Monday, November 30, 2015

CCTV-America on CU Taxi Medallion Lenders

CCTV-America examined the impact of Uber on the taxi medallion industry and its credit union lenders.

CCTV-America interviewed me for its story.

Here is a link to the story.

Friday, November 27, 2015

TDECU Commissioned Mural for TDECU Stadium Suite

TDECU commissioned artist Suzanne Sellers to create a mural for its suite at TDECU Stadium at the University of Houston.

The piece entitled: Victory, Character and Strength captures the driving spirit behind the University of Houston’s storied football program.

TDECU did not disclose the cost for the artwork.

Is commissioning artwork for a suite at a football stadium part of a credit union's tax exempt mission?

I also wonder if the members of the credit union think this is a good use of their money.

Read the press release.

Wednesday, November 25, 2015

NY Times: CU Start-Up Frustrated with Bureaucracy

The New York Times reported on the problem one credit union start-up had with the National Credit Union Administration (NCUA).

The credit union -- Internet Archive Federal Credit Union (New Brunswick, NJ) -- opened its door in 2012.

Credit union officials stated that they were frustrated by "a barrage of regulatory audits and limitations on its operations."

However, the article pointed out that this de novo credit union sought on several occasions to alter its business plans, including serving Bitcoin companies and providing international remittances for immigrant workers.

In my opinion, these changes in business plans at this start-up raised red flags with regulators and warranted increased oversight.

Read the story.

IG Report Recommends NCUA Add S to CAMEL Rating

The National Credit Union Administration (NCUA) Office of Inspector General (IG) recommended that NCUA add sensitivity to market risk (S) to its CAMEL rating.

Almost two decades earlier (January 1, 1997), the federal bank regulators -- The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency -- added S to their CAMELS rating.

The IG report noted that NCUA may not be effectively capturing interest rate risk (IRR) under "L" in its CAMEL rating.

The IG wrote:
[w]e determined that NCUA may not be effectively capturing IRR when assigning a composite CAMEL rating to a credit union. NCUA currently assesses sensitivity to market risk under the "L" in its CAMEL rating. However, combining sensitivity to market risk with liquidity may understate or obscure instances of high IRR exposure in a credit union. The addition of an “S” rating to its CAMEL Rating System to capture and separately assess a credit union’s sensitivity to market risk should improve NCUA’s ability to accurately measure and monitor interest rate risk. To better reflect the risk that changes in market rates will adversely affect a credit union’s capital and earnings, and in conjunction with a stated goal of NCUA’s IRR working group, we are making two recommendations in this report. We recommend NCUA management modify the current CAMEL Rating System by adding an “S” for market risk [S]ensitivity, and revising the “L” rating to reflect only liquidity factors.

Read the report.

Tuesday, November 24, 2015

NCUA Proposal Could Permit Seven State-wide FOMs

The National Credit Union Administration (NCUA) Board on November 19 issued a proposed rule for comment that would permit state-wide fields of membership (FOM) for seven states.

First, the NCUA Board is proposing that a Congressional District can constitute a well-defined local community. This represents a reversal of NCUA's previous position that a Congressional District did not meet the requirement of being a well-defined local community.

There are seven states represented by a single at large Congressional District. The seven states with a single at large Congressional District are: Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont, and Wyoming. In addition, the District of Columbia and several U.S. territories would qualify as a well-defined local community.

However, I don't see how an at large state-wide Congressional District is local and demonstrates a commonality of interest or interaction among members. In fact, NCUA's FOM and Chartering Manual notes that a state does not meet the requirement of being local.

Second, the NCUA Board is proposing to expand the population size of a rural district. The Board is raising the population threshold from 250,000 to 1 million. The other requirement is that a rural district is sparsely populated -- no more than 100 people per square mile.

Currently, the states of Alaska, North Dakota, South Dakota, Vermont, and Wyoming have low population densities and are under the 1 million population threshold requirement. However, more than half of the residents in the states of Alaska, North Dakota, South Dakota, and Wyoming live in urban areas.

So, how can a whole state be treated as a rural district when more than half of the state's population lives in urban areas?

I will provide additional comments on other areas of this proposed rule over the next month.

Read the proposed rule.

Monday, November 23, 2015

New Lawsuit Highlights Dire Financial Condition of Melrose

Owners of New York City's taxi "medallions" and three credit unions that finance taxi medallions filed on November 17 a lawsuit in U.S. District Court against the City of New York and the Taxi and Limousine Commission.

The complaint alleges disparate regulatory treatment of the taxi medallion industry compared to Uber and other e-hail providers. This disparate treatment according to the complaint violates the equal protection clause under the Fourteenth Amendment of the U.S. Constitution.

Moreover, the complaint outlines the worsening financial condition of one credit union -- Melrose Credit Union (Briarwood, NY).

Starting in paragraph 28 of the complaint, Melrose Credit Union states that it had aggregate taxicab medallion loan delinquencies of approximately $32,000 and no troubled debt restructurings as of January 2014. As of August 31, 2015, Melrose’s medallion loan delinquencies totaled $226,552,719––an increase of approximately 10 percent in a one month period. Likewise, as of August 31, 2015, troubled debt restructurings totaled approximately $195,529,000. Thus, Melrose reached approximately $422,081,719 in delinquencies and troubled debt restructurings––an increase of approximately 7 percent in a single month, and a staggering 34 percent increase since May 31, 2015.

Also in paragraph 31, Melrose Credit Union stated that it has hundreds of medallion loans maturing between now and February 2016, which will worsen the problem. In fact, Melrose has 190 medallion loans maturing in December with almost $83,000,000 in balloon payments becoming due. However, many of these loans are probably underwater due to falling taxi medallion prices.

Furthermore in paragraph 54, Melrose alleges that the Taxi and Limousine Commission overstated the average value of taxi medallions that the credit union used to underwrite the purchase of medallions until October 2013. Elsewhere in the complaint, it states that the Taxi and Limousine Commission, when calculating the average value for taxi medallions, tossed out medallion purchases the Commission believed were below the fair value for medallions. This might suggest that Melrose may have advanced more funds than would have been prudent based upon overinflated valuation of taxi medallions.

In paragraph 187, the complaint states that Melrose financed approximately 128 of the roughly 200 accessible medallions sold at the November 2013 auction. Today, 108 of the approximately 128 (or 84 percent) of the medallions sold in the November 2013 auction and financed by Plaintiff Melrose are now classified as either delinquent or troubled debt. This would suggest recent vintage taxi medallion loans could account for the bulk of the delinquencies and trouble debt restructurings.

For example, Melrose's Call Reports state that the credit union made almost 2,000 member business loans worth almost $878 million in 2013 and approximately 1302 member business loans worth almost $600 million in 2014. Presumably, most of these loans were for taxi medallions.

This information would suggest delinquencies and troubled debt restructurings are only going to go higher.

The following link to an article about the lawsuit has a link to the complaint. Read the article.

Friday, November 20, 2015

Helping Other People Excel FCU Closed

The National Credit Union Administration liquidated Helping Other People Excel Federal Credit Union of Jackson, New Jersey.

NCUA placed Helping Other People Excel Federal Credit Union into conservatorship on Oct. 16. The agency made the decision to liquidate the credit union and discontinue operations after determining it was insolvent and had no prospect for restoring viable operations.

Helping Other People Excel Federal Credit Union served 110 members and had assets of $626,529, according to the credit union’s most recent Call Report.

Helping Other People Excel Federal Credit Union is the 8th federally insured credit union liquidation in 2015.

Read the press release.

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.