Friday, February 27, 2015

ACC Is Compliant with NCUA's Associational Common Bond Requirements

American Consumer Council (ACC) is reporting that the National Credit Union Administration (NCUA) has reaffirmed that ACC is compliant with the agency’s Totality of the Circumstances test and thus meets the associational common bond requirements.

As a result, ACC can continue to refer its members to federally chartered credit unions.

However, in practice, the referrals are from the credit union to ACC as the credit union has the individual join ACC at the same time he/she joins the credit union.

According to ACC, it currently partners with 45 credit unions across the United States and approximately 20 credit unions are awaiting action from the NCUA to add ACC as an associational group.

The simple fact is these credit unions are using ACC to qualify individuals for credit union membership, who otherwise could not qualify for membership.

This is just another illustration that some credit unions are open to anyone.

Read the story.

Thursday, February 26, 2015

Are Generals and Admirals Low-Income?

Apparently, National Credit Union Administration (NCUA) Board member Rick Metsger thinks so.

In remarks to the Northern Virginia Chapter of the Virginia Credit Union League in January, Mr. Metsger advocated "[a]llowing active-duty military personnel and their families to automatically qualify as low-income households."

However, I seriously doubt admirals and generals qualify for low-income designation. The same could probably be said for many active-duty military personnel.

This is a cynical ploy by NCUA to expand the number of credit unions that have a low-income designation.

This would exempt these credit unions from the member business loan cap of 12.25 percent of assets and would give them access to supplemental capital.

It is obvious that NCUA is trying to use regulatory fiat to do what it cannot get through legislation.

Read the NCUA press release.

CU Released from Real Estate Loan Moratorium

I just found out about another secret administrative order against a credit union by the National Credit Union Administration (NCUA) only after the credit union announced that it was no longer under the order.

According to a news report, the president of Holyoke Community Federal Credit Union (Holyoke, CO) at its February 23 annual meeting announced that NCUA had released the credit union from its real estate moratorium allowing credit union to resume making real estate loans.

The credit union did not originate a mortgage loan for all of 2014.

Read the story.

Wednesday, February 25, 2015

Buying the Naming Rights to a Performing Arts Venue Creates Principle-Agent Problem

On February 18, I wrote about Smart Financial CU buying the naming rights to a performing arts venue in Sugar Land, Texas.

The credit union is paying $6.7 million over the next five years for this naming rights or $1.34 million per year.

On the other hand, this low-income designated credit union paid slightly more than $1.58 million in interest and dividends on its members savings in 2014.

I know that we are in a low interest rate environment, but it appears to me that this decision by credit union management is not in the best interest of its members.

I don't see how buying the naming rights benefit members. Wouldn't that $1.34 million be better spent on the members?

Moreover, I don't see how this meets the public policy purpose of the credit union tax exemption.

Monday, February 23, 2015

Troubled Credit Union Mergers, 2014

There were 47 troubled credit union mergers in 2014. This is down from 53 mergers in 2013.

A merger is defined as a troubled credit union merger if the following three reasons are cited by NCUA when approving the merger: Poor Management, Poor Financial Condition, and Loss/Declining Field of Membership.

Below is a list of troubled credit union mergers in 2014 (click on image to enlarge).

Thursday, February 19, 2015

The Number of Problem CUs Fell by 12 in 4th Quarter of 2014

The National Credit Union Administration reported that the number of problem credit unions fell by 12 during the quarter to 276 credit unions at the end of 2014. There are 31 fewer problem credit unions compared to a year ago.

A problem credit union has a CAMEL rating of 4 or 5.

Problem credit unions held $10.2 billion in shares (deposits) and $11.5 billion in assets at the end of 2014. In comparison, deposits (shares) at problem credit unions were $12.4 billion at the end of the third quarter and assets at problem credit unions were $14 billion as of September 2014.

Shares at problem credit unions equaled 1.13 percent of the industry's insured shares and approximately 1 percent of the industry's assets.

The number of problem credit unions with $500 million or more in assets declined from 6 to 5 during the fourth quarter. At the end of the quarter, these 5 problem credit unions held $3.9 billion in shares.

Five Star CU to Buy Another Bank

Farmers State Bank in Lumpkin, Ga. has agreed to be acquired by Five Star Credit Union in Dothan, Ala.

The two parties said Wednesday they have signed a purchase agreement that must be approved by federal regulators and Farmers State Bank shareholders. Terms of the deal were not disclosed.

Five Star Credit Union said it plans to buy all of the assets of the Lumpkin-based bank, which has $47 million in assets and will continue to operate the bank's three branches.

Five Star Credit Union reported $318 million in total assets as of December 31. It has 13 branches in Alabama and Georgia.

This will be the second bank acquired by Five Star. In June 2014, Five Star purchased Flint River National Bank of Georgia.

Read the story.

Wednesday, February 18, 2015

Performing Arts Center Named after Smart Financial CU

Smart Financial Credit Union has been granted naming rights for Sugar Land's new entertainment venue, which will be known as the Smart Financial Centre at Sugar Land.

The Sugar Land city council's vote to assign naming rights to Houston-based Smart Financial Credit Union.

The credit union has agreed to a five-year term with a five-year option to extend. The value of the deal is $6.7 million.

Read the story.

Buckeye Community FCU to Buy Bank Branch

Buckeye Community Federal Credit Union (BCFCU) has reached an agreement with Citizens State Bank to acquire the bank’s Madison branch pending state and federal regulatory approval.

BCFCU is tentatively scheduled to assume the Madison operations in June.

It is not clear whether the credit union is assuming the $16.3 million in deposits (as of June 30, 2014) and assets associated with the branch.

Read the press release.

Tuesday, February 17, 2015

New YMCA Program Center Building Named After Royal CU after Donation

YMCA Camp St. Croix has received a $550,000 donation from Royal Credit Union (RCU) Foundation to build a new program center.

The YMCA named the new building in honor of Royal Credit Union.

Royal Credit Union is a $1.5 billion credit union headquartered in Eau Claire, Wisconsin,

Read the press release.

Saturday, February 14, 2015

Suncoast CU Presenting Sponsor of Film Festival

Suncoast Credit Union, the largest credit union in Florida, is the presenting sponsor for the Gasparilla International Film Festival.

The cost of the sponsorship for the festival, which will be held March 25-29 of this year, was not revealed.

What does sponsoring an international film festival have to do with the credit union's tax exempt purpose?

Read the story.

Friday, February 13, 2015

NCUA Should Keep the Individual Minimum Capital Requirement

In its re-proposed risk-based capital requirement rule, the National Credit Union Administration (NCUA) Board removed the individual minimum capital requirement that was in the original version of its risk-based capital proposal.

However, the elimination of the individual minimum capital requirement is at odds with the position of other federal banking regulators.

Bank regulators have the discretion to require a bank to hold an amount of regulatory capital greater than otherwise required under its capital rules if a bank regulator determines that the institution’s capital requirements under its capital rules are not commensurate with the institution’s credit, market, operational, or other risks.

In my opinion, the removal of the individual minimum capital requirement is a mistake.

The individual minimum capital requirement provides a better approach to address all the risks that may confront a credit union. It is clearly superior to the watered down concentration risk weights in the re-issued proposal.

Thursday, February 12, 2015

Operations at Tiny Illinois CU Suspended due to Insolvency

The Illinois Department of Financial and Professional suspended the operation of Imperial Credit Union (Springfield, Illinois) for 60 days (beginning December 30, 2014), due to the credit union’s insolvency. A Manager Trustee has been appointed to operate the credit union during the 60-day suspension period.

At the time of the order, the credit union had $31,428 in liabilities and shares and net assets of $24,341. The credit union reported a loss of $11,869 for 2014.

Read the order.

Read the order appointing a Manager Trustee.

Wednesday, February 11, 2015

NCUA Asks Congress for Authority to Charge Risk-Based NCUSIF Premiums

In footnote 29 of Larry Fazio's testimony, the National Credit Union Administration stated that a legislative "priority would permit NCUA to charge risk-based premiums for the Share Insurance Fund much like the Federal Deposit Insurance Corporation charges for the Deposit Insurance Fund. Risk-based premiums would lessen the funding burden on small credit unions, which generally pose less risk to the Share Insurance Fund."

In a July 24, 2009 blog post, I made the case for moving from the current flat rate insurance premium system to one based upon risk.

Tuesday, February 10, 2015

NCUA to Propose Raising Small CU Threshold to $100 Million

Larry Fazio, the National Credit Union Administration's Director of the Office of Examination and Insurance, testified today that next week the NCUA Board will propose doubling the small credit union asset size threshold from $50 million to $100 million.

Fazio noted that in January 2013 the NCUA Board raised the small entity asset size threshold from $10 million to $50 million in assets, which nearly doubled the number of credit unions classified as small for purposes of the Regulatory Flexibility Act nearly doubled. Today, 65 percent of all credit unions are covered by the small credit union definition.

Increasing the threshold from $50 million to $100 million would provide regulatory relief for an additional 745 credit unions in future rulemakings and 77 percent of the credit union industry would be defined as a small credit union.

For example, credit unions defined as small credit unions are exempt credit unions from our interest rate risk rule and are not subject to the agency's risk-based net worth requirement.

In addition, Fazio recommended that Congress act to modify the Federal Credit Union Act to permit all federal credit unions to add underserved areas; to expand credit union member business lending (MBL) by raising the MBL cap and exclude 1- to 4-unit, non-owner-occupied residential dwelling from the definition of a member business loan; to allow healthy and well-managed credit unions to issue supplemental capital that will count as net worth; and to grant NCUA the same authority as other bank regulators to supervise third-party vendors.

Read the testimony.

Monday, February 9, 2015

NCUA Has Allowed Interest Rates to Exceed Usury Cap Since 1980

Let me begin by stating that I am opposed to price controls.

But with that said, the Federal Credit Union Act (FCUA) imposes an interest rate cap on federal credit union loans of 15 percent. However, the FCUA provides some discretion to the National Credit Union Administration (NCUA) Board to establish an interest rate above the cap.

When setting the rate above 15 percent, the NCUA Board must determine that money market interest rates have risen over the preceding six-month period and that prevailing interest rate levels threaten the safety and soundness of individual credit unions as evidenced by adverse trends in liquidity, capital, earnings, and growth.

Congress limited the time period for the interest rate to exceed the statutory usury rate to 18 months. So every 18 months, the NCUA Board has to meet to determine the maximum loan interest rate.

In December 1980, the NCUA Board voted to raise the ceiling to 21 percent. In May 1987, the ceiling was reduced to the current level of 18 percent and has remained at that rate since then. There is an exception for payday alternative loans which are capped at the interest rate ceiling set by the Board plus 1,000 basis points.

It made sense for the NCUA Board to raise the rate in 1980, as the yield on the 3-month T-bill averaged 15.49 percent in the seconday market in December 1980. In May 1987, the Board lowered the rate as the yield on the 3-month Treasury Bill (constant maturity) had fallen and was averaging 5.85 percent for the month of May.

But it is hard to justify NCUA's maintaining the ceiling interest rate at 18 percent with money market rates being mired near zero percent for the last six years.

How is this consistent with NCUA's statutory authority?

Friday, February 6, 2015

Beacon Credit Union Acquiring Midwest AG Finance

Credit Union Journal is reporting that privately-insured Beacon Credit Union (Wabash, Indiana) is acquiring Midwest AG Finance, an industrial loan and investment company based in Rushville, Ind..

The announcement comes following votes by both institutions' boards to move forward with the proposal.

The transaction, which remains subject to final approval by the Indiana Department of Financial Institutions, includes the purchase of assets and assumption of liabilities. Because Beacon is a privately insured state charter, NCUA approval is not required.

Terms of the deal were not disclosed.

Read the story (subscription required).

Here is another article on the transaction.

Consumer Credit at CUs Up $700 Million in December

The Federal Reserve is reporting that outstanding consumer credit at credit unions rose by approximately $700 million in December to $302.1 billion.

Credit union revolving credit increased from $44.9 billion for November to $46.4 billion for December. However, nonrevolving credit at credit unions fell from $256.4 billion for November to $255.6 billion for December.

For the fourth quarter f 2014, total outstanding credit increased by approximately $9 billion to $302.1 billion -- revolving credit was up almost $1.9 billion and nonrevolving credit rose by nearly $7.3 billion.

Read the G.19 report.

Maine CUs Disingenuous "Own It" Campaign

The Maine Credit Union League has launched a disingenuous “own it” awareness campaign.

The campaign focuses on stories of various credit union members.

For example, one story is about a credit union member talking about the benefits of of mobile banking and remote deposit capture and another story is about a business owner, whose business is open late and being able to run to his or her credit union's ATM at any time.

However, these stories are not unique to credit unions. I can go to my bank's ATM any day or night.

Moreover, these stories have nothing to do with owning their credit union.

Outside of having the right to vote and a claim to the residual, if the credit union voluntarily dissolves (which is very rare), what do credit union members really own?

As I pointed out in a September 2009 posting, they own very little.

Wednesday, February 4, 2015

CFPB Consent Order Identifies Illinois CU Contracting with Fee Harvesting Subprime Credit Card Company

The Consumer Financial Protection Bureau (CFPB) ordered Continental Finance Company LLC, a subprime credit card company based in Delaware, to refund an estimated $2.7 million to approximately 98,000 consumers who were charged illegal credit card fees.

According to the consent order, a credit union, which was not fined, contracted with Continental to issue fee harvesting credit cards.

The consent order notes that from at least April 2012 through December 2013, Continental contracted with a privately insured Illinois credit union for the credit union to issue credit cards on the Discover network: the Cerulean Card, the Matrix Card, and the Verve Card.

While the consent order does not name the credit union,my June 14, 2013 blog post identified the credit union as Services Credit Union in Naperville, Illinois.

Between approximately April 2012 and July 2013, over 290,000 cards were issued.

Under the agreements, the credit union issued the cards and immediately assigned the receivables to Continental for funding and servicing.

Once the credit union assigned its rights, Continental serviced the accounts from billing to collections, advanced all funds to consumers, and received all fees assessed pursuant to the cardholder agreements.

In approximately December 2013, the credit union terminated its sponsorship agreement with Continental. The credit union has not issued any additional Continental Cards since approximately July 2013.

What is missing from the consent order is how much this credit union was paid by Continental.

Read the consent order.

Read the press release.

NCUA Makes the Case for Bifurcating CU Industry

In its proposed risk-based capital rule, the National Credit Union Administration (NCUA) makes the case for two credit union industries -- one comprised of large, complex credit unions and the other made up of smaller, more traditional credit unions.

Analysis by NCUA found that the line of demarcaation is at $100 million in assets. All credit unions with over $100 million in assets are defined as "complex" and would be subject to the proposed risk-based capital requirement.

The NCUA Board believes there are a number of products and services offered by credit unions with $100 million or more in assets "that are inherently complex based on the nature of their risk and the expertise and operational demands necessary to manage and administer such activities effectively."

These products and services include member business loans, participation loans, interest-only loans, indirect loans, real estate loans, non-federally guaranteed student loans, non-agency mortgage-backed securities, derivatives, internet banking, and more.

NCUA notes that "as of June 30, 2014, all credit unions with more than $100 million in assets were engaged in the products and services listed above, with 99 percent having more than one complex activity, and 87 percent having four or more. On the other hand, less than two-thirds of credit unions below $100 million in assets are involved in even a single
complex activity, and only 15 percent have four or more."

NCUA points out that complex activities are always present once a credit union reaches $100 million in assets. That is not the case for credit unions with less than $100 million in assets.

The same argument can be made for taxing credit unions. Large credit unions are distinctly different from smaller, more traditional credit unions with regard to the products and services they offer and their level of complexity.

Tuesday, February 3, 2015

CU Signs Deal for Naming Rights to Minor League Baseball Field

The Washington Post is reporting that Frederick-based Nymeo Credit Union has inked a deal with the Frederick Keys for the naming rights to the city’s minor league baseball field.

The terms of the deal have not been disclosed; but a city-sponsored study in 2013 found that naming rights could bring in as much as $250,000 a year.

The city’s Board of Alderman still must vote to approve the deal.

Is buying the naming rights to a minor league field consistent with the tax exempt purpose of credit unions?

Read the story.

CU Tax Expenditure Tops $25 Billion, FY 2015 - 2024

The Office of Management and Budget in its Analytical Perspective estimated yesterday that the tax expenditure associated with credit union income being exempt from taxation is $25.39 billion over the next 10 fiscal years.

Monday, February 2, 2015

Do Credit Unions "Rat" on the Industry's Bad Actors?

It is often argued that the financing structure of the National Credit Union Share Insurance Fund incents credit unions to monitor each other.

In 1997, the Treasury Department wrote:
"Because their 1 percent deposit is at risk when other credit unions fail, and because the Share Insurance Fund may have to levy additional assessments on surviving credit unions, credit union managers have an incentive to alert federal regulators to unsound or illegal practices at other credit unions. Although credit unions cannot directly prevent excessive risk-taking by other credit unions, they can report undesirable practices by other credit unions to regulators, who can take remedial actions."

However, with the exception of a few credit unions objecting to an expansion in the business lending authority for credit unions, there appears to be a dearth of evidence regarding credit unions raising the alarm about unsound or illegal practices of bad credit union actors.

For example, did any credit unions raise alarms prior to the financial crisis regarding corporate credit unions doubling down on their bets on risky mortgage-backed securities?

Did any credit unions point out to their regulators the risk associated with Norlarco CU (CO) or Huron River Area CU (MI) making speculative residential loans outside of their market areas in Cape Coral (FL)?

I suspect not.

While credit unions probably know who are the bad actors in their industry, the concept of credit unions squealing on bad actors is probably a modern myth.

Sunday, February 1, 2015

Two CUs Buy Air Time During Super Bowl

Credit Union Journal is reporting that two large credit unions are spending big to attract attention during the Super Bowl.

BECU, a $13 billion institution in the Seattle suburb of Tukwila, Wash., and $8.8 billion The Golden 1 CU, Sacramento, Calif., will run television commercials during Sunday's Super Bowl.

Both credit unions will have 30-second commercials air during local breaks.

I don't know how much these television ad buys will cost; but I figure that these ad buys must be expensive.

This begs the question -- is this the right use of the credit union tax exemption?

Read the story.

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