So far in 2005, only Davis County-based Horizon Credit Union has abandoned state oversight in favor of the federal system.

"Our reasons for converting were the same as the other credit unions," Horizon president Randy Gailey said. "We wanted to make sure we could stay competitive. And frankly, we got tired of all the squabbling."

Utah credit unions started switching to the federal system after the 2003 session when lawmakers -- at the urging of the state's bankers -- passed House Bill 162, a measure that sought to tax and rein in the expansion of Utah's largest credit unions.

Although the legislation's tax provisions were put on hold, the large Utah credit unions targeted by the law -- America First, Mountain America and Goldenwest -- chose to escape the lingering taxation threat by switching to federal oversight. Nearly two dozen smaller credit unions followed.

Credit unions that operate under federal charters are subject to slightly different regulations than those enforced by the state. But for most members, there is no difference in the products or services offered by state or federally chartered credit unions.

Before passage of HB162, Utah had 89 state-chartered credit unions with combined assets of $6.4 billion. Now there are only 66 with total assets of $1.7 billion.

The mass conversion costs the Utah Department of Financial Institutions more than $200,000 annually in lost regulatory fees. In addition, Utah lost millions in sales tax revenue since federally chartered credit unions are exempt from paying such taxes.

Utah League of Credit Unions president Scott Simpson said several other credit unions are ready to make the move. "There is a continuing sense of frustration among many credit unions that the Legislature is hostile to their interests," he said.

Simpson also laid part of the blame for the mass exodus on Utah Department of Financial Institutions Commissioner Ed Leary.

Late last year, when Utah Gov. Jon Huntsman Jr.'s transition team requested comments on whether Leary should remain in his post, Simpson wrote a letter criticizing the commissioner and said the financial institutions department needed new leadership.

Although Leary repeatedly advised legislators in 2003 that many credit unions would switch to federal charters if HB162 passed, Simpson argued that neither the Department of Financial Institutions nor Leary adequately advised lawmakers of the true potential impact.

"There was a failure to either communicate or to understand the ease and ability of conversion to the federal charter. [Those] conversions have served to significantly reduce the fee income of the Department and sales tax revenue to the state," he wrote.

The league president maintained that unless the Department of Financial Institutions supported the remaining state chartered credit unions and encouraged federally charted credit unions to become state charted, Utah will end up playing no role in how Utahns obtain financial services.

"In most states, credit union conversions are from federal to state charters, Utah should be consistent with this trend, not the antithesis of it," Simpson wrote.

Leary, who only received a copy of Simpson's letter on Friday, said he was aware of the league's criticisms. "I certainly consider their position," he said. "I'm just thankful that Gov. Huntsman reappointed me. And I'm happy to be here."

The credit union league was the only group that criticized Leary. He received strong support from the Utah Bankers Association, Federal Deposit Insurance Corp., Utah Mortgage Lenders Association and Federal Reserve Bank of San Francisco.

steve@sltrib.com