Both Credit Union Times and Credit Union Journal are reporting that American Share Insurance (ASI) will levy a 15 basis point special premium assessment on privately insured credit unions.
Credit Union Journal reported that ASI said: “The premium is deemed necessary as a result of losses developing, or incurred, in a small number of primary insured member credit unions.”
The special assessment was necessary to restore the ASI guarantee fund’s equity ratio to above its minimum level of 1.30 percent.
Tuesday, December 29, 2009
Wednesday, December 23, 2009
Shouldn’t Federal Credit Unions Be Required to Report on Governance Policies?
As part of its redesign of its Form 990, the Internal Revenue Service will require almost all not-for-profit organizations to provide greater detail about their corporate governance practices. Organizations, such as American Bankers Association, CUNA, and state-chartered credit unions, will be required to provide this information.
Federal credit unions, on the other hand, will not have to disclose this information because they are exempt from filing a Form 990.
The IRS, in justifying these additional disclosures, stated that “[g]ood governance and accountability practices provide safeguards to help ensure that the organization’s assets will be used consistently with its exempt purposes. This is a critical tax compliance consideration, especially for organizations that are subject to private benefit, excess benefit, and private inurement prohibitions. In addition, well-governed and well-managed organizations are more likely to be transparent with regard to their operations, finances, fundraising practices, and use of assets for exempt and unrelated purposes.”
The new Part VI, Governance, Management, and Disclosures, includes three sections: a) Governing Body and Management, b) Policies, and c) Disclosure. This information looks at “how and by whom an organization is governed, its governance and management policies and practices, certain relationships between or among its governing and management officials, and how the organization makes certain important information available to its constituents.”
For example, some of the questions appearing in Part VI are:
• Did any officer, director, trustee, or key employee have a family relationship or a business relationship with any other officer, director, trustee, or key employee?
• Does the organization have a written conflict of interest policy?
• Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?
• Does the organization have a written whistleblower policy?
To view Part VI, click on the image below.
There is not a sound public policy rationale for why federal credit unions should not disclose this information.
Since federal credit unions do not file a Form 990, NCUA should at least require federal credit unions to disclose the same information about their governance practices that other not-for-profit entities are required to file. This should not be that hard to do, since the IRS has already provided a template with the new Part VI.
Federal credit unions, on the other hand, will not have to disclose this information because they are exempt from filing a Form 990.
The IRS, in justifying these additional disclosures, stated that “[g]ood governance and accountability practices provide safeguards to help ensure that the organization’s assets will be used consistently with its exempt purposes. This is a critical tax compliance consideration, especially for organizations that are subject to private benefit, excess benefit, and private inurement prohibitions. In addition, well-governed and well-managed organizations are more likely to be transparent with regard to their operations, finances, fundraising practices, and use of assets for exempt and unrelated purposes.”
The new Part VI, Governance, Management, and Disclosures, includes three sections: a) Governing Body and Management, b) Policies, and c) Disclosure. This information looks at “how and by whom an organization is governed, its governance and management policies and practices, certain relationships between or among its governing and management officials, and how the organization makes certain important information available to its constituents.”
For example, some of the questions appearing in Part VI are:
• Did any officer, director, trustee, or key employee have a family relationship or a business relationship with any other officer, director, trustee, or key employee?
• Does the organization have a written conflict of interest policy?
• Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?
• Does the organization have a written whistleblower policy?
To view Part VI, click on the image below.
There is not a sound public policy rationale for why federal credit unions should not disclose this information.
Since federal credit unions do not file a Form 990, NCUA should at least require federal credit unions to disclose the same information about their governance practices that other not-for-profit entities are required to file. This should not be that hard to do, since the IRS has already provided a template with the new Part VI.
Saturday, December 19, 2009
3 Tampa Area CUs Charging Fee Per PIN Debit Purchase
News Channel 8 is reporting that at least 3 Tampa area credit unions are charging a fee for each PIN debit transaction.
According to the story, Bay Gulf Credit Union is assessing members 50 cents each time they use PIN debit for a purchase. GTE Federal Credit Union is charging 25 cents per transaction and The Railroad and Industrial Federal Credit Union is charging $1 every time its credit union members use their PIN numbers.
"Bay Gulf President Bill DeMare said the credit union was forced to impose the fees because of recent losses due to debit card skimming."
By charging a fee on PIN debit, this will create an incentive for their members to use signature debit in place of PIN debit.
It will also help the 3 credit unions' earnings, since the interchange fee received by a credit union or bank associated with signature debit transaction is higher than the interchange fee per PIN debit transaction.
According to the story, Bay Gulf Credit Union is assessing members 50 cents each time they use PIN debit for a purchase. GTE Federal Credit Union is charging 25 cents per transaction and The Railroad and Industrial Federal Credit Union is charging $1 every time its credit union members use their PIN numbers.
"Bay Gulf President Bill DeMare said the credit union was forced to impose the fees because of recent losses due to debit card skimming."
By charging a fee on PIN debit, this will create an incentive for their members to use signature debit in place of PIN debit.
It will also help the 3 credit unions' earnings, since the interchange fee received by a credit union or bank associated with signature debit transaction is higher than the interchange fee per PIN debit transaction.
Friday, December 18, 2009
Problem Credit Union Update
The National Credit Union Administration released updated data on the number of troubled credit unions at its December 17 Board meeting. There was a slight decrease in the number of problem credit unions; however, the total amount of deposits in these institutions edged higher.
NCUA reported that the number of problem credit unions, credit unions with a CAMEL code 4 and 5, fell by 9 from the previous month to 328 as of November 2009. In comparison, there were 271 problem credit unions at the end of 2008.
However, the amount of insured shares (deposits) in problem credit unions was $40.1 billion -- or 5.63 percent of the industry total insured shares -- more than double the amount of shares ($16.3 billion) in troubled credit unions at the end of 2008.
The following graph shows the distribution of problem credit unions by asset size.
NCUA reported that the number of problem credit unions, credit unions with a CAMEL code 4 and 5, fell by 9 from the previous month to 328 as of November 2009. In comparison, there were 271 problem credit unions at the end of 2008.
However, the amount of insured shares (deposits) in problem credit unions was $40.1 billion -- or 5.63 percent of the industry total insured shares -- more than double the amount of shares ($16.3 billion) in troubled credit unions at the end of 2008.
The following graph shows the distribution of problem credit unions by asset size.
Thursday, December 17, 2009
Do Credit Unions Have a Public Mission?
Recently, a person with more than 35 years in the credit union business commented to my posting on nonmember business loans that I'm unaware of a "mission statement" appearing within the Federal Credit Union Act.
While there is not a mission statement in the Federal Credit Union Act, I would suggest looking at the findings or preambles of various credit union acts to understand the intent of Congress. These preambles and findings make it abundantly clear that credit unions have a mission and that mission is to focus on consumers, especially those of modest means.
Let me be very clear; I’m not the only person to point to these findings to make a policy case as to what Congress intended. The Credit Union National Association has a history of citing these congressional findings to justify various policy stances the association has taken over the years.
For example, the preamble to the Federal Credit Union Act of 1934 states that credit unions are intended “… to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.”
The Credit Union Membership Access Act (CUMAA) of 1998 (Public Law 105 - 219) in its findings states that Congress found that “(1) The American credit union movement began as a cooperative effort to serve the productive and provident credit needs of individuals of modest means.” (emphasis added)
Congress reaffirms the continuation of this mission of serving individuals of modest means in Finding 4 of CUMAA, which states that “Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because they are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.” (emphasis added)
Finding 4 makes it abundantly clear that the credit union Federal tax exemption is tied to the mission of meeting the needs of consumers, especially persons of modest means.
While some credit unions may believe they don't have a specific public policy mission, I believe these congressional findings would suggest they do.
While there is not a mission statement in the Federal Credit Union Act, I would suggest looking at the findings or preambles of various credit union acts to understand the intent of Congress. These preambles and findings make it abundantly clear that credit unions have a mission and that mission is to focus on consumers, especially those of modest means.
Let me be very clear; I’m not the only person to point to these findings to make a policy case as to what Congress intended. The Credit Union National Association has a history of citing these congressional findings to justify various policy stances the association has taken over the years.
For example, the preamble to the Federal Credit Union Act of 1934 states that credit unions are intended “… to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.”
The Credit Union Membership Access Act (CUMAA) of 1998 (Public Law 105 - 219) in its findings states that Congress found that “(1) The American credit union movement began as a cooperative effort to serve the productive and provident credit needs of individuals of modest means.” (emphasis added)
Congress reaffirms the continuation of this mission of serving individuals of modest means in Finding 4 of CUMAA, which states that “Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because they are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.” (emphasis added)
Finding 4 makes it abundantly clear that the credit union Federal tax exemption is tied to the mission of meeting the needs of consumers, especially persons of modest means.
While some credit unions may believe they don't have a specific public policy mission, I believe these congressional findings would suggest they do.
Monday, December 14, 2009
Nonmember Business Loans
The other day, I was speaking with a reporter about legislation introduced by Rep. Kanjorski to raise the aggregate business loan cap of credit unions from 12.25 percent of assets to 25 percent of assets. During the call, I mentioned that nonmember business loans do not count against the aggregate business loan limit.
The reporter was shocked that credit unions were funding business loans to nonmembers, as this seems to contradict the raison d’etre for credit unions as membership organizations.
In October 2003, the National Credit Union Administration (NCUA) liberally modified its member business loan rule to exclude participated or purchased business loans to nonmembers from the aggregate business loan cap.
Beginning in 2004, NCUA started to track purchased business loans and participations to nonmembers.
In March 2004, business loans to nonmembers totaled almost $1.36 billion. By September 2009, federally-insured credit unions reported almost $6.65 billion in business loans to nonmembers. Business loans to nonmembers today represent about 19.3 percent of total business loans by credit unions.
At the end of June 2009, 696 credit unions reported funding nonmember business loans. In fact, some of these credit unions held a significant amount of nonmember business loans. Below is a list of credit unions with the largest amount of nonmember business loans on their books, as of June 30, 2009.
• Patelco CU (CA), $412,989,000;
• Premier America CU (CA), $190,285,000;
• Western FCU (CA), $154,046,000;
• Schoolsfirst (CA), $137,610,000;
• America First FCU (UT), $123,114,000;
• Langley FCU (VA), $113,399,000;
• California Coast CU (CA), $110,977,000;
• Travis CU (CA), $101,782,000;
• Keypoint (CA), $98,312,000; and
• Texans CU (TX), $95,292,000.
I believe a lot of other people would be shocked to recognize the extent to which credit unions are funding business loans to nonmembers.
The reporter was shocked that credit unions were funding business loans to nonmembers, as this seems to contradict the raison d’etre for credit unions as membership organizations.
In October 2003, the National Credit Union Administration (NCUA) liberally modified its member business loan rule to exclude participated or purchased business loans to nonmembers from the aggregate business loan cap.
Beginning in 2004, NCUA started to track purchased business loans and participations to nonmembers.
In March 2004, business loans to nonmembers totaled almost $1.36 billion. By September 2009, federally-insured credit unions reported almost $6.65 billion in business loans to nonmembers. Business loans to nonmembers today represent about 19.3 percent of total business loans by credit unions.
At the end of June 2009, 696 credit unions reported funding nonmember business loans. In fact, some of these credit unions held a significant amount of nonmember business loans. Below is a list of credit unions with the largest amount of nonmember business loans on their books, as of June 30, 2009.
• Patelco CU (CA), $412,989,000;
• Premier America CU (CA), $190,285,000;
• Western FCU (CA), $154,046,000;
• Schoolsfirst (CA), $137,610,000;
• America First FCU (UT), $123,114,000;
• Langley FCU (VA), $113,399,000;
• California Coast CU (CA), $110,977,000;
• Travis CU (CA), $101,782,000;
• Keypoint (CA), $98,312,000; and
• Texans CU (TX), $95,292,000.
I believe a lot of other people would be shocked to recognize the extent to which credit unions are funding business loans to nonmembers.
Thursday, December 10, 2009
Surprising Stat
Do banks or credit unions have a greater percentage of their respective industry’s assets in problem institutions?
If you guessed banks, you’re wrong.
At the end of the third quarter of 2009, the percentage of banking industry assets in problem banks was 2.61 percent.
In comparison, 4.83 percent of the credit union industry’s assets are in problem credit unions.
If you guessed banks, you’re wrong.
At the end of the third quarter of 2009, the percentage of banking industry assets in problem banks was 2.61 percent.
In comparison, 4.83 percent of the credit union industry’s assets are in problem credit unions.
Tuesday, December 8, 2009
NCUA Is Now Posting Closed Credit Union List
NCUA is making progress towards providing greater transparency regarding credit union failures.
In a July 8th posting , I called on the NCUA to become more forthcoming regarding information about credit union failures.
The agency now posts on its website a list of closed credit unions with the date the credit union is closed and a link to the press release announcing the closing.
This is progress, but NCUA needs to do more with regard to transparency.
The list appears to be incomplete as the number of closed credit unions does not match the number reported by the agency when it gave its NCUSIF monthly update at the November Board meeting.
The list names 18 credit unions that have failed through the end of November, but NCUA at its November Board meeting stated that 22 credit union had failed through the end of October. (click to enlarge graph)
Additionally, NCUA still is not providing information on the expected cost of these credit union failures to the National Credit Union Share Insurance Fund.
NCUA should make that its next step in providing greater disclosures.
In a July 8th posting , I called on the NCUA to become more forthcoming regarding information about credit union failures.
The agency now posts on its website a list of closed credit unions with the date the credit union is closed and a link to the press release announcing the closing.
This is progress, but NCUA needs to do more with regard to transparency.
The list appears to be incomplete as the number of closed credit unions does not match the number reported by the agency when it gave its NCUSIF monthly update at the November Board meeting.
The list names 18 credit unions that have failed through the end of November, but NCUA at its November Board meeting stated that 22 credit union had failed through the end of October. (click to enlarge graph)
Additionally, NCUA still is not providing information on the expected cost of these credit union failures to the National Credit Union Share Insurance Fund.
NCUA should make that its next step in providing greater disclosures.
Monday, December 7, 2009
Vermont CU Receives Statewide Field of Membership
The Vermont Department of Banking, Insurance, Securities and Health Care Administration approved Vermont State Employees CU’s request to serve anyone who lives or works in the state of Vermont.
This is the first statewide field of membership granted for a Vermont credit union.
When the field of membership includes anyone who lives or works in a state, is there really a common bond?
Isn't this credit union just a tax-exempt mutual bank?
Friday, December 4, 2009
Are Credit Unions Going to Repeat the Mistakes of the 1970s?
In a November 13 speech to the American Association of Credit Union Leagues, NCUA Chairman Deborah Matz expressed concern about credit unions holding fixed rate long-term mortgage loans on their books.
According to third quarter 2009 data, federally-insured credit unions held almost $131 billion in outstanding fixed rate first mortgages. This represents about 60.5 percent of all first mortgages on credit union books. This year, credit unions have granted an even higher percentage of fixed-rate first mortgages, 82.5 percent.
Ms. Matz pointed out that about 55 percent of all such long-term fixed rate mortgages granted this year are sold. The ones that are unsold are not spread out among all of the credit unions, but concentrated in certain institutions. Those credit unions that are keeping the loans on their books are exposed to greater interest rate risk, as they fund long-term fixed rate loans at historically low rates with short-term deposits.
Ms. Matz warns: “When interest rates go up – notice I said when, not if – those fixed-rate mortgages that are earning relatively high rates now could slip underwater. And then it would be too late to sell them.”
When interest rates begin to rise, the cost of funds will increase a lot more quickly than yield on assets as these credit unions are saddled with low-yielding legacy fixed rate mortgages.
Anyone who studied the S&L crisis of the 1980s knows that interest rate risk played a central role. Will credit unions repeat the mistakes that led to that crisis?
According to third quarter 2009 data, federally-insured credit unions held almost $131 billion in outstanding fixed rate first mortgages. This represents about 60.5 percent of all first mortgages on credit union books. This year, credit unions have granted an even higher percentage of fixed-rate first mortgages, 82.5 percent.
Ms. Matz pointed out that about 55 percent of all such long-term fixed rate mortgages granted this year are sold. The ones that are unsold are not spread out among all of the credit unions, but concentrated in certain institutions. Those credit unions that are keeping the loans on their books are exposed to greater interest rate risk, as they fund long-term fixed rate loans at historically low rates with short-term deposits.
Ms. Matz warns: “When interest rates go up – notice I said when, not if – those fixed-rate mortgages that are earning relatively high rates now could slip underwater. And then it would be too late to sell them.”
When interest rates begin to rise, the cost of funds will increase a lot more quickly than yield on assets as these credit unions are saddled with low-yielding legacy fixed rate mortgages.
Anyone who studied the S&L crisis of the 1980s knows that interest rate risk played a central role. Will credit unions repeat the mistakes that led to that crisis?
Wednesday, December 2, 2009
Velocity CU's Members to Vote on Becoming Privately Insured
Velocity Credit Union (Austin, Texas) is seeking to change from federal deposit insurance to private deposit insurance.
The management and the credit union’s board has requested that members vote for the change in deposit insurer.
If approved, accounts at Velocity CU would be insured through American Mutual Share Insurance (ASI), the last remaining provider of private share insurance.
The credit union cites several factors in favor of converting to private insurance.
Velocity points out that due to estimated losses in the National Credit Union Share Insurance Fund (NCUSIF), it was assessed a premium in 2009 of $675,106. Velocity CU stated that this premium payment adversely affected the credit union’s earnings and net capital in 2009.
Additionally, Velocity notes that with ASI coverage, each individual member’s account is insured up to $250,000 and there is no limit to the number of accounts insured up to the $250,000 limit.
However, a Las Vegas Review Journal article cites a Government Accountability Office (GAO) study from October 2003 study stating that “ASI has limited borrowing capacity and could find it difficult to cover catastrophic losses under extreme economic conditions because it does not have the backing of any governmental agency, its lines of credit are limited in the aggregate as to the amount and available collateral, and it has no reinsurance for its primary share insurance.”
ASI in response to the GAO study stated that “no member of an ASI-insured credit union has ever lost money” and it can reassess its member credit unions up to 3 percent of their total assets to raise more capital in the case of catastrophic losses.
But the Las Vegas Review Journal article points out that depositors in Rhodes Island did not fare as well when the private insurance fund in Rhodes Island failed.
For Velocity to convert from federal insurance to private insurance, at least 20 percent of the membership needs to vote on the proposal.
Below is a disclosure posted by Velocity Credit Union on the facts about the vote (click on image to enlarge).
The management and the credit union’s board has requested that members vote for the change in deposit insurer.
If approved, accounts at Velocity CU would be insured through American Mutual Share Insurance (ASI), the last remaining provider of private share insurance.
The credit union cites several factors in favor of converting to private insurance.
Velocity points out that due to estimated losses in the National Credit Union Share Insurance Fund (NCUSIF), it was assessed a premium in 2009 of $675,106. Velocity CU stated that this premium payment adversely affected the credit union’s earnings and net capital in 2009.
Additionally, Velocity notes that with ASI coverage, each individual member’s account is insured up to $250,000 and there is no limit to the number of accounts insured up to the $250,000 limit.
However, a Las Vegas Review Journal article cites a Government Accountability Office (GAO) study from October 2003 study stating that “ASI has limited borrowing capacity and could find it difficult to cover catastrophic losses under extreme economic conditions because it does not have the backing of any governmental agency, its lines of credit are limited in the aggregate as to the amount and available collateral, and it has no reinsurance for its primary share insurance.”
ASI in response to the GAO study stated that “no member of an ASI-insured credit union has ever lost money” and it can reassess its member credit unions up to 3 percent of their total assets to raise more capital in the case of catastrophic losses.
But the Las Vegas Review Journal article points out that depositors in Rhodes Island did not fare as well when the private insurance fund in Rhodes Island failed.
For Velocity to convert from federal insurance to private insurance, at least 20 percent of the membership needs to vote on the proposal.
Below is a disclosure posted by Velocity Credit Union on the facts about the vote (click on image to enlarge).
Tuesday, December 1, 2009
San Diego County CU Extends Title Sponsorship to College Bowl Game
San Diego County Credit Union has extended its title sponsorship of the Poinsettia Bowl through 2010, with options for 2011 and 2012. The $4.8 billion credit union has been the title sponsor of the game since its inception in 2005.
While no figure regarding the cost of being a title sponsor is released, the Poinsettia Bowl does disclose that the cost of being a premiere club sponsor begins at $25,000.
If San Diego County Credit Union can afford to buy the naming rights to a college bowl game, I believe it can also pay its fair share in income taxes. After all, the credit union reported a return on assets of 1.58 percent – more than 4 times the average return on assets of its peers.
And by the way, I don’t plan on watching the bowl game. There is not enough Prevacid in the world to handle the heartburn I would get whenever the title sponsor's name is mentioned during the ESPN broadcast of the bowl game.