puts a $1 million cap on real estate loans and a $250,000 cap on personal consumer loans while the two year study is under way. The bill, which the industry has called highly punitive, warns the three CUs against “using personal loans to circumvent the prohibition on member business loans” and that the “limits and prohibitions on member business loans are applicable to CUSOs and to “loan participations.” Smaller state-chartered CUs in Utah, also looking to seek a federal charter, argue that now may be the most opportune time to seek conversion since the environment in 2005 may well be the same. Moreover, their institutions would also be restricted in their lending operations apart from facing the prospect of a tax in future years. Phil Janovak, president of the $308 million University of Utah Credit Union, said his institution is still in a “wait and see” mode before seeking a federal charter since “we want to see the makeup of the legislative task force and which direction they move.” He said his CU, which is looking at business loans, remains untouched by the bill’s language, but he acknowledged the difficult environment for state CUs and the powerful influence of the banking lobby in Utah. “It is difficult to get balanced ideas across in a one party state like Utah,” said Janovak. In Washington, CUNA said passage of the Utah bill represents “a very stark reminder to all Leagues how aggressive and hostile the banking industry is toward credit unions.” “The good news is that Utah has shown that lawmakers are now more familiar” with the mission and structure of CUs, and that “we are doing a better job at the grassroots level in making our arguments,” said John McKechnie, senior vice president of government affairs. The “political machinery” is working well at the state level, McKechnie said, and he singled out, Richard Gose, CUNA’s vice president of political action and grassroots for “doing a yeoman’s job” in helping the Utah League on strategy and grassroots politicking. Nonetheless, McKechnie concluded, all of the state leagues are now becoming well equipped to fight a battle similar to Utah’s, should it come to their state. -

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