Tuesday, September 30, 2014

Republic Hose Employees FCU Liquidated

The National Credit Union Administration liquidated Republic Hose Employees Federal Credit Union of Youngstown, Ohio.

NCUA made the decision to liquidate Republic Hose Employees Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

As of June 2014, the credit union was adequately capitalized. Almost 7 percent of its loans were delinquent. The credit union reported a loss for all of 2013 and the first half of 2014.

Republic Hose Employees Federal Credit Union served 455 members and had assets of $581,487.

Read the press release.

The Great Divide

Second quarter financial performance data for federally-insured credit unions show that there is a growing divide between the largest credit unions and smallest credit unions.

Large credit unions -- those with more than $500 million in assets -- reported a return on average assets of 96 basis points, while small credit unions with less than $10 million in assets reported a loss with a return on average assets of minus 5 basis points.

Eight hundred and forty small credit unions reported a loss through the first six months of 2014. In addition, only 894 small credit unions (or 43 percent of small credit unions) reported higher earnings for the first six months of 2014 compared to a year earlier.

In comparison, only 3 credit unions with more than $500 million in assets reported losses through the first half of 2014. Also, 231 out of 448 large credit unions (or nearly 52 percent of large credit unions) reported higher earnings through the first half of 2014 compared to the same time period in 2013.

In addition, small credit unions posted negative growth rate in net worth, membership, and loans during the first six months of 2014.

Large credit unions, on the other hand, reported that net worth grew by 9.69 percent, membership increased by 6.35 percent, and loans expanded 10.9 percent.

Thursday, September 25, 2014

Credit Unions, Starter Interrupter Devices, and Collections

The New York Times is reporting that First Castle Federal Credit Union in Covington, La. is using starter interrupter devices to track the location of the cars that it has financed.

According to the article, the head of collections for the credit union, Lionel M. Vead Jr., uses the device to monitor the movements of about 880 subprime borrowers on a computerized map. If a borrower has fallen behind on his or her payment, Mr. Vead can remotely disable the vehicle from his computer or mobile phone.

The article quotes Mr. Vead about disabling a car while shopping at a Walmart.

He noted that once he disabled the vehicle, the borrower will call him within minutes looking to make the payment.

He is also encouraging other credit unions to use the technology.

Moreover, Lender Systems of Temecula, Calif., which sells a range of starter interrupt devices, has seen its revenues more than doubled so far this year, buoyed by an influx of new credit union customers.

However, this practice, while improving collections, does raise privacy concerns. 

Read the story.

Credit Unions and Jumbo Mortgages

An article in The Wall Street Journal advises readers to look at credit unions for jumbo mortgages; but also warns readers to shop around.

The article points out that credit unions have grown their market share of mortgages from 3 percent to 10 percent over the past decade; but jumbo mortgages remain a small part of the total mortgage volume of most credit unions.

In general, it is the larger credit unions, like Navy FCU (Vienna, Va.), Bethpage FCU (Bethpage, NY), and PenFed (Alexandria, Va.), that are making these loans, although some smaller credit unions originate jumbo mortgages for relationship building.

Those credit unions that are offering jumbo mortgages tend to operate in markets with higher real estate prices, such as Washington, D.C., California, and Long Island, NY.

However, the article points out that interest rates on credit union jumbo mortgages are not necessarily lower than those offered by banks or other lenders and the amount that credit unions have to lend tends to be smaller.

Therefore, if you are looking for a jumbo mortgage, it pays to shop around.

Read the article (subscription required).

Wednesday, September 24, 2014

Appeals of Material Supervisory Determinations

A paper by Julie Andersen Hill at a conference sponsored by Federal Reserve System/Conference of State Bank Supervisors examined appeals of material supervisory determinations (MSDs) by financial institutions to the various federal banking agencies.

Beginning on page 47 of the paper, the author looks at the appeal process for the National Credit Union Administration.

According to the paper, there were 140 contacts by credit unions with NCUA Region Offices between 2002 and 2012. Ninety percent were by federal credit unions and 10 percent were by state chartered credit unions.

The paper found that "disagreement over CAMEL composite or component ratings was the most common reason that credit unions used the MSD appeals process. Additionally, 47 appeals involved a document of resolution."

However, the paper noted that credit unions rarely succeeded in overturning the initial examination determination, as seventy percent of the appeals upheld the initial examiner decision. In less than 20 percent of the appeals did the Region Office amend the MSD.

Moreover, very few appeals were filed with NCUA's Supervisory Review Committee (only six between 1995 and 2012) and the Supervisory Review Committee in each instance upheld the examiners' decisions.

The paper also pointed out differences between NCUA and the other federal banking agencies regarding their appeal processes.

For example, the OCC, Federal Reserve, and FDIC allow financial institutions to appeal any examination rating. The NCUA, however, only allows appeals of composite CAMEL ratings of 3, 4, and 5 and all component ratings of those composite ratings. The author concluded that this means credit unions have less access to an appeals process compared to other financial institutions.

The author concludes that federal banking regulators need to strengthen their MSD appeals process. This would include giving financial institutions direct access to a dedicated appellate authority outside of the examination function; requiring the appellate authority to employ a clear and rigorous standard of review; and disclosing detailed information about each decision reached by the appellate authority.

Tuesday, September 23, 2014

AgFed Using Group to Circumvent FOM Limitation

Washington, D.C.-based Agriculture Federal Credit Union (AgFed) must stop advertising that “everyone is welcome” to join, ABA said in a letter on September 22 to the National Credit Union Administration.

ABA cited AgFed’s website, which says “Everyone is welcome. Join today.” AgFed invites ineligible individuals to join by becoming members of CityDance for $20.

ABA urged NCUA to order AgFed not to advertise that everyone can join and to conduct a quality assurance review of CityDance to ensure that it truly meets the associational common bond requirement.

NCUA last year warned credit unions to avoid “overly aggressive marketing campaigns ... providing consumers with misleading information about single and multiple common bond membership requirements.” The agency is also conducting reviews of third-party groups that CUs use to circumvent common bond requirements.

Read the letter.

Monday, September 22, 2014

TILA Rescission Case

The Supreme Court will hear arguments in November that will be of interest to all lenders that originate mortgages.

The question before the Supreme Court is:
Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 of the Truth in Lending Act (“TILA”) by “notifying the creditor” in writing within three years of the consummation of the transaction, as the Third, Fourth, and Eleventh Circuits have held, or must a borrower file a lawsuit within three years of the consummation of the transaction, as the First, Sixth, Eighth, Ninth, and Tenth Circuits have held?

TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f).

The American Bankers Association along with other trade groups filed a friend-of-the-court brief urging the Supreme Court to uphold the appellate court decision in Jesinoski v. Countrywide. The appellate court in Jesinoski ruled that to rescind a mortgage, a borrower must file a lawsuit before three years are up, as most other appellate circuits have found.

The petitioners are urging the Supreme Court to find that a written notice of intent to rescind a mortgage is sufficient within the three-year window.

ABA and the other groups argued that the petitioners’ approach, however, would “fundamentally undermine the finality and clarity Congress intended this statute to provide.”

Moreover, the petitioners' approach would allow a borrower to strip a creditor of its security interest instantaneously and unilaterally — even if the creditor complied fully with TILA. But most importantly, it would cast a shadow of uncertainty over the housing finance market, resulting in additional costs to borrowers.

Read the brief.

Friday, September 19, 2014

No Follow Up Report on September 2013 Community Charter Approval

A year ago, the NCUA Board approved an expansion of the community charter for Peoples Advantage Federal Credit Union to serve the Richmond (VA) Metropolitan Statistical Area.

But the transcript from the September 2013 NCUA Board meeting shows that Board member Michael Fryzel expressed deep reservations about the ability of the credit union to serve this expanded community charter. He requested a follow up report from staff to the NCUA Board one year after the community charter approval on how the "credit union is doing and what part of their new market they're penetrating and if they are achieving the goals they said they would in their marketing plan."

Well, it is one year later. Fryzel is no longer on the NCUA Board and there was no report to the NCUA Board at its September 2014 meeting on how the credit union is doing in serving this expanded community.

Out of sight, out of mind.

Thursday, September 18, 2014

Disability as a Common Bond

Is a disability a common bond?

For at least one credit union, the answer is yes.

Veridian Credit Union (Waterloo, Iowa) states that part of its field of membership includes "individuals with disabilities as defined by the Americans with Disabilities Act of 1990 who are living in the State of Iowa."

To read how the Americans with Disabilities Act defines the term disabilities, click here.

But the big question is how do individuals with disabilities meet the requirements for a common bond?

Section 533.202 of the Iowa Code states that "[s]tate credit union organization shall be available to groups of individuals who have a common bond of association such as, but not limited to, occupation, common employer, or residence within specified geographic boundaries."

If you dig into the state's administrative code, it defines the various types of common bond.

But I have a hard time comprehending how individuals with disabilities as defined by the Americans with Disabilities Act meets the state's common bond requirements.

This is just another example of credit unions pushing the boundary with regard to common bond and a credit union regulator abetting the effort.

Wednesday, September 17, 2014

CFPB Needs to Provide Written Guidance on TILA-RESPA Merger

Sixteen trade groups on September 16 asked the Consumer Financial Protection Bureau (CFPB) for additional written guidance to help the industry implement the merger of the Truth in Lending Act and Real Estate Settlement Procedures Act disclosures, which takes effect Aug. 1, 2015.

Specifically, the groups sought clear written guidance addressing the industry’s implementation questions. “We appreciate the bureau offering oral guidance through webinars, and other channels,” they said. But “uniform written guidance developed with stakeholders’ input that can be relied upon will further fair competition and minimize the possibility of undue liability increasing costs. Most importantly, it will ensure that consumers will not be harmed by unnecessary confusion.”

The groups also encouraged the CFPB to continue working with industry vendors, provide additional example forms and resolve inconsistencies with state laws on mortgage disclosures.

Read the letter.

Tuesday, September 16, 2014

Undercapitalized Credit Unions, June 30, 2014

As of June 30, 2014, there were 60 undercapitalized credit unions in the United States.

These undercapitalized credit unions held slightly more than $3.4 billion in assets.

Six credit unions were classified as critically undercapitalized, while 14 credit unions were significantly undercapitalized.

Four credit unions that were classified as undercapitalized had net worth ratios in excess of 6 percent. However, their net worth ratios did not meet the minimum risk-based net worth requirement.

Monday, September 15, 2014

Rep. Luetkemeyer Rips NCUA

Speaking at the National Association of Federal Credit Unions Congressional Caucus, Rep. Blaine Luetkemeyer (R - MO) ripped the National Credit Union Administration (NCUA) for requesting that the House Financial Services Committee reject any amendment related to the agency's risk-based capital proposal.

Luetkemeyer said: "Here’s a regulator petitioning us, Congress, not to do our job. I mean, it’s just beyond explanation. They don’t want any oversight. They don’t want anybody to interrupt their little games that they’re playing."

It seems that the relationship between some members of the House Financial Services Committee and NCUA's leadership may be a bit frosty.

See the story in Credit Union Times.

Friday, September 12, 2014

Bethpage FCU Buys Branch, Assets, and Liabilities from City National Bank of New Jersey

Newark, N.J.-based City National Bank of New Jersey is selling assets and liabilities of its Roosevelt, N.Y., branch to $5.7 billion Bethpage Federal Credit Union.

According to the FDIC, the branch in question had $15.3 million in deposits as of June 30, 2013. City National Bank on September 4 filed an application seeking approval for the proposed sale, which is expected to close by December.

Read the story in the American Banker.

Rep. Maloney: Overdraft Fees Should Be Reasonable and Proportional

Representative Carolyn B. Maloney (D-NY) wrote Consumer Financial Protection Bureau Director Richard Cordray requesting he act immediately to curb abusive overdraft fees.

She specifically urged Cordray to expand the opt-in rules to checks and ACH transactions and to require overdraft fees to be “reasonable and proportional.”

By advocating for overdraft fees be "reasonable and proportional," the Congresswoman is proposing price controls.

However, price controls interfere with the proper functioning of markets.

Capping overdraft fees would create perverse incentives. Individuals would be more likely to overdraw their accounts, while at the same time banks and credit unions would be less likely to offer the product.

In addition, a possible outcome from capping overdraft fees is that people who regularly overdraw their accounts may lose access to checking accounts and possibly to depository institutions.

While policymakers are looking for ways to increase financial inclusion, proposals to limit what banks and credit unions can charge on their products and services, such as requiring overdraft fees to be reasonable and proportional, will achieve the opposite outcome.

Read Representative Maloney's press release and letter.

Thursday, September 11, 2014

College Students and Low-Income Designation

Numerous studies show that lifetime earnings and level of educational attainment are positively correlated.

However, there are some college and university credit unions, which have received a low-income designation from the National Credit Union Administration (NCUA).

According to NCUA's regulations, "[t]he term “low-income members” also includes those members enrolled as students in a college, university, high school, or vocational school."

In other words, NCUA does not consider the income of the member enrolled in college or university nor the financial wherewithal of the student's family. Also, NCUA does not take into consideration that upon graduating college students will on average see a significant increase in their earnings relative to the broader population.

For example, Georgetown University Alumni & Student Federal Credit Union has a low-income designation.

But a study by Payscale.com found that Georgetown graduates had a median starting salary of $55,000 and a median mid-career salary of $110,000, according to a November 2008 article in The Hoya. The survey only considered students without graduate degrees.

If the study had included students with graduate or professional degrees, the pay would have been significantly higher.

College students have greater economic mobility. It is a misnomer to call credit union members enrolled in college low-income members.

NCUA needs to reconsider treating members that are enrolled in college or universities as de facto low-income members.

Tuesday, September 9, 2014

Stat of the Day: 54 Percent of CUs Saw a Y-o-Y Decline in Membership

While credit union trade associations were spiking the ball celebrating that credit union membership had reached 100 million, most credit unions did not participate in this membership growth.

According to NCUA, the median credit union membership growth rate was minus 0.4 percent year-over-year. Nationally, 54 percent of credit unions had fewer members at the end of the second quarter than a year before.

NCUA noted that credit union industry membership growth was primarily due to large credit unions.

Monday, September 8, 2014

Radio Ad Calling for the End of CU Tax Subsidy

ABA is running a radio ad this week emphasizing the need to end the credit unions’ outdated tax subsidy.

“Government data show that just one percent of [credit union] home loans went to low-income borrowers,” ABA president and CEO Frank Keating says. “For that, credit unions avoided $2 billion in taxes. Ask Congress why taxpayers should give credit unions $2 billion for doing just one percent of their job.” Listen to the ad.

Saturday, September 6, 2014

Louden Depot CU Closed

The Iowa Credit Union Division was granted authority by the District Court to place Louden Depot Community Credit Union of Fairfield, Iowa, into receivership and then tendered the receivership to the National Credit Union Administration.

Community 1st Credit Union of Ottumwa, Iowa, immediately assumed most of Louden Depot Community Credit Union’s members, assets, and loans.

The Iowa Credit Union Division made the decision to take over management of Louden Depot Community Credit Union and determined the credit union was insolvent with no prospect for restoring viable operations on its own. Financial irregularities probably contributed to the credit union's failure, as the credit union's most recent call report filing indicated that the credit union was well capitalized and profitable.

Louden Depot CU had almost $5 million in assets at the time of its closing.

Louden Depot Community Credit Union is the seventh federally insured credit union liquidation in 2014.

Read the press release.

Dane County CU Suspends Mortgage Originations

The Wisconsin State Journal is reporting that Dane County Credit Union suspended mortgage loan originations due to personnel issues.

It appears that the credit union did not have the right people in place to be up to speed with regard to the new mortgage rules.

Read the article.

Friday, September 5, 2014

PenFed's Motley Fool Visa Card Membership Scam

Pentagon Federal Credit Union (PenFed) is marketing a Motley Fool Platinum Cash Rewards Visa Card and at the same time making a mockery of the associational common bond requirement.

According to PenFed's membership application, the credit union will make a complimentary $5 deposit into a share account required for credit union membership; but will also make a donation to a group to qualify a person for credit union membership.

Credit Unions may only consider applications for account, loans, or services from their members. Through The Motley Fool, there is an easy way for you to join PenFed.

PenFed will provide you a complimentary $5 as an opening deposit into your share (savings) account which is required to be a PenFed member. PenFed will also make a one-time $15 donation on your behalf to one of its partner organizations, Voices for America's Troops (VOICES). This donation will make you a member of VOICES, which then entitles you to become a member of PenFed.
However, if a person is unwilling to pay the associational dues, this would suggest a lack of support for the association’s goals and mission.

Moreover, PenFed states on its appplication that renewal of VOICES membership is not required to remain a member of PenFed.  Once again, this suggests a lack of commitment to the goals and mission of VOICES.

I'm also troubled by the PenFed's depositing $5 into a share account for the individual that is required for credit union membership.

So, it appears that the linkage between the borrower and saver being the same is no longer satisfied, when a credit union pays the deposit required for credit union membership.

These continued common bond abuses by large credit unions, which operate like mutual savings banks, will ultimately jeopardize the tax exemption for credit unions.

Click on the Application.

Wednesday, September 3, 2014

Corporate Inversions Resemble CU Tax Exemption

Corporate tax inversions like Burger King’s and Medtronic’s -- in which U.S. companies incorporate offshore to avoid some U.S. taxes -- are much in the news and attracting policymakers’ attention. So why, ABA President and CEO Frank Keating asked in an American Banker op-ed yesterday, have policymakers paid so little attention to credit unions, “an entire industry that has been quietly -- and legally -- avoiding taxes for eight decades?”

“In fact, credit unions' tax loophole costs taxpayers as much as inversions do: $2 billion per year,” Keating wrote. “If inversions are controversial, so too should be the subversion of the historic basis for credit union tax exemptions.”

The brouhaha over inversions highlights the need for comprehensive, pro-competitive corporate tax reform, he argued -- which should close loopholes for credit unions. “Companies should be free to grow their businesses on their own terms, and they should then pay straightforward taxes on their profits,” he said.

Read the op-ed.

Tuesday, September 2, 2014

Loans and Assets Up in Q2 2014

NCUA reported that credit union loans and assets rose during the second quarter of 2014; but shares (deposits) fell.

Federally insured credit unions’ total assets grew $47.3 billion, or 4.5 percent, from the second quarter of 2013, to rise above $1.1 trillion for the first time.

Federally-insured credit unions reported that in the second quarter of 2014, outstanding loan balances rose 9.8 percent from the second quarter of 2013 to $673.9 billion, the highest year-over-year growth rate since the first quarter of 2006.

All major loan categories grew in the second quarter led by strong auto lending. New and used car loan balances were up year-over-year by 17 percent and 11.6 percent, respectively. Business loans at credit unions were $48.8 billion at the end of the second quarter -- up 12 percent from a year ago.

Overall, share and deposit accounts declined slightly from the first quarter to $940.4 billion, but were 3.4 percent higher than the $909.5 billion at the end of the second quarter of 2013.

The growth in loans combined with the contraction in deposits caused the loan to deposit ratio to increase to 71.7 percent, the highest ratio since the fourth quarter of 2010.

Net income in the quarter ending June 30 was $2.3 billion, up 2.9 percent from a year earlier. Return on average assets rose by 3 basis points between the first and second quarter to 81 basis points; but was 3 basis points below last June's return on average assets.

Factors contributing to higher net income were increases in both interest and non-interest income. Higher expenses in the second quarter of 2014 negatively impacted net income.

The net worth ratio of federally-insured credit unions rose 16 basis points during the second quarter to 10.77 percent. Ninety-seven percent of all credit unions are well-capitalized with a net worth ratio of at least 7 percent. Five credit unions were critically undercapitalized as of June 2014.

There was a slight uptick in the delinquency ratio during the second quarter. The delinquency ratio of 0.85 percent was up 4 basis points from the previous quarter but was still 19 basis points below the delinquency ratio in the second quarter of 2013. The net charge-off ratio was 49 annualized basis points, down from 50 basis points in the previous quarter and down from 58 basis points a year earlier.

NCUA continued to express concern about interest rate risk as the industry’s net long-term asset ratio remained high at 35.4 percent.

Read the press release.

Financial summary one-pager.

Donate $5 and You Can Join This CU

Connexus Credit Union (Wassau, WI) is another credit union using an association to qualify anyone for credit union membership.

In this case, the association, the Connexus Association, appears to be an extension of the credit union.

A one-time $5 donation to the Connexus Association allows a person to join the credit union. A five-dollar donation seems to be an abuse of the common bond requirement.

On the credit union's website, it states:

"The Connexus Association was organized exclusively for charitable and educational purposes to provide funding to designated organizations that qualify as exempt under section 501(c)(3) of the Internal Revenue Service."
The credit union points out that the Connexus Association has provided over $150,000 in financial support to various organizations.

But outside of giving money to groups, this association does not appear to do anything else.

It seems to me that the primary purpose of this association is to be a conduit to qualify people for credit union membership, who otherwise would be ineligible to join the credit union.


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