Wednesday, July 23, 2014

Matz: CU System Would Not Have Survived without $26 Billion in Federal Government Assistance

In a July 23 speech to the Annual Convention of the National Association of Federla Credit Unions, NCUA Chairman Debbie Matz defended the agency's risk-based capital proposal by pointing out the credit unions received significant assistance from the federal government and would not have survived without it.

Matz said:

"While the worst of the crisis now appears to be receding into the rearview mirror, we cannot forget its lessons. First and foremost, we cannot forget that the federal government had to pump $26 billion into the credit union system to prevent it from collapsing. Without an infusion of $20 billion from NCUA’s Central Liquidity Facility and an additional $6 billion from NCUA’s line of credit at the U.S. Treasury, the credit union system as we know it would probably not have survived.

Even with this extraordinary assistance from the federal government, 102 credit unions still failed. Many of those credit unions appeared to have sufficient capital. That is, until they collapsed. Those failures cost the Share Insurance Fund three-quarters of a billion dollars. Through strong supervision, we were able to prevent an additional $1.5 billion dollars in losses from troubled credit unions that were on the brink of failing."

Read Matz's speech.

CFPB Proposal Would Subject Banks and CUs to Reputational Risk

Several years ago, I spoke to the 33rd Annual National Directors' Convention in Las Vegas about the huge threat that the Consumer Financial Protection Bureau (CFPB) poses to banks and credit unions.

The latest example of this threat is a new proposal by the CFPB to publish consumers’ narratives in its consumer complaint database. A company subject to a complaint would be given an opportunity to post a response that would appear next to a customer’s story. If the company does not respond in 15 days, the complaint narrative would be published.

The CFPB states that "by giving consumers an option to publicly share their stories, the CFPB would greatly enhance the utility of the database, a platform designed to provide consumers with valuable information needed to make better financial choices for themselves and their families."

But unlike YELP, the CFPB database will not include information about favorable consumer experiences.

The public disclosure of unverified consumer complaint narratives will not advance the goal of helping consumers to make informed and responsible financial decisions. However, it will subject financial institutions to reputational risk.

Read the press release.

Tuesday, July 22, 2014

Monterey CU Seeking a Mutual Bank Charter

Credit Union Times is reporting that privately-insured Monterey Credit Union is in the process of switching to a mutual savings bank charter.

The credit union cited limitations in making business loans as a reason for the charter conversion.

The credit union has applied to the California Department of Business Oversight for a mutual savings bank charter and to the FDIC for federal deposit insurance.

Ballots and information on the charter conversion were mailed to members on May 31 with ballots due by July 25.

Read the story.

Chairman Matz's Reply to Rep. McHenry on Risk-Based Capital Proposal

Below is a six page letter from NCUA Chairman Debbie Matz to Representative McHenry, regarding the agency's proposed risk-based capital rule.

Monday, July 21, 2014

Bill Would Exempt Biz Loans to Veterans from MBL Cap

Representative Jeff Miller (R-Fla.) introduced a bill (H.R. 5061) that would exclude business loans to veterans from the definition of a member business loan (MBL). As a result, these loans would not count against a credit union's aggregate member business lending (MBL) cap of 12.25 percent of assets.

Credit union advocates have been quick to applaud the bill, because they are eager for any legislation that would facilitate credit union efforts to make more business loans and evade the aggregate MBL cap.

However, excluding business loans to veterans from the definition of MBL does not seem to fit the current list of exclusions to the MBL definition -- loans of $50,000 or less, loans guaranteed by governmental agencies, and loans secured by primary residence or deposits.

The current exclusions from the MBL definition pose minimal safety and soundness risk to credit unions and the National Credit Union Share Insurance Fund (NCUSIF) by limiting the size of the loss on a defaulted business loan.

The same cannot be said for H.R. 5061.

While the cause of this bill may be noble, H.R. 5061 potentially increases the risk of loss to the NCUSIF, as these veteran business loans are no longer subject to NCUA's MBL regulations.

Read the bill.

Thursday, July 17, 2014

Two California CUs Agree to Consent Orders

San Diego Metropolitan Credit Union (San Diego, CA) and Eagle Credit Union (Lodi, CA) have entered into consent agreements with the California Department of Business Oversight.

The consent order against San Diego Metropolitan Credit Union requires the credit union to retain management and a Board of Directors acceptable to the Commissioner. In addition, the order requires San Diego County Metropolitan Credit Union to develop, adopt and implement a plan to materially reduce the risk in its Troubled Debt Restructures (TDR) portfolio and to fully document and support that the member has the ability to repay on future TDRs. San Diego Metropolitan Credit Union is also expected to develop and implement a plan to reduce its interest rate risk within 60 days of the date of the Order, including lowering its exposure to mortgage related loans and investments to no more than 600 percent of net worth by the end of 2014 and 500 percent of net worth by the end of 2015.

Read San Diego Metropolitan Credit Union's consent order.

The consent order against Eagle Credit Union requires the credit union to retain management and a Board of Directors acceptable to the Commissioner. Eagle Credit Union will take corrective actions to address all accounting and internal control deficiencies identified in the examinations dated December 31, 2013 and June 30, 2013 and the CPA audit as of September 30, 2013. The credit union is also expected to develop a reconciliation matrix to assure adequate oversight and adherence to the general ledger account reconciliation policy and procedures. Furthermore, Eagle Credit Union will develop, adopt, and submit a revised strategic plan and budget, documenting specific actions to be taken, the assumptions made, and the timeframes necessary to achieve positive earnings and net worth trends by year-end 2014. This order replaces an earlier enforcement order from February 6, 2012.

Read Eagle Credit Union's consent order.

VAROOM VAROOM: CU Is Title Sponsor for NASCAR Late Model Race

Martinsville DuPont Credit Union will be the title sponsor of the NASCAR Late Model MDCU 300 on October 5.

While the terms of the deal were not disclosed, the agreement between the Martinsville Speedway and the credit union is for multiple years.

Some credit union advocates will justify this sponsorship as a legitimate marketing expense.

But taxpayers and policymakers need to ask if this is the appropriate use of the credit union's tax exemption.

Read the story.

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