Friday, October 21, 2016

Bad Deal?

Yesterday, I reported that National Credit Union Administration (NCUA) paid more than $1 billion in contingent legal fees to two law firms regarding lawsuits over the sale of toxic mortgage securities that contributed to the failure of five corporate credit unions during the financial crisis.

These contingent legal fees were approximately 23.2 percent of the total recoveries from the settlement of the lawsuits.

However, Reuters is reporting that legal fees paid by NCUA is more than double the amount paid by the Federal Housing Finance Agency (FHFA).

FHFA paid $406.7 million to law firms that pursued similar set of lawsuits over the sale of toxic mortgage securities. These legal fees were approximately 2 percent of the $18.7 billion FHFA had obtained through settlements and judgments.

Why didn't NCUA negotiate a better deal?

Congress should investigate NCUA's sweetheart deal with these two law firms.

Judge Questions Validity of CU's Arbitration Clause

The PennRecord is reporting that a federal judge is allowing discovery to proceed in a putative class action litigation between FedChoice Federal Credit Union (Lanham, MD) and any members who may have been affected by an arbitration clause in the institution’s Service Agreement.

To be able use FedChoice's inter-bank service, the plaintiff had to agree to accept the Service Agreement. It was either "all or nothing."

However, Judge J. William Ditter Jr. of the U.S. District Court for the Eastern District of Pennsylvania said October 12 the Service Agreement presented by FedChoice contained an arbitration clause of “questionable validity."

The judge noted that the arbitration clause was buried on page 10 of 12 pages of online legalese.

The plaintiff, Sheila Horton, filed a class action lawsuit challenging the fees charged for overdraft protection by FedChoice. FedChoice claims that the parties in the dispute are governed by a broad, written, enforceable arbitration agreement.

Read more.

Thursday, October 20, 2016

Corporate CU Lawsuit Legal Contingency Fees Tops $1 Billion

The National Credit Union Administration (NCUA) today disclosed that it has so far paid legal contingency fees to two law firms of $1,003,029,479.

As of Oct. 11, 2016, the NCUA Board has recovered more than $4.3 billion from its lawsuits filed over the failure of five corporate credit unions.

These legal contingency fees represent 23.2 percent of total recoveries from the lawsuits.

Read the press release.

GAO Regulation D Study Looks at Impact on Bank and CU Practices

The Government Accountability Office (GAO) study released on October 18 examines the impact of Regulation D on bank and credit union practices.

Section 19 of the Federal Reserve Act requires depository institutions to maintain reserves against a portion of their transaction accounts solely for the implementation of monetary policy. Regulation D implements section 19, and it also requires institutions to limit certain kinds of transfers and withdrawals from savings deposits to not more than six per month or statement cycle if they wish to avoid having to maintain reserves against these accounts.

Reserve requirements are an implicit tax on banks and credit unions. However, the authority for the Federal Reserve to pay interest on reserves has reduced some of the costs associated with reserve requirements.

GAO found that 12,135 depository institutions were subject to Regulation D’s requirements, as of June 2015. Fifty-two percent were credit unions, while 48 percent were banks.

Eighty-six percent of banks were required to satisfy reserve requirements in contrast to 23 percent of credit unions. Sixty-five percent of banks had net transaction account balances reservable at the 3 percent ratio and 20 percent of banks were reservable at the 10 percent ratio. Of the 23 percent of credit unions that were required to satisfy reserve requirements, the majority (79 percent) had net transaction deposits reservable at the 3 percent ratio.

As part of its study on Regulation D, GAO surveyed 892 depository institutions with a response rate of 71 percent. Below are some of the findings from the report.

GAO found banks were more likely than credit unions to enforce the transaction limit to implement Regulation D’s requirements, with an estimate of 89 percent versus an estimate of 59 percent.

GAO estimated that 63 percent of banks charged fees after the sixth transaction on savings accounts compared to 55 percent of credit unions. For money market accounts, GAO found that 90 percent of banks charged fees after sixth transaction compared with an estimate of 63 percent of credit unions.

Banks tended to report lower fees for savings accounts, with an estimated median of about $2 for banks and an estimated median of about $4 for credit unions. The median fee for money market accounts was about $5 for both banks and credit unions.

GAO found that more credit unions than banks (an estimated 54 percent versus an estimated 6 percent for savings accounts and an estimated 55 percent versus an estimated 4 percent for money market accounts) prohibited the seventh transaction when the six transaction limit was reached.

GAO also noted that banks were more likely to employ retail sweeps program to reduce the amount of reservable net transaction accounts than credit unions. Fifteen percent of banks and 2 percent of credit unions employed retail sweeps program to reduce transaction account reserves.

In addition, the study surveyed banks and credit unions about the biggest challenges associated with monitoring and enforcing the transaction limit with the top challenge getting customers to read Regulation D disclosures.

There is more information in the report. Click on the link below to see more of the results from the survey.

Read the study.

Wednesday, October 19, 2016

Members Choice Credit Union Builds New HQ

Members Choice Credit Union (Houston, TX) will move to a new 80,000-square-foot, four-story building by October 2017, according to the Houston Business Journal.

Construction began in August on the new building.

The company plans to occupy up to three floors of the building and lease out the remaining space to tenants.

The price tag of the project was not disclosed.

Read the story.

Was NCUA AWOL on Navy's Improper Debt Collection Practices?

It appears that the National Credit Union Administration (NCUA) was "absent without leave" (AWOL) with respect to Navy Federal Credit Union's improper debt collection practices.

Only the Consumer Financial Protection Bureau (CFPB) issued an enforcement order about Navy's collection practices and required Navy to make restitution to members harmed by its collection practices.

However, NCUA, which is the primary safety and soundness regulator of Navy, did not take any action against Navy Federal Credit Union at this time.

In comparison, the Office of the Comptroller of the Currency issued an enforcement order against Wells Fargo over its sales practices in coordination with the CFPB.

Why didn't NCUA coordinate enforcement actions with CFPB?

Does NCUA believe that improper debt collection practices and the freezing of members electronic access to their accounts are a safety and soundness concern?

I suspect that this improper debt collection practice at Navy is not an isolated event. There are probably other credit unions that are engaged in questionable debt collection practices.

It seems to me that NCUA should make examining the debt collection practices of credit unions an important part of any consumer compliance exam.

NCUA's silence on this issue is deafening.

Tuesday, October 18, 2016

NCUA to Fully Repay U.S. Treasury Borrowings by October 31

The National Credit Union Administration (NCUA) plans to fully repay by October 31 the $1 billion outstanding balance on the agency’s borrowing line with the U.S. Treasury.

When that payment is made, the Temporary Corporate Credit Union Stabilization Fund’s outstanding borrowings from the U.S. Treasury will be repaid in full.

However, the agency noted no funds will be available to provide federally insured credit unions with an immediate rebate of Stabilization Fund assessments. Additionally, no funds are available for any recoveries by investors with claims for depleted capital of the failed corporate credit unions. NCUA must first satisfy any outstanding senior obligations of the Stabilization Fund and corporate credit union asset management estates.

With the repayment of borrowings from the U.S. Treasury, credit unions could be eligible for a dividend payment from the National Credit Union Share Insurance Fund (NCUSIF), if the NCUSIF is above the normal operating level and the NCUA Board declares a dividend.

Read the press release.

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