Friday, December 19, 2014

Pentagon Proposal Would Constrict Credit

The Defense Department’s proposed restrictions on credit for service members goes too far, trade groups representing banks and credit unions said yesterday in a comment letter. Not only would the proposed rule constrict mainstream credit options for members of the military and their families, it would create technological and compliance hurdles that would impede lending across the country, regardless of the borrower’s military status.

In the comment letter, the trade groups noted that the Department of Defense (DoD) offered no evidence for covering mainstream products such as credit cards, student loans and installment loans under the Military Lending Act, which was intended to target tax refund anticipation loans, payday loans, car title loans and other predatory products not generally offered by depository institutions.

The groups urged DoD to exempt depository institutions from the rule, warning that its idiosyncratic Military APR cap (encompassing even low-rate credit cards) and “vague and uncertain prohibitions” could force banks and credit unions out of the military market -- thus reducing access to mainstream credit for service members.

The proposal would also impose massive compliance burdens on all banks, whether they serve military customers or not. While today service members and their families must proactively identify themselves as such, DoD would require lenders to screen all applicants for military status. This requires checking each applicant at least twice in a Pentagon-run database -- but the database is frequently unavailable, which would mean “virtually all new consumer lending comes to a standstill.”

Read the letter.

Thursday, December 18, 2014

Low-Income Credit Unions and Secondary Capital

The Federal Credit Union Act allows low-income credit unions to count secondary or supplemental capital as part of their net worth.

Seventy-five credit unions, excluding Texans CU (Richardson, TX) and A.E.A FCU (Yuma, AZ), reported holding uninsured secondary capital accounts as part of their net worth as of the third quarter of 2014.

Twelve credit union as of September reported that over fifty percent of their net worth is in the form of uninsured secondary capital accounts. This includes Self-Help FCU (Durham, NC), which reports 78.18 percent of its net worth is in the form of uninsured secondary capital accounts.

However, should there be a limit on the amount of secondary capital that low-income credit unions can count towards net worth?

As I have previously written, regulators are focused on increasing the amount of high quality capital that financial institutions hold.

Retained earnings are high quality capital, while secondary or supplemental capital is not high quality capital; because it lacks permanence.

With the number of low-income designated credit unions almost doubling since the middle of 2012 and with few low-income credit unions currently exercising this authority, this would be an ideal time for the National Credit Union Administration to revisit its net worth requirements for low-income credit unions.

The goal should be to have a majority of low income credit unions' net worth comprised of permanent, high quality capital.

Tuesday, December 16, 2014

LUA with Sperry Associates FCU Terminated

The National Credit Union Administration announced today that it has terminated its Published Letter of Understanding and Agreement (LUA), dated May 28, 2010, with Sperry Associates Federal Credit Union of Garden City Park, New York.

Everyone Can Bank Here

NRL Federal Credit Union of Alexandria, Virginia is advertising that “EVERYONE CAN BANK HERE.”

ABA wrote National Credit Union Administration Chairman Debbie Matz on December 15 urging NCUA to order NRL FCU to stop such advertising, reminding the agency of its September 2013 guidance to federal credit unions to avoid “overly aggressive marketing campaigns ... providing consumers with misleading information about single and multiple common bond membership requirements.”​

Read the letter.

Monday, December 15, 2014

54 Percent of CUs Reported Y-O-Y Decline in Membership

The National Credit Union Administration last week reported that 54 percent of all federally insured credit union had fewer members as of the third quarter of 2014 compared to a year ago.

The median year-over-year decline in membership was minus 0.4 percent.

The agency acknowledges that credit unions with falling membership tend to be small. Seventy-five percent had less than $50 million in assets.

In 29 states, the median year-over-year membership growth rate was negative. That means more than half of the credit unions in those 29 states had fewer members as of September 2014 compared to September 2013. The states of New Jersey, Pennsylvania, and Montana had the lowest membership growth rate at minus 1.5 percent each.

NCUA notes that most of the industry's membership growth is coming from credit unions with $500 million or more in assets.

Saturday, December 13, 2014

Health One CU Liquidated

The Michigan Department of Insurance and Financial Services liquidated Health One Credit Union of Detroit and named the National Credit Union Administration as liquidating agent.

New England Federal Credit Union of Williston, Vermont, immediately assumed Health One Credit Union’s members, assets, shares and selected loans.

The Department of Insurance and Financial Services placed Health One Credit Union into conservatorship on May 16, 2014, and appointed NCUA as receiver. The Department made the decision to liquidate Health One Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations.

Health One Credit Union was critically undercapitalized with a net worth ratio of 1.39 percent as of the end of the third quarter. The credit union was reporting that 10.47 percent of its loans were 60 days or more past due, according to its most recent call report. In addition, the credit union posted a loss of $651,309 through the first three quarters of 2014 after posting a loss of over $1.3 million for all of 2013.

Health One Credit Union is the eleventh federally insured credit union liquidation in 2014 and the second Michigan credit union to fail this year. Metropolitan Church of God Credit Union was closed on December 3, 2014.

Read the press release.

Friday, December 12, 2014

Poor Customer Service Experience

On September 2, 2014, I wrote the NCUA's General Counsel requesting a legal opinion letter.

A month passed and I had not received an acknowledgment from the agency that they had received the letter.

I sent an inquiry to find out if the General Counsel Office had received the letter.

I receive a short response that he had received the letter.

Since then, I have not heard anything.

At ABA, we place an emphasis on offering excellent customer service.

At the minimum, good customer service would include acknowledging the request when sent, setting expectations as to when the request would be fulfilled, and keeping the requester informed regarding the status of the request.

In this case, NCUA's General Counsel Office has done none of these things.

Maybe my experience is unique.

But there is no excuse for this poor customer service.

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