Credit unions to banks: stop picking on us.

That's the message the Utah League of Credit Unions has for the state's banking industry. Their gripe? Attempts by Utah bankers to have credit unions start paying income tax . . . just as banks do.The Utah Bankers Association turned up the heat on credit unions last month at the UBA's annual convention in Sun Valley. A number of speakers criticized the "unfair" advantage credit unions supposedly enjoy by not paying income taxes, particularly in light of credit unions now being allowed to solicit customers outside their company employee base.

Not true, says Utah League of Credit Unions President Charles Sullivan. "The banks are just unhappy because we're growing and they're not."

He concedes that credit unions taking on banks is not unlike David slinging rocks at Goliath. For example, the total assets of all 200 of Utah's credit unions come to about $2 billion while First Security Corp. alone has holdings of around $5 billion.

But credit unions are not without clout, says Sullivan. For one thing, Utah is a big credit union state: 70 of every 100 Utah adults belong to one (44 percent for the total population). Only Alaska and Washington, D.C., claim a higher membership ratio.

Sullivan, and league marketing director, Scott Earl, find it ironic that banks are feeling the competitive heat from credit unions (nationally, credit union market share has doubled from 8 to 16.3 percent since 1982, triple the growth of other financial institutions). "They complain that we're getting into their turf with consumers, but the truth is that credit unions came into being because the common man couldn't get a loan from a bank; he had to go to relatives or loan sharks."

Softening his stance somewhat, Sullivan acknowledges that prior to his current position as the credit unions' spokesman he was employed with a Salt Lake bank. "There's nothing wrong with banks trying to make a profit. It's great. It's our capitalistic system and that's their niche. But we have a different niche and taxing it would mean the end of credit unions as we know them."

In the past, credit unions catered only to a restricted field of membership, usually employees of a company or government agency. But four years ago, the Utah Commissioner of Financial Institutions reinterpreted a state law to the effect that state chartered credit unions could not legally be prevented from admitting outside members.

Since then, some credit unions - such as America First - have aggressively gone after new outside business while others - such as Utah Power & Light or the tiny Utah Council of the Blind - have not.

That decision and others - whether to grow, what interest rate to charge, what new services to offer - are made by credit union boards of directors, all unpaid volunteers elected by the members. That's the key difference, says Sullivan, between a credit union and a bank:

"This is not criticism, but the banks are motivated by profit and our motivation is service because we are controlled by the people who use us, not by shareholders."

But what about the banks' claims of fairness? Should credit unions be allowed to operate in the same manner as a commercial bank and not pay taxes? Sullivan replies:

"It should be made clear that credit unions pay all taxes except income tax. The income generated by a credit union goes to pay operating expenses, to meet reserves and to make capital expenditures for improving service, such as installing automatic teller machines. The rest goes back to the members.

"So, if you look at it as a non-profit organization, there is nothing to tax except that money used for capital. But while banks can issue stock to pay for capital improvements, credit unions can't. That income is our only source of revenues for improving service."

Taxing credit unions, concludes Sullivan, "would be like taxing the efforts of neighbors helping each other."

Banks have made an issue of credit unions' expanded field of membership, saying they are no longer an "in-house" group of people helping each other but rather a competitive financial institution whose non-profit status gives them an unfair edge. Sullivan says that's a red herring.

"The tax exemption for credit unions was based on their non-profit, co-operative nature, not their membership. It really boils down to whether we are going to tax co-ops and volunteer organizations. That's the crux of the issue."