Tuesday, June 30, 2015

Alabama One CU Sues Alabama Public Officials Alleging Conspiracy and Abuse of Power

The soap opera surrounding Alabama One Credit Union (Tuscaloosa, AL) took another turn yesterday.

The credit union, which is currently under an administrative order from its state regulator, filed a federal lawsuit against Alabama public officials, including a state senator and a senior aide to the governor, local attorneys, and others, alleging conspiracy and abuse of power emanating from Gov. Robert Bentley’s office to coerce tens of millions of dollars in legal settlements.

The credit union alleges a conspiracy involving Governor Bentley’s chief legal advisor, David Byrne; State Sen. Gerald H. Allen; the current and former administrators of the Alabama Credit Union Administration, and private attorneys in Tuscaloosa, who allegedly improperly influenced the state officials.

The suit alleges that the public officials grossly abused their power and state positions solely to enrich a political and personal friend – Tuscaloosa plaintiff’s attorney Justice D. “Jay” Smyth, III, who allegedly orchestrated the scheme to pressure and coerce Alabama One into settling five frivolous lawsuits that he and cohorts had filed against the credit union. (read the press release)

In a related story, Credit Union Times is reporting that a former board member of Alabama One CU has filed a class action lawsuit against the credit union seeking the removal of current management. The complaint charged the defendants with violations of state law, breaches of fiduciary duty, waste of corporate assets, conspiracy, and reckless or intentional misrepresentation and suppression of material fact.

Monday, June 29, 2015

Quality of Credit Union Annual Reports Varies Greatly

There is a lot of variability in the quality of annual reports issued by larger credit unions.

Some credit unions provide detailed financial information to their members in their annual reports. which includes audited financial information. Some of the better annual reports that I have reviewed have been issued by Quorum FCU, Pentagon FCU, Navy FCU, State Employees' CU, and University of Wisconsin CU.

However, other credit unions provide their members with very little information about their financial performance in their annual reports.

For example, Truliant FCU (Winston-Salem, NC) in its 2014 annual report only discloses summary balance sheet information. There is not any information from the income statement or statement of cash flows. The credit union does not provide any notes that elaborate further on the credit union's financial performance.

Another disappointing 2014 annual report is from University Federal Credit Union (Austin, TX). But it provides a little more information than Truliant FCU.

The same is true for Richmond, Virginia-based Virginia Credit Union's 2014 annual report.

If credit unions truly believe their members are owners, they should be making their audited financial statements available to their members on their websites.

Saturday, June 27, 2015

Problem Alabama CU Merged into Mutual Savings CU

The National Credit Union Administration in May approved the merger of Secure First Credit Union (Birmingham, AL) into Mutual Savings Credit Union (Birmingham, AL).

The reason cited for the merger was poor management.

On March 17, Secure First was placed under an enforcement order by the Alabama Credit Union Administration (see blog post).

Thursday, June 25, 2015

NCUA: Monthly Membership Fees Impermissible

The National Credit Union Administration (NCUA) issued a legal opinion letter that federal credit unions (FCUs) may not charge a periodic membership fees.

The letter was in response to my inquiry whether federal credit unions may charge monthly membership fees.

The NCUA wrote that the Federal Credit Union Act (FCUA) permits FCUs to charge a uniform, one-time entrance fee to members under Section 109 of the FCUA.

The legal opinion letter goes on to state that FCUs may also charge other fees for account services and other financial products. These fees are legally distinct from a membership fee.

However, the letter states that these fees and charges, however, may not be membership fees that serve as a condition on continued membership.

So, it will be interesting to see what NCUA does with regard to Arizona FCU's charging a $3 monthly membership fee, since the beginning of 2013.

Read the letter.

Wednesday, June 24, 2015

Credit Union Named as Defendant in New York Lawsuit regarding Online Nursing Classes Scam

New York Attorney General Eric T. Schneiderman has filed a lawsuit in Albany County Supreme Court and has obtained a temporary restraining order against The College Network and its owner, Gary Eyler.

The suit charges that The College Network and Eyler induced prospective nursing students to pay thousands of dollars for ineffective study guides through false and deceptive business practices. The suit alleges that The College Network, headquartered in Indiana, preyed on as many as 2,000 New York consumers who sought to obtain associate degrees in nursing.

In addition, the lawsuit names Franklin, Tennessee-based Southeast Financial Credit Union (“Southeast”), which partnered with The College Network to provide financing to consumers to purchase The College Network’s so-called “program.” According to the complaint, Southeast until the Fall of 2014 provided the bulk of the loans to The College Network customers.

In fact, the complaint notes that many customers were not aware that the loans were from a credit union and did not discover this information until long after signing the loan documents.

The complaint states that Southeast was aware that The College Network had defrauded many customers.

The complaint notes that Southeast was informed by many customers that they were misled by The College Network and was asked by customers that their financial agreements be cancelled and Southeast stop automatic monthly payment deductions.

The complaint alleges Southeast falsely advised customers that that they were obligated to pay their loans in full, although customers did not receive services or products they purchased.

The lawsuit seeks to permanently prohibit Southeast Financial Credit Union from attempting to collect debts connected to the alleged misconduct.

Read the lawsuit.

Once Again, NCUA's 2014 Annual Report Lacks Info on the Number of Enforcement Actions

The National Credit Union Administration (NCUA) released its Annual Report yesterday and once again did not publish the number of preliminary warning letters, the number of letters of understanding and agreement (published and unpublished), and the number of cease and desist orders issued to credit unions for 2014.

On the other hand, the other federal banking agencies provide summary statistics regarding enforcement actions taken against institutions they supervise in their annual reports to Congress.

I do not understand why this agency is averse to releasing this information. Does NCUA believe releasing this information would caste credit unions in a negative light?

Read the 2014 Annual Report.

Monday, June 22, 2015

Director Compensation Becomes the Law in Oregon

Oregon has become the latest state to allow credit unions to pay their directors.

On June 16 Governor Kate Brown signed into law a bill (S 582) that will permit state chartered credit unions to provide reasonable compensation to directors and supervisory committee members.

In addition, the bill eliminates the requirement that a person purchase a share as a condition for membership at a state-chartered credit unions. This provision will potentially result in credit unions losing their mutuality. In other words, borrowers and savers are not necessarily the same individuals.

Also, the bill removes the requirement that the state Department of Consumer and Business Services approve new branches and clarifies that foster children are eligible for membership.

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