Wednesday, June 28, 2017

Legal Opinion: Asset Securitization Is An Incidental Power

On June 21, the National Credit Union Administration (NCUA) published a legal opinion letter stating that asset securitization is an incidental power for federal credit unions.

But the agency pointed out that it is not a pre-approved activity. Before a federal credit union (FCU) securitizes any assets, it needs to complete and submit an application to NCUA.

The letter also stated that in the case of Government National Mortgage Association (Ginnie Mae) securities, the Federal Credit Union Act (FCUA) expressly authorizes this activity.

The letter noted that that an activity is an “incidental power,” even if not expressly authorized under the FCUA or NCUA’s regulations, if it:
(a) Is convenient or useful in carrying out the mission or business of credit unions consistent with the [FCUA];
(b) Is the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions; and
(c) Involves risks similar in nature to those already assumed as part of the business of credit unions.

NCUA wrote: "[I]ssuing and selling securities is consistent with the FCUA, and is convenient and useful in carrying out the mission or business of FCUs." Securitizing assets provide an FCU with an important source of liquidity to further facilitate its lending activities and makes it less dependent on share deposits to fund its member loan demand.

NCUA further noted that "[s]ecuritization can increase the amount of credit available to consumers and businesses, due to the fact that an FCU can make more loans to its members with a given level of capital. It also provides an FCU with a vehicle to transfer credit risk to investors. NCU concludes that securitization is a logical outgrowth of providing credit.

NCUA concluded that "securitization involves risks that are similar in nature to those already assumed as part of the business of credit unions."

Large federal credit unions are the credit unions most likely to take advantage of this legal opinion.

Read the letter.

Read the American Banker article (subscription required).

Monday, June 26, 2017

LOMTO Federal Credit Union Placed into Conservatorship

The National Credit Union Administration (NCUA) on June 26th placed LOMTO Federal Credit Union in Woodside, New York, into conservatorship.

NCUA placed LOMTO Federal Credit Union into conservatorship because of unsafe and unsound practices at the credit union.

The credit union's financial performance has been battered by bad taxi medallion loans due to the disruption of the taxi industry by ridesharing companies such as Uber and Lyft.

Read my blog post from May 10 on LOMTO FCU's financial performance through the first quarter of 2017.

LOMTO Federal Credit union has 2,958 members and $236,468,882 in assets, according to the credit union’s most recent Call Report.

​This is the third New York City taxi medallion lending credit union to be seized by regulators.

Melrose Credit Union was placed into conservatorship earlier this year and Montauk was seized in 2015 and merged into Bethpage FCU in 2016.

Read the press release.

Trade Groups Support Structural Change in CFPB to Five-Member Commission

In a June 22nd joint letter to House and Senate Appropriations Committee leadership, 22 financial and business trade associations supported the inclusion of language in the fiscal year 2018 spending bill that would transition the governance structure of the Consumer Financial Protection Bureau (CFPB) from a single director to a bipartisan, five-member commission.

The trade groups noted that by a three-to-one margin, registered voters support such a structure for the regulatory watchdog agency, according to data from Morning Consult.

“A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders,” the associations said. “The current single director structure leads to regulatory uncertainty and instability for consumers, industry, and the economy, leaving vital consumer financial protection subject to dramatic political shifts with each changing presidential administration.”

Read the letter.

Friday, June 23, 2017

NCUA Conserves Citizens Community CU

The National Credit Union Administration (NCUA) on June 23 placed Citizens Community Credit Union, located in Devils Lake, North Dakota, into conservatorship.

NCUA placed Citizens Community Credit Union into conservatorship because of unsafe and unsound practices at the credit union.

Citizens Community Credit Union posted a loss of $933,194 during the first quarter of 2017 due to provisions for loan losses of $978,000. A year earlier provisions for loan and lease losses were zero.

While the credit union was well-capitalized at the end of the first quarter, the credit union reported that 6.79 percent of its loans were 60 days or more past due. Delinquent loans were $10.8 million. Early delinquencies (loans 30 to 59 days past due) were almost $5.9 million.

Citizens Community Credit Union appears to be under-reserved with a coverage ratio (allowances for loan and lease losses to delinquent loans) of 27.47 percent.

Citizens Community Credit Union is a federally insured, state-chartered credit union with 11,399 members and assets of $201,255,973, according to the credit union’s most recent Call Report.

Read the press release.

NCUA Calls on Congress to Give It Regulatory Flexibility

In testimony before the Senate Committee on Banking, Housing, and Urban Affairs on June 22, National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters requested legislation to ease regulatory burdens on credit unions.

His testimony discussed steps that the agency had already taken or plans to take to provide regulatory relief to credit unions. But he also noted that there are limits on the agency's ability to provide regulatory relief.

Acting Chairman McWatters pointed out that the Federal Credit Union Act contains numerous rigid statutory requirements that ties the agency's hands. NCUA asked Congress to provide it with greater discretion to write rules to limit additional burdens on credit unions.

In addition, McWatters called on congressional action with regard to field of membership issues. NCUA believes that all federal credit unions, just not multiple common bond credit unions, should be allowed to add underserved areas. In addition, Congress should eliminate the requirement that the underserved areas be local communities and Congress could simplify the “facilities” test for determining if an area is underserved.

McWatters further requested that Congress eliminate the provision that requires a multiple common bond credit union to be within “reasonable proximity” to the location of a group the credit union wishes to serve.

He also asked Congress for the explicit authority for web-based communities as a basis for a credit union charter.

Other legislative initiatives advanced in his testimony included support for the Credit Union Residential Loan Parity Act (S. 836) and allowing more credit unions to access supplemental capital.

Read testimony.

Thursday, June 22, 2017

Riverdale Credit Union Conserved

The Alabama Credit Union Administration today placed Riverdale Credit Union, in Selma, into conservatorship and appointed the National Credit Union Administration (NCUA) as agent for the conservator.

The Alabama Credit Union Administration and NCUA placed Riverdale into conservatorship because of unsafe and unsound practices at the credit union.

The credit union was well-capitalized at the end of the first quarter of 2017 and had an annualized return on average assets of 3.88 percent. The credit union reported that 3.69 percent of its loans were 60 days or more delinquent. Net charge-offs as a percent of average loans was 1.88 percent.

Riverdale has 12,433 members and $76,181,951 in assets, according to the credit union’s most recent Call Report.

Read NCUA press release.

Study: CUs and Community Banks Face Serious Demographic Challenge

The Financial Brand recently commented that credit unions and community banks face the threat of generational obsolescence.

TA study by FIS examined the age composition of bank and credit union customers.

According to the study, approximately 32 percent of credit union members are millennials -- almost the same as regional banks (34 percent). In comparison, 18 percent of bank customers are millennials. On the other hand, the 50 largest banks have a millennial penetration rate of 42 percent.


While credit unions have roughly the same penetration rate as regional banks, credit unions are losing ground to the largest banks, as large and regional banks scoop up a disproportionately larger share of the millennial generation.

In addition, the FIS study found that community banks and credit unions tend to serve an older population base. Approximately 57 percent of community bank customers and 46 percent of credit union members are over the age of 52.

Read the story.

Wednesday, June 21, 2017

Anheuser-Busch Employees' CU Buys New HQ Building

Anheuser-Busch Employees’ Credit Union (St. Louis, MO) and its divisions, American Eagle Credit Union and Purina Credit Union, finalized the purchase of a state-of-the-art corporate headquarters building located at 423 Lynch Street in St. Louis, Missouri.

The credit union will take possession on October 1 and anticipates a 5 to 6 month renovation process.

Some of the property's amenities include an on-site cafe, a dramatic building lobby entrance, a fourth floor boardroom, a gated lot with 466 parking spaces, and a large sales training/meeting area.

The four-story, 129,397 square-foot building had a list price of $10.75 million.

However, the press release did not disclose the purchase price.

Read the story.

Read the property flyer.

Tuesday, June 20, 2017

A Class Action Complaint Filed Against Centra Credit Union for Violating FCRA

In case you missed it, a class action complaint was filed earlier this year against Centra Credit Union (Columbus, IN) for violating the Fair Credit Reporting Act (FCRA).

The complaint alleged that the credit union willfully, deliberately, and intentionally procured credit reports of consumers whose debts had been discharged in bankruptcy in violation of the FCRA.

The complaint further stated that the credit union obtained and used credit reports of consumers under false pretenses.

According to the complaint, the credit union is liable for statutory and punitive damages, as well as attorneys' fees and cost.

Read the complaint.

Monday, June 19, 2017

Company Chartering a Credit Union to Finance Loans to Its Customers Raises Policy Concerns

A clean energy company is looking to charter a new credit union to fund clean energy loans for its customers.

According to BizWest, Namasté Solar, an employee-owned solar-energy firm, has been working about three years to secure a federal charter.

Blake Jones, co-founder of Namasté Solar, stated that the he expects "to receive our charter sometime this summer."

Part of its motivation to start a credit union is due to the difficulty its customers have in securing loans for clean-energy projects.

Namasté Solar designs, installs and maintains solar-electric systems throughout the United States for commercial, nonprofit, government and residential customers.

If a charter is granted, the credit union will finance residential and commercial solar installations. Also, loans will be made for purchases of used electric vehicles and energy-efficient home-improvement projects.

While the credit union will be located in Colorado, it will operate nationwide.

However, it seems that the primary purpose of the credit union is to finance Namasté Solar projects to future customers.

Unfortunately, being a customer of this clean energy company is not a valid common bond.

But I suspect the National Credit Union Administration can creatively identify an association that would allow customers of the company to become eligible for membership.

Moreover, this proposed credit union charter raises a policy concern as it appears to breach the separation between banking and commerce.

In closing, this proposed credit union should not be allowed to become nothing more than a captive finance company of this clean energy company.

Read the story.

Friday, June 16, 2017

American Banker: Cross-Industry Mergers Expected to Grow

The American Banker is reporting that banks and credit unions should expect more cross-industry mergers; however, these cross-industry deals tend to be a one way street with credit unions acquiring banks.

The article notes that over the last 18 months seven banks have agreed to be sold to credit unions. These seven banks tended to be relatively small with an average asset size of almost $83 million.

The American Banker speculates that such cross-industry mergers are likely to continue as as regulatory costs, revenue pressure, succession and other issues spur more industry consolidation. One attorney commented that he is currently working on at least 13 deals, although some deals are not likely to occur.

One credit union official stated that a benefit for credit unions acquiring banks is the expansion of their customer base and footprint.

Moreover, the article stated that credit unions can be favorable acquirers of small, privately-held banks because credit unions can only pay cash and they tend to retain staff after the merger is completed.

Read the American Banker (subscription required).

Thursday, June 15, 2017

McWatters: Closing the Stabilization Fund and Reg Relief Are Top Priorities

Credit unions can expect more regulatory relief and streamlined operations from the National Credit Union Administration (NCUA) in the future, Acting Board Chairman J. Mark McWatters said at the annual conference of the National Association of Federally-Insured Credit Unions.

According to the press release, McWatters stated he wants the Board to revisit the risk-based capital and stress testing rules.

Earlier this week, The United States Department of the Treasury (Treasury) recommended raising the asset threshold for credit unions subject to stress testing rule from $10 billion to $50 billion. Also, Treasury recommended that NCUA either eliminate the risk-based capital requirement or raise the asset threshold for credit unions subject to the risk-based capital rule from $100 million to $10 billion.

Acting Chairman McWatters told the attendees that closing the Temporary Corporate Credit Union Stabilization Fund (TCCUSF) is a top priority. This would allow the agency to return surplus funds to federally-insured credit unions in 2018. A plan for closing the TCCUSF is expected within weeks.

Other areas that McWatters would like to see the agency address include cyber security, fighting fraud, and identifying ways to help small and low-income credit unions to thrive.

Wednesday, June 14, 2017

Treasury Recommendations Could Impact Credit Unions and NCUA

The United States Department of the Treasury (Treasury) released on June 12th a report, A Financial System that Creates Economic Opportunities, on reforming the financial sector regulatory framework.

The report makes a number of regulatory and legislative recommendations that could impact credit unions and the National Credit Union Administration (NCUA).

First, Treasury recommended that Congress take action to reduce fragmentation, overlap, and duplication in the U.S. regulatory structure. This could include consolidating regulators with similar missions and more clearly defining regulatory mandates. For example, this could involve merging the NCUA with other federal banking regulators or merging the National Credit Union Share Insurance Fund with the Federal Deposit Insurance Corporation.

The report noted that the following two recommendations can be implemented by NCUA regulation.
  • Treasury recommendeds raising the asset size threshold for stress-testing requirements for federally-insured credit unions from its current level of $10 billion in assets to $50 billion in assets. This would mean only one credit union, Navy Federal Credit Union, would be subject to stress-testing.
  • Treasury believed that NCUA should revise its risk-based capital requirements to only apply to credit unions with total assets in excess of $10 billion or eliminate altogether risk-based capital requirements for credit unions satisfying a 10 percent simple leverage (net worth) requirement. Treasury noted that if the asset threshold for the risk-based capital requirement is raised to $10 billion in assets, it would support allowing such credit unions to rely in part on appropriately designed supplemental capital to meet a portion of their risk-based capital requirements. If NCUA eliminates the risk-based capital rule, then the agency does not need to pursue its supplemental capital proposal.

Treasury notes that if supplemental capital is made available to all credit unions to meet their net worth leverage ratio, this action would require Congressional action.

As with banks, credit unions should be granted relief from the current level, design, and lack of notice and transparency of the supervision and examination processes. Examination should be more tailored and cost efficient to avoid burdensome and unnecessary procedures. This would require coordination between NCUA, CFPB, and state regulators. Procedures that are redundant between regulators should be streamlined.

Moreover, Treasury recommends that Congress raise the asset threshold for small banks and credit unions to be eligible for an 18-month examination cycle.

Treasury believes that a significant restructuring in the authority and regulatory responsibilities of the Consumer Financial Protection Bureau (CFPB) is necessary. The report notes that the CFPB's unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses. Treasury stated the CFPB has hindered consumer access to credit, limited innovation, and imposed unduly high compliance burdens, particularly on small institutions.

Treasury’s recommendations include: making the Director of the CFPB removable at will by the President or, alternatively, restructuring the CFPB as an independent multi-member commission or board; funding the CFPB through the annual appropriations process; adopting reforms to ensure that regulated entities have adequate notice of CFPB interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.

The CFPB’s Consumer Complaint Database should be reformed to make the underlying data available only to federal and state agencies, and not to
the general public.

Treasury recommended raising the total asset threshold for making Small Creditor Qualified Mortgage loans from the current $2 billion to a higher asset threshold of between $5 and $10 billion to accommodate loans made and retained by small depository institutions.

In addition, Treasury is recommending that the CFPB delay the 2018 implementation of the new Home Mortgage Disclosure Act reporting requirements until borrower privacy is adequately addressed and the industry is better positioned to implement the new requirements. The new requirements should be examined for utility and cost burden, particularly on smaller lending institutions.

Treasury recommended that Congress repeal Section 1071 of the Dodd-Frank Act. Section 1071 requires the CFPB to establish regulations and issue guidance for small business loan data collection. The purposes of section 1071 include enabling creditors to identify the needs of small, minority-owned, and women-owned businesses, and to facilitate enforcement of fair lending laws.

Read the report.

Tuesday, June 13, 2017

Fifty-one Percent of CUs See Year-over-Year Decline in Membership

More than half of the nation's federally insured credit unions reported fewer members at the end of the first quarter of 2017 compared to a year ago.

The National Credit Union Administration reported that 51 percent of federally insured credit unions had fewer members at the end of the first quarter of 2017 than a year earlier. This is the third consecutive quarter where over half of all federally insured credit unions had fewer members compared to the same quarter a year earlier.

The median year-over-year credit union membership growth rate was -0.1 percent.

Median membership growth was negative in 22 states. At the median, membership declined the most in the District of Columbia (-2.4 percent), followed by Pennsylvania (-1.5 percent). Other states reporting median year-over-year membership growth rate of negative 1 percent or less were Ohio (-1 percent), Nebraska (-1.1 percent), New Jersey (-1.2 percent), Oklahoma (-1.2 percent), and Montana (-1.3 percent).

About 75 percent of credit unions with declining membership had assets of less than $50 million.

Read the press release.

Monday, June 12, 2017

Almost 1300 Federally Insured CUs Reported a Loss in Q1 2017

According to Call Report data, 1,294 credit unions reported a loss for the first quarter of 2017.

In other words, 22.6 percent of federally insured credit unions had a loss.

Thirteen credit unions reported a quarterly loss of $1 million or more for the quarter (see table below). Three of the credit unions reporting a loss of $1 million or more are currently under conservatorship -- Melrose CU, Shreveport FCU, Community United FCU.

Friday, June 9, 2017

Almost 20 Percent of CU Industry Loans Were Indirect Loans

The National Credit Union Administration (NCUA) this week reported that at the end of the first quarter 2017 19.5 percent of all federally insured credit union loans were indirect loans.

As of the end of the first quarter of 2017, 1,901 federally insured credit unions had outstanding indirect loans, according to a NCUA spokesperson.

Credit unions reported $172.6 billion in outstanding indirect loans as of March 31, 2017 -- up almost 21 percent or $29.9 million from a year earlier.

In comparison, total loans outstanding grew by 10.6 percent over the same time period.

Since the end of 2012, indirect lending at credit unions has more than doubled. Outstanding indirect loans were $78.2 billion at the end of 2012. Almost 13.1 percent of all loans were indirect loans.

I suspect that indirect lending has played an important role in the membership growth at credit unions over the last couple of years.

Thursday, June 8, 2017

Achieva CU Launches Bank Merger Consulting Service

Achieva Credit Union (Dunedin, FL) has launched a merger consulting service that would help larger credit unions buy smaller community banks.

The credit union service organization, Achieva Merger Services, hopes to make a profitable business out of telling credit unions of the merits behind buying smaller commercial banks, and urging banks to consider credit unions a rich new resource of potential buyers.

Services to be provided by Achieva Merger Services include identifying targets, due diligence, pricing analysis, merger applications, regulatory advice, acquisition accounting, and integration of operations and technologies.

Achieva CU purchased Calusa Bank in 2015 in a whole bank deal.

Read the story.

Wednesday, June 7, 2017

Consumer Credit Growth at CUs Accelerated in April

The Federal Reserve's G.19 report stated that the growth of outstanding consumer credit at credit unions accelerated for the month of April.

Outstanding consumer credit at credit unions grew by $6.4 billion in April to $398.2 billion. In comparison, outstanding consumer credit in March expanded by $4.1 billion.

Both revolving and non-revolving credit expanded in April.

After contracting in March, outstanding revolving credit increased by almost $300 million to $52.4 billion.

Non-revolving credit in April increased by approximately $6 billion to $345.8 billion.

Read the G.19 report.

Tuesday, June 6, 2017

Is the Chicago Taxi Industry on the Verge of Collapse?

USA Today is reporting that ride-sharing companies are pushing the Chicago taxi industry to the brink of extinction.

According to the story, approximately 42 percent of Chicago's taxi fleet was idle during the month of March 2017.

Average monthly income per active medallion fell from $5,276 in January 2014 to $3,206 this year. The number of monthly street hails of taxis has fallen by more than half over the same time period to about 1.1 million monthly riders.

Moreover, foreclosures are on the rise, as taxi medallion owners cannot generate sufficient income to service their loans. In 2015, there were 59 foreclosure notices or foreclosure lawsuits initiated against medallion owners. This increased to 266 in 2016. This year, there has been more than 350 foreclosure notice or foreclosure lawsuits filed against medallion owners.

This is not good news for credit unions that are holding Chicago taxi medallion loans.

Read the story.



Monday, June 5, 2017

Assets, Loans, Deposits, Membership Up in Q1 2017

The National Credit Union Administration (NCUA) reported that assets, loans and shares (deposits) at federally insured credit unions expanded during the first quarter.

According to the NCUA, loans grew by 10.6 percent over the last year to to $884.6 billion. However, loan growth slowed during the first quarter of 2017 to an annualized rate of 7.12 percent. With the exception of credit card loans, all other major loan categories posted an increase during the first quarter.

Insured shares and deposits rose $78 billion, or 7.8 percent, over the four quarters ending in the first quarter of 2017 to $1.1 trillion. However, the pace of share growth accelerated during the first quarter of 2017 to 16.62 percent.

So, while the loan-to-share ratio of 77.73 percent was up from a year ago, it was down from the end of 2016.

Federally insured credit unions added 4.3 million members over the year, and credit union membership in these institutions reached 108.0 million in the first quarter of 2017.

Net Income Up Year-over-Year, But Return on Average Assets Down

Net income for federally-insured credit unions was $2.35 billion for the first quarter of 2017. In comparison, net income was almost $2.29 billion one year earlier.

The return on average assets (ROA) was 0.71 percent for the first quarter of 2017. This was down from 0.77 percent at the end of 2016 and 0.75 percent from a year earlier. The median return on average assets across all federally insured credit unions was 33 basis points, unchanged from the first quarter of 2016.

Higher net interest margins and lower operating expenses as a percent of average assets had a positive impact on the credit union industry's ROA, while lower non-interest income as a percent of average assets and higher provisions for loan loan losses as a percent of average assets had a negative impact on ROA.

Net interest margins as a percent of average assets was 2.89 percent at the end of the first quarter of 2017. This was an improvement of 1 basis point compared to the end of 2016 and 2 basis points compared to a year ago.

Non-interest income as a percent of average assets was 1.28 percent for the first quarter of 2017. This fell by 11 basis points compared to the end of 2016 and by approximately 3 basis points from a year ago.

Operating expenses as a percent of average assets fell 6 basis points during the quarter to 3.04 percent.

Net Worth Increases

Net worth increased during the first quarter of 2017. Net worth was $143.1 billion as of March 31, 2017. This was up from $140.8 billion at the end of 2016 and 133.8 billion at the end of the first quarter of 2016.

However, the net worth ratio fell 19 basis points during the first quarter to 10.70 percent. Compared to a year ago, the net worth ratio was down 8 basis points.

As of March 31, 2017, 97.75 percent of all federally-insured credit unions had a net worth ratio of at least 7 percent. Forty-one credit unions had net worth ratios below 6 percent.

Delinquency Rates Nearly Unchanged Over the Year, But Net Charge-Off Rate Was Higher

The NCUA reported that delinquent loans were $6.1 billion as of March 31, 2017. The percentage of loans 60 days or more past due was 0.69 percent. This is down 2 basis points and 14 basis points from a year ago and last quarter, respectively.

Net charge-offs rose from $1 billion as of March 2016 to $1.3 billion as of March 2017. the net charge-off rate rose from 0.52 percent to 0.58 percent over the same time period.

Large CUs Outperform Small CUs

Credit unions with assets greater than $1 billion reported the strongest growth in loans, membership and net worth over the year ending in the first quarter of 2017. Credit unions with less than $50 million in assets reported declines in loans, membership and net worth over the year.

The number of credit unions with $1 billion or more in assets increased rom 263 in the first quarter of 2016 to 278 in the first quarter of 2017. These 278 federally insured credit unions held 62 percent of total system assets. Loan growth was 14.7 percent over the year. Membership rose 9.8 percent. Net worth increased 11.3 percent.

Read the press release.

Financial Trends Chart Book.

Friday, June 2, 2017

Central One FCU Buys Naming Rights to High School Stadium

Central One Federal Credit Union (Shrewsbury, MA) will make a one-time sponsorship payment of $750,000 towards the Shrewsbury High School synthetic turf field project.

In return for the sponsorship, the Shrewsbury Public Schools School Committee unanimously voted to name the stadium after the credit union.

The stadium will be named Central One Federal Credit Union Stadium.

Read the Memorandum of Understanding.

Read the Minutes.

Thursday, June 1, 2017

IBM Southeast Employees' CU Completes Acquisition of Mackinac Savings Bank

IBM Southeast Employees' Credit Union (Delray Beach, FL) announced the merger and acquisition of Mackinac Savings Bank, in Boynton Beach, Florida.

The $109 million Mackinac Savings Bank has offices in Palm Beach County, Florida and lending offices in Florida, Massachusetts and Michigan.

IBM Southeast Employees Credit Union has $980 million in assets and 16 branches in Georgia and Florida.

Read the press release.

Interagency Advisory Addresses Appraiser Shortage, Especially in Rural Areas

Responding to concerns over the limited availability of state-certified and -licensed appraisers, particularly in rural areas, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency issued an advisory that highlights two options to help insured depository institutions and bank holding companies facilitate the timely consideration of loan applications.

Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requires appraisals for federally related transactions to be performed by individuals who meet certain state-certification or -licensing requirements.

The two options to address the shortage of appraisers are temporary practice permits or temporary waivers.

Temporary practice permits allow appraisers credentialed in one state to provide their services on a temporary basis in another state experiencing a shortage of appraisers, subject to state law.

Temporary waivers set aside requirements relating to the certification or licensing of individuals to perform appraisals under Title XI of FIRREA in states or geographic political subdivisions where certain conditions are met. Temporary waivers may be granted when it is determined that there is a scarcity of state-certified or -licensed appraisers leading to significant delays in obtaining an appraisal.

Read the interagency advisory.

Wednesday, May 31, 2017

Size of CU Tax Exemption Jumps by 32 Percent

President Trump's Budget estimated that the tax expenditure arising from the credit union tax exemption is $35.3 billion over the next ten fiscal years.

This estimate of forgone tax revenues is up 32 percent from the estimate in last year's Budget by the Obama Administration at $26.7 billion.

According to the American Banker, the jump in the size of the tax expenditure is attracting the attention of both credit union and community banking advocates.

John McKechnie, a credit union industry lobbyist, stated to the American Banker that "this increase is noteworthy"; but also cautioned credit unions to not underreact or overreact to this information.

Read the article (subscription required).

Tuesday, May 30, 2017

MADCO Credit Union Operations Suspended for 60 Days

The Illinois Director of the Division of Financial Institutions issued an order suspending the operations of MADCO Credit Union (Edwardsville, IL) for 60 days and appointed 1st Mid-American Credit Union (Bethalto, IL) as Manager-Trustee.

The order was signed on May 23.

The Illinois regulator determined that MADCO Credit Union was in danger of insolvency as the true financial condition of the credit union could not be ascertained during an examination.

According to the order, the credit union was delinquent in paying Illinois withholding taxes and federal payroll taxes.

Also, the credit union is required to hold its annual meeting in the first 3 months of the year; but as of the signing of the order, the credit union had not held its 2017 annual meeting.

The credit union was not in compliance with state law on the number of directors, as it only had 4 board members. In addition, the credit union lacked a quorum, as its bylaws required 9 board members.

The credit union board declared a dividend although the board lacked a legal quorum to do so.

In addition, the order states that the credit union had loans that were either non-performing or showed no signs of being collected.

The order further noted that the loans to directors, officers, loan committee members, and supervisory committee members were not in compliance with Section 52 of the Illinois Credit Union Act.

Moreover, the order cited the credit union for its weak internal controls.

MADCO Credit Union had almost $1.7 million in assets, as of the most recent Call Report.

Read the order.





Monday, May 29, 2017

Grow Financial Alleges GTE Financial Stole Trade Secrets and Private Member Information

Grow Financial FCU in Tampa has filed suit in federal court against GTE Financial Credit Union (Tampa).

The lawsuit alleges that a former employee conspired with GTE Financial to steal private information from Grow Financial Credit Union, including trade secrets and private member information.

Grow Financial had to hire a forensic firm to uncover the alleged crime and had to notify 13 state attorney generals and the National Credit Union Administration about the breach.

The suit was filed in federal court on May 24 and Grow Financial is seeking a jury trial.

Read the story.

Saturday, May 27, 2017

ABA Files Motion for Summary Judgment in FOM Lawsuit

The American Bankers Association on Friday, May 26 filed a motion for summary judgment in its case challenging the National Credit Union Administration’s final rule expanding community-based credit union fields of membership (FOM) far beyond the limitations imposed by Congress.

The rule allows community credit unions — which Congress by statute limited to serving a single “well-defined local community, neighborhood, or rural district” to serve large regions encompassing multiple metropolitan areas with populations in the millions.

ABA specifically challenged the inclusion of Combined Statistical Areas — which encompass multiple Metropolitan Statistical Areas — as “local communities”; the ability of credit unions to serve Core-Based Statistical Areas without serving the urban core that defines the area; the ability to add “adjacent areas” to existing community fields of membership; and the dramatic expansion of what constitutes a rural district.

In its motion, ABA argued that this expansion of taxpayer-subsidized financial institutions is inconsistent with the limited scope of credit union operations envisioned by Congress, that it authorizes fields of membership that federal courts have previously rejected and that it undermines the ability of taxpaying banks to serve their communities.

ABA is seeking a declaration that the rule exceeded the agency’s statutory authority and is arbitrary and capricious, as well as an injunction prohibiting any community charter expansions pursuant to the challenged portions of the rule.

Read the motion for summary judgment.

Thursday, May 25, 2017

McWatters to CFPB: Provide Reg Relief to CUs

In a May 24th letter to Consumer Financial Protection Bureau (CFPB) Director Cordray, Acting National Credit Union Administration (NCUA) Chairman McWatters requested that the CFPB provide regulatory relief to credit unions.

Specifically, McWatters asked that the CFPB alleviate the compliance burden for credit unions with respect to the Home Mortgage Disclosure Act and Unfair, Deceptive, or Abusive Acts or Practices requirements of the Dodd-Frank Act.

McWatters noted that Section 1022(b)(3)(A) of the Dodd-Frank Act permits the CFPB to "exempt any class of persons, service providers, or consumer financial services from certain regulations." However, this section of the Dodd-Frank Act has been underutilized by the CFPB.

McWatters points out that the unique structure and small size of many credit unions warrants this regulatory relief. The median size for credit unions is less than $30 million in assets and the median staff size is a mere 8 employees.

The letter is below.

Another Ohio CU Defects from Federal Share Insurance

The National Credit Union Administration approved on March 27 the request of GenFed Financial Credit Union (Akron, OH) to switch from federal share (deposit) insurance to private share insurance.

Earlier this year, Day-Met (Dayton, OH) converted from federal share insurance to private share insurance.

Going forward, GenFed Financial Credit Union will be insured by American Share Insurance.

Wednesday, May 24, 2017

The Supreme Court Limits Ability of Patent Trolls to Cherry-Pick Friendly Courts

In the case of TC Heartland v. Kraft, the Supreme Court on May 22 unanimously affirmed prior precedents that patent infringement lawsuits can be brought only where defendants are incorporated or doing business.

The decision reversed a lower court decision.

The appellate court upheld a much broader understanding of corporate residence that would allow patent assertion entities -- often called “patent trolls” -- to continue cherry-picking friendly courts for patent cases against faraway defendants, further increasing pressure to settle cases.

In 2015, 40 percent of patent suits were filed in just one of 94 federal judicial districts: the Eastern District of Texas. That court is known for its friendliness to patent assertion entities, which hold unused patents, often of dubious quality, and employ them primarily as the basis for collecting licensing fees and threatening litigation.

Read the court opinion.

Tuesday, May 23, 2017

25 CUs Fined for Late Filing Q4 2016 Call Report

Twenty-five federally insured credit unions have consented to pay civil monetary penalties for filing late Call Reports in the fourth quarter of 2016.

Total penalties assessed by the National Credit Union Administration totaled $10,365.

Individual penalties ranged from $151 to $2,509. The median penalty was $253.

Of the 25 credit unions agreeing to pay penalties for the fourth quarter of 2016:
  • Eleven had assets of less than $10 million;
  • Nine had assets between $10 million and $50 million;
  • Four had assets between $50 million and $250 million; and
  • One had assets greater than $250 million.

Four of the late-filing credit unions had been late in a previous quarter.

Read the press release.

Credit Union Tax Expenditure Is $35.31 Billion over the Next 10 Fiscal Years

The tax expenditure arising from the credit union industry's exemption from the corporate income tax will equal $35.31 billion over fiscal years 2017 thru 2026, according to President Trump's 2018 Budget released today.


Read the Analytical Perspectives.

Bad Taxi Medallion Loans and New York Credit Union Merger

Credit Union Times is reporting that potential losses from taxi medallion loans played a role in the merger of Northwell Health Federal Credit Union (Jericho, NY) with Bethpage Federal Credit Union (Bethpage, NY).

The Northwell Health Federal Credit Union reported a loss of $2.1 million for 2016, as the credit union increased loan loss provisions for anticipated losses associated with taxi medallion participation loans.

At the end of the first quarter of 2017, Northwell Health had approximately $10.6 million in business participation loans, presumably most of the loans, if not all, were taxi medallion loans. Almost one-third (32.5 percent) of participation loans were 60 days or more past due.

Last year, Bethpage acquired troubled taxi medallion lender Montauk Credit Union.

I suspect that this latest merger will not be the last credit union merger due to taxi medallion loan losses.

Read the Credit Union Times article.

Monday, May 22, 2017

Banks and CUs Are Seeking Part of The Payday Lending Market

The Wall Street Journal is reporting that banks and credit unions are hoping that the Trump Administration will block the Consumer Financial Protection Bureau (CFPB) proposed payday lending rule and will scrap 2013 guidelines that forced banks to abandon the short-term loan market.

The article notes that "[s]ome credit unions continue to offer payday alternative loans"; however, the proposed requirement that lenders assess borrowers’ ability to repay could make this product too expensive to offer.

Proponents argue that letting banks and credit unions offer payday loans would benefit U.S. households that have paid billions in fees annually to payday and auto title lenders.

Read the article (subscription required).

Saturday, May 20, 2017

Colorado and Kansas CUs Buy Corporate Office Buildings

Elevations Credit Union (Boulder, CO) and Meritrust Credit Union (Wichita, KS) have purchased corporate office buildings.

Office-supply chain Staples has sold its four-story corporate office building in Broomfield for $16.5 million to Elevations Credit Union.

According to public records, Staples Contract and Commercial Inc., sold its 149,038-square-foot building and 17.6 acres at 1 Environmental Way in the Interlocken business park to One Environmental Way LLC, an entity created by Elevations.

In Wichita, Meritrust Credit Union announced that it has reached an agreement to buy the current headquarters building of Cargill Meat Solutions.

The building will house the credit union’s administrative departments and offices for mortgage services, wealth management advisors and small business services.

Terms of the deal were not disclosed.

Read the story.

Meritrust press release.

Friday, May 19, 2017

HUD Secretary Signals Possible Policy Shift on PACE Loans

Housing and Urban Development (HUD) Secretary Ben Carson signaled this week that the administration may revisit an Obama-era policy on Property Assessed Clean Energy, or PACE, loans, a controversial financial product that allows homeowners to pay for energy-efficient retrofitting -- such as solar panels and high-efficiency air conditioners -- through their property tax assessments.

Guidance issued last year allowed the Federal Housing Administration to approve mortgage and refinance applications for properties with PACE loans outstanding. “We are very, very amenable to adjusting that policy,” Carson said at an industry conference. “I’m concerned about it. It really does create a burden and an extra complication.”

Financial and housing trade groups, the Federal Housing Finance Agency (FHFA), and the housing GSEs have long expressed concern about PACE loans -- currently available in about 30 states -- taking lien priority over the first mortgage lien.

FHFA has prohibited Fannie Mae and Freddie Mac from purchasing loans with PACE liens which take precedence over the first mortgage, citing concerns about taxpayer risk.

As PACE loans have come under fire in the media for their lack of consumer protections, legislation has been introduced in Congress that would ensure PACE lenders provide full consumer disclosures. (See earlier post)

Thursday, May 18, 2017

Group Asks NCUA to Stop Bullying Medallion Owners

The Committee for Taxi Safety has requested that the National Credit Union Administration (NCUA) stop its assault on the taxi industry and show some human decency.

In a May 12 letter, David Beier, president of the Committee for Taxi Safety, wrote that "NCUA's unwillingness to work with medallion owners has put the very survival of our industry at risk."

The letter stated that the only lender not working with medallion owners is Melrose Credit Union, which is currently under conservatorship with NCUA.

The NCUA conserved lender is accused of taking a hardline stance with medallion owners by demanding large down payments or liens on primary residences to renew loans.

Even when borrowers comply with these demands, borrowers face substantial increases in the interest rates on their medallion loans.

The letter contends that NCUA's actions are that of a bully and will result in the financial ruin for thousands of medallion borrowers.

Beier asks "NCUA to act responsibly" and to work with struggling medallion owners.

Moreover, the letter suggests that NCUA is making things worse, which could adversely impact other medallion lenders.

Read the letter below.





Tuesday, May 16, 2017

Additional NY CUs with Problem Taxi Medallion Loans

The following credit unions either have or appear to have exposure to taxi medallion loans. These credit unions continue to report a growth in problem taxi medallion loans.

Quorum Federal Credit Union (Purchase, NY)

Quorum Federal Credit Union participated in taxi medallion lending, although the program was ended in 2013.

The credit union is reporting that $31.1 million in participation loans were 60 days or more past due as of March 2017. Presumably these delinquent participation loans are primarily taxi medallion loans. This is up from $21.5 million at the end of 2016.

The delinquency rate on participation loans were 27.36 percent as of March 2017, up from 18.78 percent.

In addition, Quorum reported $24.4 million in outstanding troubled debt restructured business loans at the end of the first quarter of 2017. This is down slightly from $25.1 million at the end of 2016.

After posting a loss of $6.7 million for 2016, the credit union reported a profit of almost $1.9 million. Provisions for loan loses were $1.8 million for the first quarter of 2016, down from $6.8 million one year ago.

Bay Ridge Federal Credit Union (Brooklyn, NY)

Bay Ridge Federal Credit Union appears to have exposure to taxi medallion loans.

The credit union is reporting $80.8 million in non-real estate member business loans at the end of the first quarter of 2017. One would expect some of these business loans are taxi medallion loans.

Delinquent non-real estate business loans grew from 737,501 as of the first quarter of 2016 to almost $4.8 million as on March 2017. The percentage of non-real estate member business loans that are 60 days or more past due rose from 0.88 percent to 5.91 percent over the same period.

In addition, troubled debt restructured business loans, which are not secured by real estate, were $22.6 million as of the first quarter of 2017 -- up from $23.1 million at the end of 2016 and from $14.4 million one year earlier.

The credit union is well capitalized with a net worth ratio of 9.34 percent. It reported a small profit of $19,195 for the first quarter of 2017 -- down from a profit of 532,372 from one year ago.

G.P.O. Federal Credit Union (New Hartford, NY)

According to GPO Federal Credit Union's Call Report, the credit union reported almost $15.1 million in non-member business participation loans at the end of the first quarter of 2017. Total participation loans were $16.3 million.

I suspect most of these non-member participation loans were taxi medallion loans.

The credit union reported that $5.4 million in participation loans were delinquent. This means that almost one-third of all participation loans were past due 60 days or more.

In comparison, 3.98 percent of all loans were delinquent.

In addition, the credit union is reporting that $1.9 million in outstanding troubled debt restructured business loans.

Monday, May 15, 2017

How Underwater Are Medallion Loan Portfolios?

Medallion Financial's Form 10-Q filed with the Securities and Exchange Commission discloses how underwater its medallion loans are.

According to its 10-Q,
"Decreases in the value of our medallion loan collateral have resulted in an increase in the loan-to-value ratios of our medallion loans. We estimate that the weighted average loan-to-value ratio of our managed medallion loans was approximately 124% as of March 31, 2017 and 129% as of December 31, 2016."

While information on the geographic mix of taxi medallion loans, down payments, and loan structures are not known, this loan-to-value statistic provides a good approximation of how underwater are the medallion loan portfolios at taxi medallion lending credit unions.

Friday, May 12, 2017

Wescom Central CU Settles Maternity Discrimination Complaint

The U.S. Department of Housing and Urban Development announced an agreement between Wescom Central Credit Union (Pasadena, CA) and a married couple from Santa Ana, CA, resolving allegations the credit union denied the couple’s mortgage loan application because the wife was on maternity leave.

The couple alleged that Wescom Credit Union unfairly denied their mortgage loan and that the lender requested the woman return to work and provide a current pay stub before they would approve the loan application.

However, refusing to provide a mortgage loan or mortgage insurance because a woman is pregnant or on family leave violates the Fair Housing Act’s prohibition against sex and familial status discrimination, which includes discrimination against individuals who have or are expecting a child.

Under the terms of the agreement, Wescom Central will:
  • Refinance the couple’s existing mortgage at a lower rate;
  • Create a $50,000 compensation fund for applicants who were similarly denied loans or withdrew mortgage applications from Wescom during calendar year 2015;
  • Ensure its lending policies regarding parental leave comply with the Fair Housing Act;
  • Provide fair lending training to its employees; and
  • Send a notice to its employees regarding its parental leave lending policies.
Read the press release.

Thursday, May 11, 2017

CFPB Seeks Information on the Small Business Lending Market

The Consumer Financial Protection Bureau (CFPB) has issued a request for information on various aspects of the market for small business loans.

Section 1071 of the Dodd-Frank Act calls for the CFPB to collect data on women-owned, minority-owned and small businesses to help identify needs and opportunities in the small business lending market and to facilitate enforcement of fair lending laws.

The CFPB is seeking information in five broad categories: the definition of a small business; what data points the bureau should require to be collected; what lenders should be encompassed by the data collection; what kinds of financial products and credit are offered to small businesses; and privacy concerns related to the data collection. Comments are due 60 days after the filing is published in the Federal Register.

The CFPB also released a preliminary report providing the agency's perspective on the market for lending to small, minority-owned and woman-owned firms and gaps in its understanding of the small business lending market.

The report discussed the role of credit unions, along with other lenders, in financing small businesses. For example, the report cites a Federal Reserve Survey that found "11 percent of all surveyed employer firms and 13 percent of non-employer firms applied for financing at a credit union" with 46 percent of employer businesses and 33 percent of non-employer businesses being approved for credit.

Read the request or information.

Read the CFPB report.

Wednesday, May 10, 2017

Q1 2017 Delinquent Loans Fall at Progressive CU, as Net Charge-off Rate Surges

Taxi medallion lender Progressive Credit Union (New York, NY) reported a loss of $25.6 million for the first quarter. The loss was primarily due to a $26.4 million increase in provisions for loans and lease losses.

The loss caused the credit union's net worth to fall from almost $195 million at the end of 2016 to $169.4 million as of March 31, 2017. As a result, the credit union's net worth ratio fell from 32.96 percent to 31.10 percent over the same time period.

The credit union reported a decline in delinquent loans during the first quarter of 2017. Loans 60 days or more past due fell from slightly less than $66.5 million at the end of 2016 to $46.1 million at the end of the first quarter of 2017. Its delinquency rate fell from 11.45 percent to 9.16 percent.
However, early delinquencies increased during the first quarter of 2017. Loans 30 to 59 days past due rose from $14.6 million at the end of 2016 to $21.1 million as of March 31, 2017.

Net charge-offs were $34.8 million during the first quarter of 2017. The net charge-off rate was 25.71 percent. At the end of 2016, the net charge-off rate was 6.32 percent.

Progressive reported a decline in outstanding troubled debt restructured (TDR) loans during the first quarter -- falling from $124.3 million as of December 2016 to slightly less than $117 million as of March 2017. TDR loans were 23.23 percent of total loans and 69.05 percent of net worth.

Foreclosed and repossessed other assets were $29.9 million as of March 31, 2017 -- up from $7.1 million at the end of 2016 and $1.2 million from a year ago.

Given that net charge-offs exceeded provisions for loan and lease losses, Progressive Credit Union's allowance for loan and lease losses fell by $8.4 million during the quarter to $62.7 million on March 31, 2017. The TDR portion of allowance for loan and lease losses was approximately $24.6 million at the end of the first quarter.

the credit union's coverage ratio rose during the first quarter to 135.88 percent.

LOMTO FCU Posted Small Profit in Q1 2017, As Delinquent Loans Increase

Taxi medallion lender LOMTO Federal Credit Union (Woodside, NY) posted a small profit for the first quarter of 2017, despite an increase in delinquent loans.

LOMTO FCU recorded a profit of $462,019 for the first quarter of 2017, after posting a 2016 loss of almost $18.6 million. The return to profitability was primarily due to a recapture of $309,621 in loan loss reserves during the first quarter.

As a result, the credit union experienced a 3.4 percent increase in net worth during the quarter to $14.1 million as of March 2017. However, compared to a year ago the credit union's net worth was down 50.3 percent.

The credit union's net worth ratio edged higher to 5.97 percent at the end of the first quarter of 2017. The credit union is currently undercapitalized.

LOMTO FCU reported an increase in delinquent loans during the first quarter. Loans 60 days or more delinquent increased from $30.9 million at the end of 2016 to almost $42.8 million at the end of the first quarter of 2017. As a result, the delinquency rate went from 14.36 percent to 20.55 percent over the same time period.
LOMTO also reported $12.7 million in loans that were 30 to 59 days past due as of the first quarter of 2017 -- up from $10.9 million at the end of 2016.

The credit union charged off $2.9 million in loans during the first quarter. The net charge-off rate was 5.53 percent as of March 31, 2017 -- up from 4.90 percent at the end of 2016.

Foreclosed and repossessed other assets, presumably taxi medallions, were $13.7 million as of March 2017 -- up from $11.3 million the previous quarter.

Outstanding troubled debt restructured (TDR) loans were $23.2 million at the end of the first quarter of 2017. TDR loans were 11.16 percent of all loans and 164.45 percent of net worth.

LOMTO reported that it has $21.9 million in allowances for loan and lease losses at the end of the first quarter, of which $9.3 million was allocated to cover TDR loans. The combination of a decline in loan loss reserves and an increase in delinquent loans caused LOMTO's coverage ratio to fall from 81.37 percent at the end of 2016 to 51.21 percent on March 31, 2017.

In addition, the Chicago Tribune is reporting that LOMTO has filed 28 lawsuits against taxi companies so far this year in Cook County Circuit Court.





Tuesday, May 9, 2017

Melrose CU Is Significantly Undercapitalized

Melrose Credit Union (Briarwood, NY) was significantly undercapitalized at the end of the first quarter 2017.

Due to losses of $38.2 million in the first quarter, the credit union's net worth fell from $102.2 million at the end of 2016 to $64 million at the end of the first quarter of 2017. As a result, the credit union's net worth ratio fell 198 basis points during the quarter to 3.75 percent at the end of the first quarter of 2017.

The $38.2 million loss for the first quarter was due to the credit union increasing provisions for loan and lease losses by almost $40.8 million during the first quarter.

Loans 60 days or more delinquent rose by over $76 million during the first quarter to $577.8 million. As a result, delinquency rate was 33.71 percent a the end of the first quarter.

In addition, $60.4 million in loans were 30 days to 59 days more past due.

After charging off almost $194 million in loans in 2016, the credit union recorded only $1.8 million in net charge-offs during the first quarter of 2017.

The increase in loan loss provisions during the first quarter caused the allowances for loan and lease losses account to increase from $149.2 million at the end of 2016 to almost $188.2 million at the end of the first quarter of 2017.

The coverage ratio edged higher from 29.76 percent at the end of 2016 to 32.57 percent at the end of the first quarter of 2017.

The following table looks at key performance metrics for Melrose Credit Union.




Monday, May 8, 2017

McCoy FCU Buys Naming Rights to High School Sports Complex

McCoy Federal Credit Union (Orlando, FL) bought the naming rights to Boone High School sports complex.

The sports complex will now be referred to as the McCoy Federal Credit Union Athletic Complex.

The naming-rights agreement with McCoy Federal Credit Union is for five years, with an option for five additional years.

The agreement includes an initial payment of $250,000 to provide for the installation of an artificial turf at Boone High School’s stadium along with other stadium improvements.

The agreement was approved by the Orange County Board of Education.

Read the term sheet.

Read the agreement.

Two Credit Unions Announce Deals to Buy Banks

On May 5, two separate deals were announced regarding a credit union acquiring a bank.

Honor Credit Union of Berrien Springs, Michigan has agreed to buy the assets and liabilities of Citizens State Bank of Ontonagon (Michigan).

Citizens State Bank of Ontonagon has three offices. The bank has $52.8 million in assets and $46.1 million in deposits, according to its most recent Call Report.

Honor Credit Union has 19 offices and $734.9 million in assets.

In another deal, Trona Valley Community Federal Credit Union, Green River, Wyoming and State Bank, Green River, Wyoming jointly announced the execution of an Asset Purchase and Liability Assumption Agreement whereby Trona Valley Community Federal Credit Union will acquire substantially all of the assets and assume substantially all of the liabilities of State Bank.

Trona Valley Community Federal Credit Union has approximately $181 million in assets, while State Bank has $37 million in assets.

This acquisition will result in a credit union with over $218 million in total assets.

The price of each deal was not disclosed.

Both mergers are pending regulatory and shareholder approvals.

Read the Honor CU acquisition story.

Read Trona Valley Community FCU merger story.

Friday, May 5, 2017

Consumer Credit at CUs Grew at a Faster Pace in March

The Federal Reserve reported that outstanding consumer credit at credit unions grew in March.

Outstanding consumer credit increased by $4.2 billion in March to $393.7 billion. In comparison, consumer credit grew by $3.3 billion in February.

The expansion in consumer credit at credit unions was driven by an expansion in non-revolving credit, as revolving credit fell in March.

Non-revolving credit increased by almost $4.3 billion in March to $341.6 billion. Revolving credit slipped from approximately $52.3 billion in February to almost $52.1 billion in March.

Read the G. 19 release.

Massachusetts Regulator Fines LPL $1 Million for Failing to Supervise Advisers Operating at CU

The Boston Globe is reporting that the Massachusetts Securities Division has fined LPL Financial Holdings Inc. $1 million for allegedly failing to supervise advisers operating out of Digital Federal Credit Union (Marlborough, MA).

LPL is a broker-dealer and investment adviser headquartered in Boston, Massachusetts.

The state regulators alleged that LPL agents were working for both the brokerage and the credit union.

The advisers were being paid bonuses by the credit union and used the name “DCU Financial” for their operation.

According to the Massachusetts Securities Division, the employees did not make it clear to customers that they were being paid by both the credit union and LPL.

The credit union was not cited because the Massachusetts Securities Division does not regulate credit unions.

Read the Boston Globe article.

Read the consent order.

Thursday, May 4, 2017

Supreme Court Rules that Cities May Sue Banks under the FHA

On May 1, the Supreme Court in a 5 to 3 decision ruled that cities may sue lenders under the Fair Housing Act (FHA), alleging reduced property tax revenues due to predatory lending.

However, the Supreme Court found that the lower court should have used a more stringent test to determine whether the city of Miami was entitled compensation for its losses. The Supreme Court explained that the plaintiff suing under the FHA must show a direct connection between the injury and the violation.

As a result, the court sent the case back to a lower court to determine whether banks’ lending practices were responsible for Miami’s economic injuries to a degree that justify holding the banks financially liable.

This more stringent test regarding damages could stop many lawsuits from cities.

The case involves a lawsuit brought by Miami against Bank of America and Wells Fargo alleging FHA violations. The complaints were initially dismissed by a Miami federal district court but were reversed by the Eleventh Circuit, which stated Miami had standing under the FHA to sue the banks because the city demonstrated a nexus between the alleged injuries and the banks’ conduct.

Read the opinion.

Wednesday, May 3, 2017

Credit Suisse Settles with NCUA over Toxic Mortgage Securities

The National Credit Union Administration (NCUA) announced that it received $400 million from Credit Suisse for claims arising from losses related to purchases of toxic residential mortgage-backed securities by U.S. Central Federal Credit Union, Southwest Corporate Federal Credit Union, and Western Corporate Federal Credit Union.

As a result of the settlement agreement, NCUA will dismiss its pending lawsuit against Credit Suisse, which does not admit fault as part of the agreement.

NCUA announced that aggregate gross legal recoveries by the NCUA on behalf of five failed corporate credit unions that purchased residential mortgage-backed securities have reached $5.1 billion.

Read the press release.

Taxi Medallion Loans Stress Two New Jersey Credit Unions

Taxi medallion loans continue to stress the performance of two New Jersey credit unions in the first quarter of 2017. Both credit unions owned credit union service organizations that financed taxi medallions.

First Jersey Credit Union

The increase in provisions for loan and lease losses caused First Jersey Credit Union (Wayne, NJ) to go from a profit of 82,404 in the first quarter of 2016 to a loss of $847, 040 at the end of the first quarter of 2017.

The credit union reported approximately $862 thousand in provisions for loan and lease losses as of March 31, 2017. A year earlier, the credit union did not report any provisions for loan and lease losses.

First Jersey Credit Union reported a year-over-year reduction in its net worth due to large losses. The credit union's net worth fell from almost $12.4 million to slightly less than $7.2 million. As a result, the credit union's net worth ratio declined by 263 basis points over the last year to 6.44 percent as of March 31, 2017. The credit union currently meets the requirement of being adequately capitalized.

At the end of March 31, 2017, almost $4.1 million in delinquent loans, of which $1.9 million were member business loans (MBL). Early delinquencies (30 to 59 days past due) were $4.6 million, of which $3.1 million are MBLs.

However, the delinquency rate fell from last quarter and from one year ago. At the end of March 31, 2017, the delinquency rate was 5.80 percent compared to 7.82 percent at the end of 2016 and 8.71 percent from a year ago.

Member business loans 60 days or more delinquent was 14.43 percent -- down from 28.57 percent a year earlier. However, there was little change in the 30 day plus delinquency rate for business loans over the last year. Almost one-third of all business loans are 30 days or past due.

Troubled debt restructured business loans increased by 86 percent over the last year to almost $2.9 million.

First Jersey had $2 million in foreclosed and repossessed other assets as of March 31, 217 -- up from zero a year ago.

The credit union has a total buffer of net worth and allowances for loan and lease losses of $11.7 million to absorb expected and unexpected losses at the end of March 2017.

Aspire Federal Credit Union

Aspire Federal Credit Union (Wayne, NJ) reported a loss of $519,386 during the first quarter of 2017. In comparison, the credit union recorded a quarterly loss of $93,723 one year earlier.

The first quarter 2017 loss was partly due to the credit union setting aside $884,357 in provisions for loan and lease losses.

As a result of a 2016 loss of $1.6 million and a first quarter loss of $519 thousand, the credit union's net worth fell from slightly more than $19 million to $17 million. The credit union's net worth ratio fell by 34 basis points over the prior year to 9.81 percent as of March 2017.

Year-over-year loans 60 days or more past due were up by almost $1 million to just below $5.7 million. Early delinquencies were up about $327 thousand to $5.85 million.

The percentage of loans 60 days or more past due were up from last year; but down from the previous quarter. The delinquency rate as of March 2017 was 4.16 percent, down from 5.18 percent as of the end of 2016 and up from 3.09 percent from a year ago.

The credit union reported that $2.6 million in business loans were 60 days or more past due. Early delinquencies for business loans were $3.15 million. Almost one-third of Aspire's business loans were 30 days or more delinquent and 14.96 percent of business loans were 60 days or more past due.

Outstanding troubled debt restructured business loans were $4.3 million as of March 31, 2017.

The credit union reported as of March 31, 2017 foreclosed and repossessed other assets, presumably taxi medallion loans, were almost $1.9 million -- up over 900 percent from a year ago.

The credit union has a combined net worth and loan loss reserve buffer of $21.7 million to absorb expected and unexpected losses.






Tuesday, May 2, 2017

CU and Bank Trades Call for the Repeal of the Durbin Amendment

In a joint op-ed published in Morning Consult, the heads of seven financial trade associations called for the repeal of the Durbin amendment, which imposed government price controls on debit card interchange.

According to data from the Federal Reserve Bank of Richmond, the Durbin amendment has “siphoned upwards of $6 billion to $8 billion a year from the revenue banks and credit unions use to serve their customers and members, respectively,” the groups wrote, totaling $42 billion since it was passed as part of the Dodd-Frank Act in 2010. The trade groups pointed out that the amendment has greatly limited banks’ and credit unions’ ability to provide their customers with low-cost financial products and services, and that in the meantime, retailers’ profits have grown.

In addition, they noted that the amendment has done significant harm to small businesses, which have seen increased costs for processing small-dollar transactions and fewer choices for payment processing services since the law took effect. Smaller card issuers have also struggled with added compliance costs and lower revenues as a result of the amendment.

The House Financial Services Committee will start today to mark-up the Financial CHOICE Act (H.R. 10), which includes an amendment to repeal the Durbin Amendment.

Read the op-ed.

Firefighters First Switches to Federal Charter and Federal Insurance, Exempted from MBL Cap

The National Credit Union Administration (NCUA) has granted a federal charter and federal share insurance coverage to Firefighters First Federal Credit Union of Los Angeles, which became effective on April 18.

NCUA granted Firefighters First a Trade-, Industry-, Profession-wide (TIP) field of membership to serve the 510,000 employees and independent contractors who work in the fire protection industry in the United States.

NCUA also approved the credit union’s request for the designation of being chartered for the purpose of granting member business loans. This means the credit union is not subject to the member business loan (MBL) cap of 12.25 percent of assets.

However, the historical evidence indicates Firefighters First was not an active business lender. In 2004, the credit union had only $1 million in outstanding member business loans. The credit union had a MBL to asset ratio of 0.15 percent. If you add in purchased business loans or participation interests to nonmembers, the ratio of business loans to assets increases to 2.1 percent. It was only in the last four years that the credit union reported a business loans to asset ratio above 10 percent.


I wonder what tortured reasoning NCUA used to come to the conclusion that the credit union was chartered for the purpose of making member business loans.

Furthermore, the conversion to a federal charter means that Firefighters First will no longer be subject to the requirement to disclose the compensation of the highest paid individuals at the credit union.

Firefighters First was originally chartered in 1935 by the state of California as the Los Angeles Firemen’s Credit Union. The credit union obtained federal insurance in 1975 but converted to private insurance in 1984 and changed its name to Firefighters First Credit Union in 2014.

Prior to its conversion to a federal charter, Firefighters First had $1.18 billion in assets, making it one of the largest single-common-bond federal credit unions in the United States.

Monday, May 1, 2017

UBS Settles Lawsuit with NCUA

The National Credit Union Administration (NCUA) has recovered $445 million from UBS for claims arising from losses related to purchases of residential mortgage-backed securities by U.S. Central Federal Credit Union and Western Corporate Federal Credit Union.

The settlement covers claims asserted in 2012 by the NCUA Board as liquidating agent for U.S. Central Federal Credit Union and Western Corporate Federal Credit Union in federal district court in Kansas.

As part of the settlement, NCUA will dismiss its pending suit against UBS, which does not admit fault as part of the agreement.

Net proceeds from recoveries are used to pay claims against the five failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund.

Read the press release.

Financial and Housing Groups Support Bills Targeting PACE Loans

In a joint letter, financial and housing trade associations on April 24 expressed support for legislation to require more consumer disclosures for Property Assessed Clean Energy (PACE) loans, a controversial financial product that allows homeowners to pay for energy-efficient retrofitting -- such as solar panels and high-efficiency air conditioners -- through their property tax assessments.

More than 30 states currently allow PACE loans, which may take first-lien position over the primary mortgage on a residence but are not currently subject to federal consumer protection requirements. The bills -- S. 838 and H.R. 1958 -- would subject PACE loan originators and sales personnel to Truth in Lending Act requirements, enhancing pre-origination disclosures of total loan amounts and loan terms and bringing the loans explicitly under the oversight of the Consumer Financial Protection Bureau.

“PACE loans are -- in substance -- consumer loans secured by real property and should be subject to federal consumer protection requirements, not dependent on a patchwork of limited or non-existent state/municipal laws that do not adequately protect homeowners,” the trades said.

The letter went to the Senate bill authors, Senators John Boozman, R-Ark., Tom Cotton, R-Ark., and Marco Rubio, R-Fla.; and House bill authors, Representatives Ed Royce, R-Calif., and Brad Sherman, D-Calif.

Read the House letter.

Saturday, April 29, 2017

CU Pays $100,00 for Naming Rights to University's Hitting Facility

Members First Credit Union of Florida (Pensacola, FL) will pay $100,000 for the naming rights to the hitting facility used by the baseball and softball teams at the University of West Florida (UWF).

The credit union is scheduled to present the check on Saturday, April 29.

The hitting facility is the UWF’s new multi-purpose, 9,100-square foot indoor training center for baseball and softball, which opened at the beginning of the 2016 season.

The facility is slated to be named Members First Credit Union Hitting Facility, pending UWF Board of Trustees approval.

Read the press release.

Friday, April 28, 2017

Municipal Credit Union Announced as the Official Credit Union of the New York Jets

The New York Jets announced a multi-year partnership with Municipal Credit Union.

Municipal Credit Union will be the official credit union of the New York Jets.

As the official credit union of the Jets, MCU will serve as the presenting partner of the 2017 New York Jets Draft.

The deal also makes the credit union the presenting partner of the New York Jets First Responders’ game.

Furthermore, Municipal Credit Union will support the New York Jets efforts to end bullying.

The price of the deal was not disclosed.

Read the press release.

Thursday, April 27, 2017

Rep. Luetkemeyer Reintroduces CLEARR Act

Rep. Blaine Luetkemeyer (R-Mo.) on April 26 re-introduced the CLEARR Act (H.R. 2133), which would provide relief from certain rules and regulations for community banks and credit unions.

In reintroducing the bill Rep. Luetkemeyer stated: "The pendulum has swung too far, and it’s time to return to a common-sense, responsible approach to financial regulation that protects consumers from harm without jeopardizing access to the financial products they need to grow their businesses, invest in their communities, and provide for their families."

The bill would limit the authority of the Consumer Financial Protection Bureau (CFPB) by raising the asset size threshold for CFPB supervision from $10 billion to $50 billion. The bill also removes the term “abusive” from the CFPB’s “unfair, deceptive or abusive” acts or practices authority.

Additionally, it would provide relief in the mortgage lending area by exempting community financial institutions from certain escrow requirements and providing a Qualified Mortgage safe harbor for loans held in portfolio.

Furthermore, H.R. 2133 would repeal the Dodd-Frank Act provision amending the Equal Credit Opportunity Act to require collection of small business and minority-owned business loan data.

The bill would curtail "Operation Choke Point" by prohibiting federal banking agencies from requiring depository institutions to terminate a
specific account or group of accounts unless the agency has a material reason not based solely on reputational risk.

Rep. Luetkemeyer introduced similar legislation in the 113th and 114th Congresses.

Wednesday, April 26, 2017

TruMark Financial CU Buys Naming Rights to University Arena

TruMark Financial Credit Union (Fort Washington, PA) bought the naming rights to an arena at La Salle University.

The Tom Gola Arena at Hayman Hall will now be known as the Tom Gola Arena at the TruMark Financial Center.

The credit union also will provide scholarship and financial literacy support at the university.

The credit union will operate a student-run branch on the La Salle University campus starting in the fall semester of 2017.

The cost and terms of the naming rights deal were not disclosed.

Read the press release.

Tuesday, April 25, 2017

Bank and Credit Union Executives Express Concerns over Examinations and Regulations

Members of the Federal Reserve’s Community Depository Institutions Advisory Council (CDIAC) raised concerns about compliance examination processes and the current regulatory landscape in a recent meeting, according to minutes released on Friday by the Fed.

CDIAC members are selected from representatives of banks, thrift institutions, and credit unions serving on newly created local advisory councils at the twelve Federal Reserve Banks. One member of each of the Reserve Bank councils is selected to serve on the CDIAC, which meets twice a year with the Board of Governors in Washington.

“The council is very concerned that the working partnership that has existed for many years between examiners and bankers and credit unions is no longer working well, as manifested by increased examination timeframes, less risky concerns being mentioned as matters requiring attention or documents of resolution, and a lack of exam focus on an institution’s overall risk profile,” the group said.

CDIAC members noted heightened concerns over examination activities related to fair lending, Bank Secrecy Act (BSA), cybersecurity, and vendor management. For example, fair lending exams "seem to continue indefinitely, as if examiners must continue to review until they find a problem."

CDIAC members expressed frustration that agencies are using opaque statistical analyses, but are not willing to share their methodologies with financial institutions. CDIAC members stated: "Being able to use the same tools as examiners would help ensure compliance on their own part and would provide examiners with sound, reliable data analysis, thereby reducing examination burden and allowing examiners to focus on higher-risk areas."

Council members said they observed regulatory expectations for large institutions “trickling down” to community institutions, and they emphasized the need for regulators to tailor examinations based on the risk profiles of individual financial institutions.

They also raised concerns about the reduction in the overall level of examiner experience and expertise, noting that less-experienced examiners tended to take a “check-the-box” approach when conducting an examination, rather than focusing on the bank’s risk profile.

Read questions 4 and 5 of the CDIAC minutes.

Monday, April 24, 2017

Indirect Used Car Lending Contributed to the Failure of Valley State Credit Union

It appears that a rapid growth in indirect used car lending played a significant role in the failure of Valley State Credit Union (Saginaw, MI).

Valley State Credit Union failed on March 31, 2017.

The following graphs provide a visual depiction of rapid growth in used car and indirect lending, the growth in delinquencies in used car and indirect loans, and the subsequent spike in net charge-offs in used car and indirect loans.

Between September 2014 and December 2015, used car loans rapidly expanded by almost 236 percent from $2.3 million to almost $7.86 million.


Over the same time period, indirect lending expanded from 11.08 percent of total loans to peaking at 33.89 percent of all loans.


Used car loan delinquency rate went from 3.02 percent in September 2014 to 30.68 percent as of September 2016.


Indirect loan delinquency rates went from 4.84 percent to 33.35 percent over the same period.


In the fourth quarter of 2016, net charge-offs for used car loans and indirect loans were $1.4 million and $1 million, respectively.


Friday, April 21, 2017

NCUSIF Reserve Balance Increased by $49 Million During the First Quarter of 2017

The National Credit Union Administration reported that reserve expenses for the National Credit Union Share Insurance Fund (NCUDIF) increased during the first quarter.

NCUA had estimated that NCUSIF reserve expenses would increase by $28 million during the first quarter of 2017. However, actual NCUSIF reserve expenses rose by $49.2 million - more than anticipated.

NCUA reported that charges for liquidation declined by about $200 thousand during the first quarter.

As a result, reserve balance at the NCUSIF increased by $49 million from $196.6 million on December 31, 2016 to $245.6 million on March 31, 2017.

According to NCUA, $8.8 million is for specific natural person credit unions and $236.8 million is for general reserves.

 

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