Not in the Military, Not a Problem

The title of this post is a line from a radio ad from Andrews Federal Credit Union (Camp Springs, MD), which is running in the Washington, D.C. market.

It is clear from this radio ad that Andrews Federal Credit Union is saying it is open to the public at large and there is no membership restrictions.

The National Credit Union Administration (NCUA) in 2013 warned federal credit unions that advertising that anyone can join -- "without any qualifying language -- can give the impression that the Federal Credit Union Act’s single or multiple common bond requirements do not apply. When this occurs, the advertisements are inaccurate or deceptive."

It seems to me that saying "not in the military, not a problem" in a radio ad could be viewed as inaccurate or deceptive.

If credit unions are going to advertise that they are open to all, then Congress should revisit their tax exemption.

North Dade Community Development FCU Fined $300,000 for BSA Violation

North Dade Community Development Federal Credit Union (Miami Gardens, FL) was fined $300,000 by the Financial Crimes Enforcement Network for violation of the Bank Secrecy Act (BSA).

According to the 16 page enforcement order, "North Dade’s BSA failures derived significantly from its banking services to certain money services businesses (“MSBs”). These MSBs were located outside of its geographic field of membership and were engaged in high-risk activities, such as wiring millions of dollars per month to high-risk foreign jurisdictions. For instance, in 2013 alone, the total transaction volume through North Dade by MSBs included $54.8 million in cash orders, $1.01 billion in outgoing wires, $5.3 million in returned checks, and $984.4 million in remote deposit capture. North Dade’s MSB activity accounted for 90% of North Dade’s total annual revenue in 2013."

Read the press release.

Texas Keeps CU Enforcement Actions Confidential

The November 2014 newsletter of the Texas Credit Union Department on page 3 stated that enforcement actions taken by the Texas Credit Union Department are confidential information, according to the Texas Finance Cose.

The newsletter noted that "determination letters, cease and desist orders, removal orders and documents related to these are confidential documents." The newsletter did note that only in rare and exceptional cases can the Commissioner make public these orders.

The newsletter also pointed out that conservatorship orders are protected from disclosure. I think members have the right to know when their credit union is taken over by the state.

Other state credit union regulators, such as Illinois, Washington, Oregon, and California, make these enforcement orders public.

The Texas legislature should amend its statute to allow for the publication of these enforcement orders.

Transparency and the preservation of the confidentiality of exam related documents are not mutually exclusive.

Read the newsletter.

Trade Groups Concerned about FHA Fee

Bank, credit union, and several other trade groups last week wrote to the leaders of the Senate Appropriations Committee urging them to remove a Federal Housing Administration administrative fee from the Senate’s spending bill for financial and housing agencies.

The provision, expected to raise $30 million for FHA quality assurance efforts, would allow the Department of Housing and Urban Development to charge a fee of no more than four basis points of the original principal balance of all FHA-insured mortgages a lender made in the previous fiscal year.

The groups expressed concerns about the fee’s retroactivity, which will make it harder for lenders to predict their costs, and about the overall size of the fee.

Read the letter.

Projected NCUSIF Premiums for 2015 Will Range Between 0 and 5 Basis Points

Credit union premiums to the NCUSIF will range between 0 and 5 basis points for 2015, according to a presentation to the NCUA Board.

However, credit unions will not be subject to any Temporary Corporate Credit Union Stabilization Fund assessments in 2015.

Review the slideshow.

Should Credit Unions Disclose Material Events?

On October 31, 2014, the University of Wisconsin Credit Union issued a press release stating it took an investment loss contingency charge of $13.1 million against year-to-date earnings due to an investment in fraudulent USDA guaranteed loans.

I think we would all agree that a $13.1 million contingency charge is a material event.

I also believe the credit union did the right thing in disclosing this material event, even though it did not have to disclose this information.

However, such disclosures of material events are very rare from credit unions.

But shouldn't credit union members be made aware of events that may adversely impact the credit union?

After all, credit unions claim their members are owners. And owners have a right to know if their credit union has been affected by a material event.

47 CUs Miss Q3 Call Report Filing Deadline

The number of federally insured credit unions filing their Call Reports late in the third quarter was 47. This is down from 75 credit unions that missed the second quarter Call Report filing deadline.

Only one credit union was late in filing its Call Report in both the second and third quarters.

Forty of the late-filing credit unions have assets of less than $50 million. The other seven credit unions had between $50 million and $250 million in assets.

The imposition of civil money penalties earlier this year by NCUA has improved compliance by credit unions in meeting the filing deadline.

Read the press release.

United Nations FCU Launches Mortgage Loan Program Targeting Doctors and Dentists

United Nations Federal Credit Union (UNFCU) has launched a mortgage lending program targeting medical and dental professionals purchasing primary residences in the United States.

The initiative enables doctors to join UNFCU through its partnership with United Nations Association of the United States of America. The credit union is using this association as a vehicle to circumvent field of membership restrictions.

Moreover do doctors and dentists really need taxpayer subsidized financial services?

It seems that the benefit from the credit unions' preferential tax treatment is going to people in the upper portion of the income distribution.

This is just another example of credit unions straying from their mission of serving people of modest means.

Read the press release.

Comments Needed on Petition to Remove Barriers to Time-Sensitive Mobile Calls and Texts

Currently, the Telephone Consumer Protection Act restricts automated calls to mobile devices.

In an October 22 blog post, I wrote that ABA had petitioned the Federal Communications Commission (FCC) to remove barriers to time-sensitive mobile calls and texts that financial institutions use to reach their customers when their accounts may be compromised.

The FCC has requested public comment on the petition. Comments are due by December 8, 2014.

Removing these barriers will allow banks and credit unions to better serve their customers (members).

I hope you will comment.

Read the public notice.

Fraudulent USDA Guaranteed Loans Sting University of Wisconsin CU

The Milwaukee Journal Sentinel is reporting that University of Wisconsin Credit Union (Madison, WI) has taken a $13.1 million "loss contingency" charge due to an alleged fraud scheme involving fake U.S. Department of Agriculture guaranteed loans.

University of Wisconsin Credit Union disclosed it had invested in the nonexistent USDA loans through Milwaukee-based Pennant Management Inc.

News reports are alleging that Nikesh A. Patel, a prominent hotelier in Orlando, Florida and operator of First Farmers Financial LLC, sold $176 million in fake USDA-backed loans to various investors.

Read the story.

Read press release.

Bank and CU Trade Groups Refute Misleading Claims by Retailers

Trade groups representing banks and credit unions yesterday wrote to Congress to rebut “inaccurate and misleading” arguments from retailers for a uniform federal law governing data breach notification.

“Financial institutions have developed and maintain robust internal protections to combat criminal attacks and are required by federal law and regulation to protect this information and notify consumers when a breach occurs that will put them at risk,” the financial groups wrote. “In contrast, retailers are not covered by any federal laws or regulations that require them to protect the data and notify consumers when it is breached.”

The letter described to congressional leaders the strong data security structure employed by banks and credit unions, noting that retailers do not have similar internal safeguards or external oversight. “It is only when coupled with the development of strong internal data protection standards and robust oversight that the retail community will find itself in a better position to protect consumers and their confidential personal financial information from criminal abuse,” the groups wrote.

Read the letter.

Credit Unions Jumping into Wealth Management

The Silicon Valley Business Journal reported on local credit unions entering into the wealth management business.

Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues, stated that she believes this movement into wealth management is a natural progression for some credit unions, especially those that serve a more affluent population.

For example, Technology Credit Union has a 15-person in-house team dedicated to wealth management. The credit union plans to start offering trust services in 2015.

However, the article notes that targetting services for affluent customers can blur the line between credit unions and big banks.

Read the article.

Once Again, NCUA Fails to Disclose Enforcement Order

During the closed National Credit Union Administration (NCUA) Board meeting on October 23, the NCUA Board considered an administrative enforcement action under Section 206 of the Federal Credit Union Act.

The agency also decided to keep this administrative enforcement action confidential.

However, keeping administrative enforcement actions confidential was not the intention of Congress, when it enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Congress wrote that the federal banking agencies, including NCUA, were to make public administrative enforcement orders.

While the Federal Credit Union Act does allow NCUA to not publish an administrative enforcement action if it is in the public interest, I believe lawmakers wanted this discretionary authority to be rarely used.

NCUA's fears that such disclosures will harm a credit union is ill-founded. There is no evidence that the publication of an enforcement order will harm a depository institution.

By keeping this administrative enforcement action confidential, the NCUA Board is once again thumbing its nose at the rule of law.

CUNA Could Not Save Senator Udall and Other CU Supporters

The Credit Union National Association (CUNA) spent $1.2 million on independent expenditures and $1.4 million on partisan communications during this mid-term election cycle.

Despite these expenditures, some high-profile credit union supporters lost their elections.

The biggest loss on election night was Senator Mark Udall (D), who is the chief Senate sponsor of a bill that would increase the credit union member business lending cap from 12.25 percent of assets to 27.5 percent of assets. Senator Udall was defeated by Rep. Cory Gardner (R) in the Colorado Senate race. CUNA spent $400,000 on direct mail to credit union members urging them to support Udall.

In the Iowa Senate race, CUNA-supported Rep. Bruce Braley (D) was defeated by Republican Iowa State Senator Joni Ernst. CUNA spent approximately $265,000 on a series of eight mailers for Rep. Braley, who is a cosponsor of several pro-credit union bills in the House of Representatives.

In California's 25th District, Republican Tony Strickland lost to fellow Republican Steve Knight. CUNA spent $99,000 for Rep. Strickland with the money going to direct mail production and postage.

In Florida, Rep. Steve Southerland (R) lost his bid for a third term in the 2nd District, falling to Democrat Gwen Graham. CUNA spent $176,340 in television advertisements for Rep. Southerland.

Hear No Evil, See No Evil, Speak No Evil

Bank regulators -- Federal Deposit Insurance Corporation, Federal Reserve, and Office of the Comptroller of the Currency - are aggressively pursuing banks for violations of the National Flood Insurance Act.

However, I have not seen the same regulatory zeal from the National Credit Union Administration (NCUA) regarding credit union flood insurance compliance.

In fact, I don't recall NCUA publicly citing any credit unions in recent history for flood insurance violations.

It is hard to believe that there is not a single credit union out of compliance with the flood insurance requirements. After all, there are over 6,000 credit unions and credit unions accounted for 7 percent of all mortgage originations, according to the 2013 HMDA data.

I suspect the dearth of flood insurance violations is because NCUA fails to do a deep dive into credit union books regarding flood insurance compliance.

So, while banks and credit unions are subject to the same requirements on flood insurance, there are differences between bank and credit union regulators with regard to the enforcement of these requirements.

NCUA would rather hear no evil, see no evil, and speak no evil about credit unions.

NCUA Lacks BSA Transparency

The Federal Deposit Insurance Corporation's Office of the Inspector General recently released a report looking at FDIC's respose to Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) concerns at FDIC examined banks.

The report looked at a four-year period between October 1, 2009 and September 30, 2013.

The audit repoted on the number of BSA examinations and visitations conducted by FDIC and state banking agencies. The report also provided summary statisitics for each fiscal year on:

• the number of banks cited for apparent BSA violations,
• the number of apparent violations,
• the number of formal and informal enforcement actions imposed on FDIC-supervised banks,
• and the number of referrals to the Financial Crimes Enforcement Network (FinCen) for the issuance of Civil Money Penalties (CMP).

The report found that during the four-year period

"the FDIC and/or applicable state regulator cited FDIC-supervised institutions for 3,294 apparent violations of BSA-related regulations, agreed to or issued 175 BSA-related informal and formal enforcement actions, and made 22 referrals to FinCEN for CMPs."

However, the National Credit Union Administration (NCUA) with the exception of a few published enforcement orders does not disclose any information regarding BSA and AML concerns at NCUA examined credit unions.

As a matter of transparency, NCUA should publish summary statistics regarding BSA and AML concerns at credit unions. For example, FDIC in its annual report publishes the number of BSA examinations and the number of consent orders and memoranda of understanding that are based in whole or in part on apparent BSA violations.

In addition, NCUA's Office of the Inspector General needs to conduct an audit of the agency with regard to BSA supervision. This issue has not been the focus of an an Inspector General audit over the last 15 years.

It seems that such an audit is well overdue.

Read the FDIC Audit Report.