Wednesday, April 16, 2014

A Disappointing CLF Membership Rate

The National Credit Union Administration (NCUA) is putting its best face on a disappointing Central Liquidity Facility (CLF) report.

NCUA reported that credit union membership in the CLF increased by 69 percent between March 31, 2013 and March 31, 2014 to 218 credit unions and the maximum borrowing base had increased by almost 58 percent to $3.8 billion.

In an April 11 press release NCUA Chairman Debbie Matz said: "It’s most encouraging to see the CLF performing well."

As background, NCUA is requiring all federally-insured credit unions with at least $250 million in assets to establish access to at least one contingent federal liquidity source, either the CLF or the Federal Reserve’s Discount Window, or both by March 31, 2014.

According to year-end data (the most recent available), there were 770 credit unions with at least $250 million in assets. Assuming that all 218 credit unions that are CLF members are $250 million or larger in asset size, this translates into a CLF membership participation rate of credit unions with at least $250 million or more in assets of approximately 28 percent.

However, I suspect the CLF membership rate is even lower among the credit unions with at least $250 million in assets.

Among all credit unions, the CLF membership rate is a paltry 3.33 percent.

This would explain the decision by the NCUA to increase the CLF stock dividend rate from 10 basis points to 25 basis points. A higher stock dividend rate could make CLF membership a little more attractive.

Read the press release.

Tuesday, April 15, 2014

Why is NCUA a Voting Member on FSOC?

The Dodd-Frank Act created the Financial Stability Oversight Council (FSOC). FSOC is made up of ten voting members and five nonvoting members.

But should the National Credit Union Administration (NCUA) be a voting member?

A report by the Bipartisan Policy Center to create a more effective regulatory architecture recommended making NCUA a non-voting member on the FSOC.

The report noted that "while it is useful to have representation on the FSOC from the NCUA, it makes little sense for the NCUA to have a vote equal to the Federal Reserve on all matters before the Council, particularly when the NCUA does not oversee a single institution that meets the criteria established by Congress or the FSOC as requiring enhanced supervision due to systemic importance."

The report recommends that "[t]he chair of the NCUA should become a non-voting member. Credit unions are an important part of the U.S. financial system, but they generally are small and do not figure into macro-prudential discussions. To the extent they do, a credit union voice will still be represented on the FSOC, but without a vote."

This recommendation really irked one credit union blogger, who wrote "[t]his is bureaucratese for patting credit unions on the head and sending them to the corner with crayons while the adults do all the important work."

Read the report.

Monday, April 14, 2014

Quorum FCU and Select Savers Club

Quorum Federal Credit Union (Purchase, NY) is allowing anyone to join the credit union by simultaneously joining an association, Select Savers Club.

Quorum’s online membership application has the following option “I would like to join the Select Savers Club and become a member of Quorum.”

So, what do we know about Select Savers Club and its relationship to Quorum FCU?

Select Savers Club, Inc. was founded in 2006. To become a member of Select Saver Club, you paid a one-time lifetime fee of $5. Starting in November 2007, members of Select Savers Club were eligible to join Quorum FCU.

However, Select Savers Club appears to be closely connected to Quorum FCU.

Three of Select Savers Club's Board members listed on its website either previously worked for Quorum or are currently employed by Quorum -- Heather Sulca, Marisa Conforti, and Danean Sheil. In addition, three other board members have the same last name as three officers of Quorum FCU -- Diane Slifstein, Kimberly Schade, and Tavis Briechle -- and are probably related to these Quorum officers.

In addition, there is no evidence that Select Savers Club is an active association. The last newsletter on its website is from August 2008 and the last announced membership meeting of the club is for the third quarter of 2008.

According to Guidestar, "[t]his organization has not appeared in IRS records for a number of months and may no longer exist."

So, although the club does not appear to be active or may no longer exist, it is still being used by Quorum to qualify people for memberhip in the credit union, who otherwise are not eligible for credit union membership.

As I have previously stated, the simultaneous signing up of an individual to an association in order to make them eligible for credit union membership contradicts congressional intent that there needs to be a genuine affiliation between credit union members in order for credit unions to fulfill their public mission. Membership in Select Savers Club or any other association needs to be more than the checking of a box on a credit union’s membership application.

Read ABA's letter to NCUA.

Saturday, April 12, 2014

Navy FCU Sued Over Debt Collection Practices

Heidi Carroll filed a lawsuit March 12 in Raleigh Circuit Court against Navy Federal Credit Union, citing violations of Consumer Credit and Protection Act, Computer Crime and Abuse Act and Telephone Harassment Statute, as well as infliction of emotional distress and invasion of privacy.

Read the story.

Friday, April 11, 2014

Banks Boast the Highest Deposit Interest Rates

While credit unions on average provide the highest interest rates for all deposit account types, banks boast the highest individual interest rates available today, according to GoBankingRates.

Read more.

Thursday, April 10, 2014

NCUA Clarifies Comment on Supplemental Capital and Risk-Based Capital

NCUA's General Counsel Mike McKenna sent a letter on April 9 to House Financial Services Committee Chairman Hensarling (R-TX0 and Ranking Member Waters (D-CA) clarifying the agency's position on supplemental capital as it relates to its risk-based capital proposal.

During the hearing, Rep. Sherman (D-CA) asked NCUA General Counsel Mike McKenna a series of questions regarding the NCUA's risk-based capital proposal, including one about supplemental capital as it relates to the proposed risk-based capital rule. McKenna stated that NCUA might allow credit unions greater access to supplemental capital as it finalizes the proposed rule.

In the letter, McKenna notes that NCUA has very little authority to establish supplemental or secondary capital for credit unions unless Congress changes the definition of net worth. McKenna states that with the exception of low-income credit unions net worth is limited to retained earnings as defined by generally accepted accounting principles.

McKenna wrote that NCUA will allow low-income credit unions to count supplemental capital as net worth for the purpose of calculating the credit union's risk-based capital ratio.

Below is the letter.

Wednesday, April 9, 2014

IRS UBIT Guidance

The Internal Revenue Service (IRS) issued guidance to Exempt Organization examiners stating that certain products offered by state-chartered credit unions will now be exempt from unrelated business income tax (UBIT).

The guidance arose from two district court decisions that held that activities the IRS has previously regarded as subject to UBIT should not be subject to UBIT. The government decided against appealing the decisions.

The following products will not be subject to UBIT.
  • Sale of checks/fees from a check printing company
  • Debit card program’s interchange fees
  • Credit card program’s interchange fees
  • Interest from credit card loans
  • Sale of collateral protection insurance
Income from the marketing of certain insurance products as well as ATM fees will be subject to UBIT.
  • Automobile warranties
  • Dental insurance
  • Cancer insurance
  • Accidental death and dismemberment insurance
  • Life insurance
  • Health insurance
  • ATM “per-transaction” fees from nonmembers
Income from credit life and credit disability insurance and GAP auto insurance is not subject to UBIT, unless these products are sold to non-members.

Finally, the IRS states: "Unless there is a royalty arrangement (rather than payments for a credit union’s services), treat all other insurance products including accidental death and dismemberment insurance as generally subject to UBIT.

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