Members Choice Credit Union (Houston, TX) is scheduled to take possession on October 31 of its new four-story, 80,000 square-foot headquarters building, according to the Houston Business Journal.
The building will include a full service branch, a multi-purpose room available for use by the community, a quiet room for employees, and a spacious lunch room connected to an outdoor dining patio, as well as other features.
The credit union will occupy about two and a half floors of the building and will lease out 32,000 square feet of Class A office space.
As a state chartered credit union, Members Choice should pay unrelated business income taxes on the rental income from leasing its excess space.
However, federal credit unions are not subject to unrelated business income taxes on the rental of their excess space. This glaring loophole should be closed.
Read the article.
Tuesday, October 31, 2017
Monday, October 30, 2017
Non-Federally Guaranteed Student Loans Up 12.1 Percent Year-over-Year
Federally-insured credit unions reported almost $4.1 billion in outstanding non-federally guaranteed student loans as of June 30, 2017. This is up 12.1 percent from a year ago.
According to data from the National Credit Union Administration's website, approximately $1.1 billion in non-federally guaranteed student loans were in deferred status as of the second quarter 2017.
Navy Federal Credit Union had the largest amount of non-federally guaranteed student loans at almost $213 million. Below is a table listing the 10 largest student lending credit unions (click on image to enlarge).
As of June 30, 2017, $44.3 million of these student loans were 60 days or more past due. The delinquency rate on these loans were 1.09 percent, down 10 basis points from a year earlier.
However, the reported delinquency rate includes loans in deferred status and thereby understates the true delinquency rate.
In addition, credit unions reported $8.9 million in net charged off student loans as of June 2017. This is more than double the amount of net charge-offs from a year ago, which was $4.2 million.
Over the course of the last year, the net charge-off rate on non-federally guaranteed student loans increased by 22 basis points to 0.45 percent.
Still, private student loans at credit unions outperform federally guaranteed student loans, which have a delinquency (90 days past due) and default rate of 11.2 percent.
According to data from the National Credit Union Administration's website, approximately $1.1 billion in non-federally guaranteed student loans were in deferred status as of the second quarter 2017.
Navy Federal Credit Union had the largest amount of non-federally guaranteed student loans at almost $213 million. Below is a table listing the 10 largest student lending credit unions (click on image to enlarge).
As of June 30, 2017, $44.3 million of these student loans were 60 days or more past due. The delinquency rate on these loans were 1.09 percent, down 10 basis points from a year earlier.
However, the reported delinquency rate includes loans in deferred status and thereby understates the true delinquency rate.
In addition, credit unions reported $8.9 million in net charged off student loans as of June 2017. This is more than double the amount of net charge-offs from a year ago, which was $4.2 million.
Over the course of the last year, the net charge-off rate on non-federally guaranteed student loans increased by 22 basis points to 0.45 percent.
Still, private student loans at credit unions outperform federally guaranteed student loans, which have a delinquency (90 days past due) and default rate of 11.2 percent.
Friday, October 27, 2017
New York State Employees FCU Closed
The National Credit Union Administration liquidated New York State Employees Federal Credit Union of New York, New York.
Palisades Federal Credit Union of Pearl River, New York, immediately assumed most of New York State Employees Federal Credit Union’s assets and all members, shares and loans.
The NCUA made the decision to liquidate New York State Employees Federal Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.
As of June 2017, the credit union was unprofitable and significantly undercapitalized with a net worth ratio of 3.92 percent. The credit union reported that 8.28 percent of its loans were at least 60 days or more past due.
At the time of liquidation, New York State Employees Federal Credit Union served 1,183 members and had assets of $2 million, according to the credit union’s most recent Call Report.
New York State Employees Federal Credit Union is the fourth federally insured credit union liquidation in 2017. The last New York-based credit union to be liquidated was Bethex FCU (Bronx, NY) on December 18, 2015.
Read the press release.
Palisades Federal Credit Union of Pearl River, New York, immediately assumed most of New York State Employees Federal Credit Union’s assets and all members, shares and loans.
The NCUA made the decision to liquidate New York State Employees Federal Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.
As of June 2017, the credit union was unprofitable and significantly undercapitalized with a net worth ratio of 3.92 percent. The credit union reported that 8.28 percent of its loans were at least 60 days or more past due.
At the time of liquidation, New York State Employees Federal Credit Union served 1,183 members and had assets of $2 million, according to the credit union’s most recent Call Report.
New York State Employees Federal Credit Union is the fourth federally insured credit union liquidation in 2017. The last New York-based credit union to be liquidated was Bethex FCU (Bronx, NY) on December 18, 2015.
Read the press release.
Illinois CU Regulator Orders Business to Stop Using Term "Credit Union"
The Illinois Division of Financial Institution ordered 1st Provision Credit Union to cease and desist from transacting business and using the term "credit union' or any abbreviation thereof.
According to 1st Provision's website, the business is located in Ottawa, Illinois and describes itself as a credit union.
The state regulator found that as of October 13 the entity was neither chartered by the National Credit Union Administration nor the state of Illinois.
Read the cease and desist order.
According to 1st Provision's website, the business is located in Ottawa, Illinois and describes itself as a credit union.
The state regulator found that as of October 13 the entity was neither chartered by the National Credit Union Administration nor the state of Illinois.
Read the cease and desist order.
Thursday, October 26, 2017
Texas CU Regulator Reports Increase in Complaints for FY 2017
The Texas Credit Union Department reported that complaints about credit unions were up for fiscal year (FY) 2017 ending on August 31.
In FY 2017, the Department reported 280 complaints. This is up from 261 complaints for FY 2016.
Between FY 2012 and FY 2017, complaints are up approximately 61 percent.
The Department noted that many complaints arise from member service issues and poor communications.
The Department advised that working with members to resolve issues may prevent complaints from being filed.
Read the October Newsletter.
In FY 2017, the Department reported 280 complaints. This is up from 261 complaints for FY 2016.
Between FY 2012 and FY 2017, complaints are up approximately 61 percent.
The Department noted that many complaints arise from member service issues and poor communications.
The Department advised that working with members to resolve issues may prevent complaints from being filed.
Read the October Newsletter.
Wednesday, October 25, 2017
Groups Call for the End of CU Tax Exemption
Two recent op-eds have called on Congress and the Trump Administration to end the credit union industry's preferential tax treatment as part of tax reform.
In an op-ed in the Charlotte Observer, Yael Ossowski, deputy director of the Consumer Choice Center -- a D.C.-area consumer advocacy group -- called on the Trump administration and Congress to take steps to eliminate the credit union tax exemption as part of the broader plan to reform the U.S. tax code. Ossowski wrtoe that credit unions should not "enjoy the same tax-free status as soup kitchens, Goodwill and disaster relief charities."
In the Reno Gazette-Journal, Drew Johnson, a senior scholar at the Taxpayers Protection Alliance, wrote in an op-ed that Congress should end "the practice of using the tax code to pick winners and losers by removing the nonprofit loophole that allows large credit unions to avoid paying their fair share of taxes."
Read the Charlotte Observer Op-Ed.
Read the Reno Gazette-Journal Op-Ed.
In an op-ed in the Charlotte Observer, Yael Ossowski, deputy director of the Consumer Choice Center -- a D.C.-area consumer advocacy group -- called on the Trump administration and Congress to take steps to eliminate the credit union tax exemption as part of the broader plan to reform the U.S. tax code. Ossowski wrtoe that credit unions should not "enjoy the same tax-free status as soup kitchens, Goodwill and disaster relief charities."
In the Reno Gazette-Journal, Drew Johnson, a senior scholar at the Taxpayers Protection Alliance, wrote in an op-ed that Congress should end "the practice of using the tax code to pick winners and losers by removing the nonprofit loophole that allows large credit unions to avoid paying their fair share of taxes."
Read the Charlotte Observer Op-Ed.
Read the Reno Gazette-Journal Op-Ed.
Tuesday, October 24, 2017
Study Finds CUs Gaining Market Share
A recent study by the Federal Reserve Bank of Philadelphia found that credit unions are growing faster than small banks and have gained market share relative to small banks.
The report also noted that small banks and thrifts have lost market share to large banks.
Despite their expansion, credit unions only hold about 7.1 percent of the assets held by all depository institutions.
One of the research questions explored by the study is whether credit unions and small banks compete for the same customers.
The Philly Fed found that small banks and credit unions compete for similar borrowers in the residential lending market.
According to the study, "the mortgages for purchasing one- to four-family homes that credit unions and small banks make are similar across all income tracts."
But the study noted that credit unions may have more stringent real estate lending standards. According to data, "credit unions reject a larger proportion of their home loan applicants, and the difference in rejection rates is greatest in low- and middle-income tracts." In addition, the study found that credit unions had a lower charge-off rate on home mortgage loans.
For example, the following chart looks at rejection rates for mortgages in low-and moderate-income census tracts by credit unions and small banks.
The study also notes that since 1990, credit unions have doubled their market share of consumer loans. However, small banks have only a small share of consumer loan market, losing market share to both large banks and credit unions.
The study states that credit unions tend to offer more flexible terms on their auto loans. "Car buyers who finance their purchases through a credit union generally have lower credit scores, longer loan maturities, and lower monthly payments compared with those who take out a car loan from a small or medium-size bank." The offering more flexible terms on car loans may arise from the ability of credit unions to cross-collateralize these loans with borrowers deposits.
The report argues for more study of the credit union industry, especially as the industry moves from its traditional markets.
Read the study.
The report also noted that small banks and thrifts have lost market share to large banks.
Despite their expansion, credit unions only hold about 7.1 percent of the assets held by all depository institutions.
One of the research questions explored by the study is whether credit unions and small banks compete for the same customers.
The Philly Fed found that small banks and credit unions compete for similar borrowers in the residential lending market.
According to the study, "the mortgages for purchasing one- to four-family homes that credit unions and small banks make are similar across all income tracts."
But the study noted that credit unions may have more stringent real estate lending standards. According to data, "credit unions reject a larger proportion of their home loan applicants, and the difference in rejection rates is greatest in low- and middle-income tracts." In addition, the study found that credit unions had a lower charge-off rate on home mortgage loans.
For example, the following chart looks at rejection rates for mortgages in low-and moderate-income census tracts by credit unions and small banks.
The study states that credit unions tend to offer more flexible terms on their auto loans. "Car buyers who finance their purchases through a credit union generally have lower credit scores, longer loan maturities, and lower monthly payments compared with those who take out a car loan from a small or medium-size bank." The offering more flexible terms on car loans may arise from the ability of credit unions to cross-collateralize these loans with borrowers deposits.
The report argues for more study of the credit union industry, especially as the industry moves from its traditional markets.
Read the study.
Monday, October 23, 2017
Nine Virginia CUs Sued over ADA Website Violations
The Credit Union Times is reporting that nine Virginia credit unions are being sued for violating the Americans with Disability Act (ADA) by failing to make their websites accessible to the visually impaired.
The lawsuits allege the credit unions' websites were not embedded with the code that would allow screen readers to describe graphics, or contained links with no readable text, or had redundant links.
The lawsuits also claim the credit unions were informed about the problems and failed to fix the problems on their websites.
The nine credit unions are Cadmus Credit Union Inc. (Richmond, VA), Virginia Credit Union Inc. (Richmond, VA), ABNB FCU (Chesapeake, VA), Blue Eagle CU (Roanoke, VA), Member One FCU (Roanoke, VA), NRL FCU (Alexandria, VA), Arlington Community FCU (Falls Church, VA), Henrico FCU (Henrico, VA), and Pentagon FCU (Tyson, VA).
According to the story, NRF FCU has reported that the issue has been resolved.
These lawsuits have some credit union bloggers warning that credit unions need to start making their websites ADA compliant.
Read the Credit Union Times story.
The lawsuits allege the credit unions' websites were not embedded with the code that would allow screen readers to describe graphics, or contained links with no readable text, or had redundant links.
The lawsuits also claim the credit unions were informed about the problems and failed to fix the problems on their websites.
The nine credit unions are Cadmus Credit Union Inc. (Richmond, VA), Virginia Credit Union Inc. (Richmond, VA), ABNB FCU (Chesapeake, VA), Blue Eagle CU (Roanoke, VA), Member One FCU (Roanoke, VA), NRL FCU (Alexandria, VA), Arlington Community FCU (Falls Church, VA), Henrico FCU (Henrico, VA), and Pentagon FCU (Tyson, VA).
According to the story, NRF FCU has reported that the issue has been resolved.
These lawsuits have some credit union bloggers warning that credit unions need to start making their websites ADA compliant.
Read the Credit Union Times story.
Sunday, October 22, 2017
Community First CU Opens New $25 Million HQ Building
Community First Credit Union (Appleton, WI) opened its new $25 million headquarters in Fox Crossing, Wisconsin.
The 130,000 square-foot building has three wings with a central rotunda atrium. The building also has 39 meeting rooms.
The building's great room is a cafeteria and dining room with a fireplace and views of the fountains and the pond.
The credit union will be reimbursed up to $1.5 million for the construction of a stormwater retention pond and road improvements. In addition, the credit union could receive up to $5 million towards the building cost and land over a maximum 20 years.
Read the story.
The 130,000 square-foot building has three wings with a central rotunda atrium. The building also has 39 meeting rooms.
The building's great room is a cafeteria and dining room with a fireplace and views of the fountains and the pond.
The credit union will be reimbursed up to $1.5 million for the construction of a stormwater retention pond and road improvements. In addition, the credit union could receive up to $5 million towards the building cost and land over a maximum 20 years.
Read the story.
Friday, October 20, 2017
A Social Network as a Common Bond
National Credit Union Administration McWatters stated that Congress should allow credit unions to serve communities that exist only online.
In an interview with the Wall Street Journal, McWatters stated that "[c]hances are [such a change] would be very broad ... I am trying to parallel reality today as opposed to what it was a generation—or two or three or four generations—ago.”
The American Bankers Association spokesperson commented that the proposal to open credit union membership further was laughable.
In the interview, McWatters also defended the agency's decision to close the Temporary Corporate Credit Union Stabilization Fund and merge its remnants with the National Credit Union Share Insurance Fund and to raise the Normal Operating Level for the insurance fund to 1.39 percent.
McWatters further stated that he plans to revisit the risk-based capital requirements for credit unions adopted by his predecessor, as he does not believe the rule hews close enough to the Federal Credit Union Act.
Read the story (subscription required).
In an interview with the Wall Street Journal, McWatters stated that "[c]hances are [such a change] would be very broad ... I am trying to parallel reality today as opposed to what it was a generation—or two or three or four generations—ago.”
The American Bankers Association spokesperson commented that the proposal to open credit union membership further was laughable.
In the interview, McWatters also defended the agency's decision to close the Temporary Corporate Credit Union Stabilization Fund and merge its remnants with the National Credit Union Share Insurance Fund and to raise the Normal Operating Level for the insurance fund to 1.39 percent.
McWatters further stated that he plans to revisit the risk-based capital requirements for credit unions adopted by his predecessor, as he does not believe the rule hews close enough to the Federal Credit Union Act.
Read the story (subscription required).
Thursday, October 19, 2017
NCUA Reports An Increase in NCUSIF Loss Reserves by Almost $78 Million In September
The National Credit Union Administration increased National Credit Union Share Insurance Fund reserves for losses to $286 million at the end of September.
In August, reserves for insurance losses were $208.1 million.
The agency reported that in September $20.1 million in reserves is for specific credit unions and $265.9 million was for general reserves.
In August, reserves for insurance losses were $208.1 million.
The agency reported that in September $20.1 million in reserves is for specific credit unions and $265.9 million was for general reserves.
Number of Problem CUs Fell During Q3 2017
The number of problem credit unions fell during the third quarter of 2017, according to the National Credit Union Administration.
At the end of the third quarter of 2017, there were 204 problem credit unions. In comparison, there were 210 problem credit unions at the end of the second quarter.
A problem credit union has a composite CAMEL rating of 4 or 5.
Total assets and shares in problem credit unions fell during the quarter. Assets in problem credit unions were $10.2 billion at the end of the third quarter -- down from $10.6 billion at the end of the second quarter of 2017. Shares in problem credit unions decreased from $9.4 billion as of June 2017 to $9.0 billion as of September 30.
NCUA reported that almost 88 percent of problem credit unions have less than $100 million in assets, while less than 2 percent have more than $500 million in assets.
At the end of the third quarter, 0.84 percent of total insured shares were in problem credit unions. At the end of the second quarter, 0.88 percent of total insured shares were in problem credit unions.
At the end of the third quarter of 2017, there were 204 problem credit unions. In comparison, there were 210 problem credit unions at the end of the second quarter.
A problem credit union has a composite CAMEL rating of 4 or 5.
Total assets and shares in problem credit unions fell during the quarter. Assets in problem credit unions were $10.2 billion at the end of the third quarter -- down from $10.6 billion at the end of the second quarter of 2017. Shares in problem credit unions decreased from $9.4 billion as of June 2017 to $9.0 billion as of September 30.
NCUA reported that almost 88 percent of problem credit unions have less than $100 million in assets, while less than 2 percent have more than $500 million in assets.
At the end of the third quarter, 0.84 percent of total insured shares were in problem credit unions. At the end of the second quarter, 0.88 percent of total insured shares were in problem credit unions.
Wednesday, October 18, 2017
Chartered for the Purpose of Making Member Business Loans
The National Credit Union Administration's Office of Consumer Financial Protection and Access is providing guidance to insured credit unions on the eligibility and qualifications for being chartered for the purpose of making member business loans.
The Federal Credit Union Act provides an exemption from the member business loan (MBL) aggregate cap of 12.25 percent of assets to an insured credit union chartered for the purpose of making member business loans to its members, as determined by the NCUA Board.
According to the document, new federal credit unions, new federally insured state credit unions (FISCUs), FISCUs converting to a federal charter, federal charters converting to a FISCU, and all credit unions considering a spin-off of their field of membership may be eligible for this exemption of being chartered for the purpose of making business loans to its members.
To qualify, the insured credit union must
While I understand how a de novo could be chartered for the purpose of making business loans, I find it troubling that a credit union, which flips its charter from a state to federal charter or vice-a-versa, could all of a sudden become chartered for the purpose of making member business loans. These credit unions are ongoing institutions. Their purpose has not changed.
It seems to me that the National Credit Union Administration is allowing existing credit unions to game the system so as to evade the member business loan cap of 12.25 percent of assets.
Read the document.
The Federal Credit Union Act provides an exemption from the member business loan (MBL) aggregate cap of 12.25 percent of assets to an insured credit union chartered for the purpose of making member business loans to its members, as determined by the NCUA Board.
According to the document, new federal credit unions, new federally insured state credit unions (FISCUs), FISCUs converting to a federal charter, federal charters converting to a FISCU, and all credit unions considering a spin-off of their field of membership may be eligible for this exemption of being chartered for the purpose of making business loans to its members.
To qualify, the insured credit union must
- submit plans showing one or more discrete groups within its field of membership with unique commercial or business financing needs;
- demonstrate a commitment to investing in the infrastructure to safely originate, service, and administer the anticipated business loan volume; and
- ensure that management meets the experience and governance requirements currently outlined in NCUA's regulations.
While I understand how a de novo could be chartered for the purpose of making business loans, I find it troubling that a credit union, which flips its charter from a state to federal charter or vice-a-versa, could all of a sudden become chartered for the purpose of making member business loans. These credit unions are ongoing institutions. Their purpose has not changed.
It seems to me that the National Credit Union Administration is allowing existing credit unions to game the system so as to evade the member business loan cap of 12.25 percent of assets.
Read the document.
Tuesday, October 17, 2017
Summit CU Breaks Ground on New HQ Building
Summit Credit Union (Madison, WI) has broken ground on its new 152,000-square-foot, six-story headquarters building in Cottage Grove.
The new corporate campus will include exercise and meditation rooms for employees, a sand volleyball court, and a cafeteria, along with a walking and biking path.
The cost of the project was not disclosed.
Read the story.
The new corporate campus will include exercise and meditation rooms for employees, a sand volleyball court, and a cafeteria, along with a walking and biking path.
The cost of the project was not disclosed.
Read the story.
Illinois CU Regulator Suspends Operations of Route 1 CU for 60 Days
The Illinois Division of Financial Institutions suspended the operations of Route 1 Credit Union (Paris, IL) for 60 days.
The state regulator appointed Decatur Earthmover Credit Union (Forsyth, IL) as Manager-Trustee.
The order noted that the Department was not able to ascertain the true financial condition of the credit union.
The order stated that the credit union's allowance for loan losses account was underfunded. No determination can be made to the adequacy of the credit union's allowance for loan losses account and the current net worth position.
The order pointed out that the credit union has not filed required reports.
In addition, the credit union is in violation of state law by having fewer than 7 directors on the board and fewer than 3 members on its supervisory committee.
Also, the credit union has failed to pay in a timely manner its quarterly regulatory fee and failed to pay the Department an August 2017 special investigation fee.
Route 1 Credit Union had $4.1 million in assets, as of June 2017. The credit union reported a loss of $164 thousand through the first six months of 2017. The credit union was undercapitalized with a net worth ratio of 4.91 percent.
The order was signed on October 3.
Read the order.
The state regulator appointed Decatur Earthmover Credit Union (Forsyth, IL) as Manager-Trustee.
The order noted that the Department was not able to ascertain the true financial condition of the credit union.
The order stated that the credit union's allowance for loan losses account was underfunded. No determination can be made to the adequacy of the credit union's allowance for loan losses account and the current net worth position.
The order pointed out that the credit union has not filed required reports.
In addition, the credit union is in violation of state law by having fewer than 7 directors on the board and fewer than 3 members on its supervisory committee.
Also, the credit union has failed to pay in a timely manner its quarterly regulatory fee and failed to pay the Department an August 2017 special investigation fee.
Route 1 Credit Union had $4.1 million in assets, as of June 2017. The credit union reported a loss of $164 thousand through the first six months of 2017. The credit union was undercapitalized with a net worth ratio of 4.91 percent.
The order was signed on October 3.
Read the order.
Monday, October 16, 2017
Report: CU Business Loans Have Grown Rapidly in Post-Recession Period
The Federal Reserve reported that small loans to businesses have grown rapidly in the the post-recession period, according to a Report to the Congress on the Availability of Credit to Small Businesses.
Between 2012 and 2016, outstanding business loans at credit unions increased by 53.4 percent. In comparison, small loans to businesses by commercial banks increased only 1.4 percent.
Despite this growth, outstanding small business loans at credit unions remain a small fraction of the total small business lending marketplace.
The report notes that aggregate credit union business lending is capped at 12.25 percent of assets.
As of June 2016, 5.6 percent of credit unions had outstanding loans to businesses totaling in excess of 80 percent of their cap. However, among credit unions with assets of more than $1 billion, 23.2 percent had outstanding loans to business in excess of 80 percent of their cap.
The report states that raising the cap has the potential to accelerate the rate of small business lending by credit unions.
The report was issued in September 2017.
Read the Report.
Between 2012 and 2016, outstanding business loans at credit unions increased by 53.4 percent. In comparison, small loans to businesses by commercial banks increased only 1.4 percent.
Despite this growth, outstanding small business loans at credit unions remain a small fraction of the total small business lending marketplace.
The report notes that aggregate credit union business lending is capped at 12.25 percent of assets.
As of June 2016, 5.6 percent of credit unions had outstanding loans to businesses totaling in excess of 80 percent of their cap. However, among credit unions with assets of more than $1 billion, 23.2 percent had outstanding loans to business in excess of 80 percent of their cap.
The report states that raising the cap has the potential to accelerate the rate of small business lending by credit unions.
The report was issued in September 2017.
Read the Report.
Saturday, October 14, 2017
Illinois Amends St. Elizabeth CU's Suspension Order
The state of Illinois announced on October 5 that it was amending the suspension order for St. Elizabeth Credit Union (Chicago, IL).
The Illinois Division of Financial Institutions suspended the operations for the tiny credit union for an additional 60 days.
The amended order cited numerous compliance deficiencies at the credit union.
For example, the credit union's point of contact(s) did not log in to the Financial Crime Enforcement Network's (FinCEN) Secure Information Sharing System. The point of contact(s) ignored biweekly notifications sent by FinCEN.
The amended suspension order also cited the credit union for not developing a policy to provide the necessary training for directors and committees to assist with their credit union duties.
Additionally, there was no Financial Elder Abuse of the Board's Vice Chairperson and transitioning manager of the credit union in the last three years.
The initial suspension order was issued on August 9.
Read the amended suspension order.
The Illinois Division of Financial Institutions suspended the operations for the tiny credit union for an additional 60 days.
The amended order cited numerous compliance deficiencies at the credit union.
For example, the credit union's point of contact(s) did not log in to the Financial Crime Enforcement Network's (FinCEN) Secure Information Sharing System. The point of contact(s) ignored biweekly notifications sent by FinCEN.
The amended suspension order also cited the credit union for not developing a policy to provide the necessary training for directors and committees to assist with their credit union duties.
Additionally, there was no Financial Elder Abuse of the Board's Vice Chairperson and transitioning manager of the credit union in the last three years.
The initial suspension order was issued on August 9.
Read the amended suspension order.
Friday, October 13, 2017
NCUA Chairman McWatters: Equity Ratio of 1.30 Percent Not Sufficient to Weather 2007-2009 Recession
National Credit Union Administration Chairman McWatters sets the record straight that the National Credit Union Share Insurance Fund's Normal Operating Level of 1.30 percent was not sufficient to weather the 2007-2009 financial crisis and recession.
McWatters stated:
McWatters stated:
"Some in the credit union community contend a 1.30 percent normal operating level has historically been sufficient to address risks to the Share Insurance Fund, including during the 2007–2009 financial crisis. This is simply not true. The very existence of the Stabilization Fund and the fact the NCUA borrowed $5.1 billion from the U.S. Treasury to fund resolution obligations, demonstrates that the credit union community was not prepared to handle the impact of the large losses that resulted from the failure of five federally insured corporate credit unions as a result of the 2007–2009 recession.Hopefully, McWatters' statement puts to rest the false narrative being pushed by certain credit unions and their trade associations that the equity ratio of 1.30 percent for the National Credit Union Share Insurance Fund was adequate.
These corporate credit unions were not some wholly separate and anomalous externality. They were insured credit unions created, funded, and governed by natural-person credit unions. As noted previously, without the Stabilization Fund, all of the equity in the Insurance Fund would have been consumed by these losses.
The corporate system is better regulated now, and much smaller than it used to be. Therefore, the exposure to future losses from corporate credit unions should be significantly reduced. However, one cannot ignore the fact that the Insurance Fund was imperiled by the risk exposure of this portion of the credit union community.
Others contend that the credit union community weathered the financial crisis just fine with the caveat “if you don’t include the corporate credit union losses.” This contention also is not consistent with established historical fact. The number of troubled credit unions, including large institutions, increased materially during the Great Recession. The Share Insurance Fund’s equity ratio fell below 1.20 percent even without the corporate credit union losses. Meaning, the equity ratio fell below 1.20 percent only because of natural-person credit union losses and insured share growth.
The result was two Share Insurance Fund premiums totaling 22.7 basis points or $1.66 billion. The actual decline in the equity ratio from the 2007–2009 severe recession was predominantly the result of the increase in loss reserves for natural-person credit unions, as required under accounting standards applicable to the Insurance Fund and, to a lesser extent, elevated insured share growth. Realized Share Insurance Fund losses were significantly elevated as well. From 2008–2012, 112 natural-person credit unions failed at a cost of $807 million to the Insurance Fund.
Clearly, a 1.30 percent normal operating level for the Share Insurance Fund was not adequate to handle the 2007–2009 severe recession."
Thursday, October 12, 2017
Eight Lawmakers Write NCUA over Melrose's Treatment of Taxi Medallion Borrowers
Crain's New York Business is reporting that eight New York Democratic lawmakers wrote National Credit Union Administration (NCUA) Chairman McWatters urging the agency to review its treatment of taxi medallion loans originated by Melrose Credit Union, which is in conservatorship.
The letter stated that NCUA was unfairly punishing taxi medallion borrowers, who "through no fault of their own", were adversely impacted by the disruption of the taxi industry by riding sharing apps.
The letter urges the agency "to work with medallion owners, on a case-by-case basis, and to cease the practices of doubling interest rates, demanding homes be offered as additional collateral, refusing loan assumptions by willing third-parties, and requiring additional guarantors such as spouses be added to loans."
The letter was signed by Representatives Grace Meng, Joseph Crowley, Adriano Espaillat, Carolyn Maloney, Gregory Meeks, José Serrano, Nydia Velázquez, and Hakeem Jeffries.
Read the story (letter appears at the end of the story).
The letter stated that NCUA was unfairly punishing taxi medallion borrowers, who "through no fault of their own", were adversely impacted by the disruption of the taxi industry by riding sharing apps.
The letter urges the agency "to work with medallion owners, on a case-by-case basis, and to cease the practices of doubling interest rates, demanding homes be offered as additional collateral, refusing loan assumptions by willing third-parties, and requiring additional guarantors such as spouses be added to loans."
The letter was signed by Representatives Grace Meng, Joseph Crowley, Adriano Espaillat, Carolyn Maloney, Gregory Meeks, José Serrano, Nydia Velázquez, and Hakeem Jeffries.
Read the story (letter appears at the end of the story).
Wednesday, October 11, 2017
Cost of Funds for CUs About to Rise
Depository institutions need to plan for higher cost of funds, as higher interest rates cause depositors to shift to higher yielding deposit accounts.
Most Federal Reserve watchers anticipated that the Federal Open Market Committee will raise its target federal funds rate in the fourth quarter and continue to raise rates during 2018 and 2019. The federal funds rate will rise from 1.4 percent at the end of 2017 to 2.7 percent at the end of 2019.
The following graph shows the median projected federal funds rate for the years of 2017, 2018, 2019, and 2020.
According to a June S&P Global Market Intelligence report, the deposit beta is projected to reach 30 percent in 2017. The deposit beta indicates how much of the change in the effective fed funds rate banks pass onto customers." S&P Global Market Intelligence expects the deposit beta to reach 59 percent in 2018.
In comparison, during the last rate tightening cycle, the deposit beta was 41 percent and 62 percent in 2005 and 2006, respectively.
Moreover as interest rates rise, depositors will shift their funds from low yielding accounts into higher yielding deposits. As of June 2017, 73 percent of credit union deposits were in share drafts, regular shares, and money market share accounts; but 18 percent of credit union deposits were in share certificates.
However, a decade ago at the end of the last rate tightening cycle, credit unions reported 58 percent of their deposits in share drafts, regular shares, and money market share accounts, while 32 percent of credit union deposits were in share certificates.
What do you think your deposit mix will look like two years from now?
Most Federal Reserve watchers anticipated that the Federal Open Market Committee will raise its target federal funds rate in the fourth quarter and continue to raise rates during 2018 and 2019. The federal funds rate will rise from 1.4 percent at the end of 2017 to 2.7 percent at the end of 2019.
The following graph shows the median projected federal funds rate for the years of 2017, 2018, 2019, and 2020.
According to a June S&P Global Market Intelligence report, the deposit beta is projected to reach 30 percent in 2017. The deposit beta indicates how much of the change in the effective fed funds rate banks pass onto customers." S&P Global Market Intelligence expects the deposit beta to reach 59 percent in 2018.
In comparison, during the last rate tightening cycle, the deposit beta was 41 percent and 62 percent in 2005 and 2006, respectively.
Moreover as interest rates rise, depositors will shift their funds from low yielding accounts into higher yielding deposits. As of June 2017, 73 percent of credit union deposits were in share drafts, regular shares, and money market share accounts; but 18 percent of credit union deposits were in share certificates.
However, a decade ago at the end of the last rate tightening cycle, credit unions reported 58 percent of their deposits in share drafts, regular shares, and money market share accounts, while 32 percent of credit union deposits were in share certificates.
What do you think your deposit mix will look like two years from now?
Tuesday, October 10, 2017
180 CUs Borrowed from Fed's Discount Window in Q3 2015
During the third quarter of 2015, 180 credit unions borrowed from the Federal Reserve's Discount Window.
In comparison, 166 credit unions borrowed from the Federal Reserve's Discount Window during the second quarter of 2015.
Credit unions borrowed 270 times from the Federal Reserve's Discount Window during the third quarter of 2015.
The aggregate amount borrowed from the Federal Reserve was approximately $505.7 million.
The average amount borrowed was just shy of $1.9 million. The median amount borrowed was $75,000.
There were 45 Discount Window loans of $1 million or more during the quarter.
Visions Federal Credit Union (Endicott, NY) borrowed the single largest amount at $65 million on August 19. The credit union borrowed a total of $210 million from the Federal Reserve during the quarter.
Several credit unions actively borrowed from the Discount Window during the third quarter. Aurora Credit Union (Milwaukee, WI) borrowed from the Federal Reserve 14 times during the quarter. Both Vermont State Employees Credit Union (Montpelier, VT) and Services Center FCU (Yankton, SD) visited the Discount Window 13 times. Glendale FCU (Glendale, CA) borrowed from the Federal Reserve 12 times.
All credit unions, except for four, borrowed under the Federal Reserve's primary credit program, which is reserved for only well run credit unions. Three credit union borrowed from the seasonal credit program, while two credit unions borrowed from the secondary credit program.
The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.
In comparison, 166 credit unions borrowed from the Federal Reserve's Discount Window during the second quarter of 2015.
Credit unions borrowed 270 times from the Federal Reserve's Discount Window during the third quarter of 2015.
The aggregate amount borrowed from the Federal Reserve was approximately $505.7 million.
The average amount borrowed was just shy of $1.9 million. The median amount borrowed was $75,000.
There were 45 Discount Window loans of $1 million or more during the quarter.
Visions Federal Credit Union (Endicott, NY) borrowed the single largest amount at $65 million on August 19. The credit union borrowed a total of $210 million from the Federal Reserve during the quarter.
Several credit unions actively borrowed from the Discount Window during the third quarter. Aurora Credit Union (Milwaukee, WI) borrowed from the Federal Reserve 14 times during the quarter. Both Vermont State Employees Credit Union (Montpelier, VT) and Services Center FCU (Yankton, SD) visited the Discount Window 13 times. Glendale FCU (Glendale, CA) borrowed from the Federal Reserve 12 times.
All credit unions, except for four, borrowed under the Federal Reserve's primary credit program, which is reserved for only well run credit unions. Three credit union borrowed from the seasonal credit program, while two credit unions borrowed from the secondary credit program.
The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.
Monday, October 9, 2017
Founders FCU Partners with Clemson University and its Athletic Program
Clemson University, Founders Federal Credit Union (Fort Mill, SC) and JMI Sports announced a comprehensive seven-year partnership that expands Founders’ commitment to Clemson Athletics and Clemson University.
As part of this agreement, Founders is now the Official Credit Union Partner of the Clemson Tigers and Clemson University.
Founders will be the presenting sponsor of the Homecoming football game and its brand will be prominently displayed throughout Littlejohn Coliseum.
Additionally, Founders will actively sponsor major events and programs on campus year-round, including being a proud partner of Clemson’s new bike share program.
Founders, the state’s largest credit union, has made a total commitment of nearly $6 million over seven years to sponsorship investments in Clemson Athletics and Clemson University.
Read the media release.
As part of this agreement, Founders is now the Official Credit Union Partner of the Clemson Tigers and Clemson University.
Founders will be the presenting sponsor of the Homecoming football game and its brand will be prominently displayed throughout Littlejohn Coliseum.
Additionally, Founders will actively sponsor major events and programs on campus year-round, including being a proud partner of Clemson’s new bike share program.
Founders, the state’s largest credit union, has made a total commitment of nearly $6 million over seven years to sponsorship investments in Clemson Athletics and Clemson University.
Read the media release.
Saturday, October 7, 2017
Consumer Credit at CUs Grew at a Slower Pace in August
The Federal Reserve reported that outstanding consumer credit at credit unions edged higher in August.
Consumer credit increased from $411.7 billion in July to $412.5 billion in August.
The growth in consumer credit was driven by an increase in revolving credit, as nonrevolving credit posted a small decrease.
Revolving credit at credit unions increased by $1 billion during August to $55.1 billion, while nonrevolving credit dropped by approximately $200 million to $357.4 billion.
The pace of consumer credit growth decelerated during August compared to July. During July, consumer credit grew at an annualized pace of $89.3 billion. During August, the growth in consumer credit slowed to $9.6 billion.
Read the G.19 Report.
Consumer credit increased from $411.7 billion in July to $412.5 billion in August.
The growth in consumer credit was driven by an increase in revolving credit, as nonrevolving credit posted a small decrease.
Revolving credit at credit unions increased by $1 billion during August to $55.1 billion, while nonrevolving credit dropped by approximately $200 million to $357.4 billion.
The pace of consumer credit growth decelerated during August compared to July. During July, consumer credit grew at an annualized pace of $89.3 billion. During August, the growth in consumer credit slowed to $9.6 billion.
Read the G.19 Report.
Friday, October 6, 2017
Bethpage FCU Provides $20 Million Loan for Staten Island Shopping Center
Bethpage Federal Credit Union provided $20 million refinancing loan to Staten Island Expressway Plaza shopping center.
The loan is for seven years.
Westbury-based Kalikow Group and New Canaan, Connecticut-based Feldco Development received the loan.
Read the story.
The loan is for seven years.
Westbury-based Kalikow Group and New Canaan, Connecticut-based Feldco Development received the loan.
Read the story.
Thursday, October 5, 2017
Portions of Vast Community Charter Did Not Meet the Standard of Being Local in 2004
The National Credit Union Administration (NCUA) in August approved a community charter for Utah Community FCU (Provo, UT) comprised of a Combined Statistical Area (CSA) serving 10 Utah counties.
Under NCUA's new field of membership rules, a CSA with up to 2.5 million people is viewed as a presumptive local, well-defined community, despite being a region.
The CSA includes the counties of Box Elder, Davis, Juab, Morgan, Salt Lake, Summit, Tooele, Utah, Wasatch, and Weber.
Let's look at the facts.
This CSA served a large geographic area and large population.
The community charter stretches east-to-west from the Wyoming border to the Nevada border. The geographic area also borders the state of Idaho.
The square mileage of the 10-county region is 23,356.18, which is larger than 9 states.
The population of the combined statistical area is almost $2.4 million.
The Salt Lake City-Provo-Orem CSA includes three metropolitan statistical areas and two micropolitan statistical areas.
However, in 2004, a Utah federal judge ruled that the six counties of Davis, Morgan, Salt Lake, Summit, Tooele, and Weber did not constitute a local, well-defined community. These six counties are part of the 10 county region approved by NCUA as a local, well-defined community.
So if these six counties did not constitute a local, well-defined community, how does this 10-county region represent a local, well-defined community?
Hopefully, the federal court invalidates this provision in NCUA's field of membership regulation.
Under NCUA's new field of membership rules, a CSA with up to 2.5 million people is viewed as a presumptive local, well-defined community, despite being a region.
The CSA includes the counties of Box Elder, Davis, Juab, Morgan, Salt Lake, Summit, Tooele, Utah, Wasatch, and Weber.
Let's look at the facts.
This CSA served a large geographic area and large population.
The community charter stretches east-to-west from the Wyoming border to the Nevada border. The geographic area also borders the state of Idaho.
The square mileage of the 10-county region is 23,356.18, which is larger than 9 states.
The population of the combined statistical area is almost $2.4 million.
The Salt Lake City-Provo-Orem CSA includes three metropolitan statistical areas and two micropolitan statistical areas.
However, in 2004, a Utah federal judge ruled that the six counties of Davis, Morgan, Salt Lake, Summit, Tooele, and Weber did not constitute a local, well-defined community. These six counties are part of the 10 county region approved by NCUA as a local, well-defined community.
So if these six counties did not constitute a local, well-defined community, how does this 10-county region represent a local, well-defined community?
Hopefully, the federal court invalidates this provision in NCUA's field of membership regulation.
Wednesday, October 4, 2017
Bill Would Exclude Business Loans to Vets from MBL Cap
Legislation (H.R. 3866) was introduced on September 28 to amend the Federal Credit Union Act by excluding extensions of credit made to veterans from the definition of a member business loan.
This bill would exclude these loans from the aggregate member business loan cap of 12.25 percent of assets.
The legislation was introduced by Rep. Vicente Gonzalez (D-TX) and cosponsored by Rep. Paul Cook (R-CA).
However, this bill represents a fundamental departure from other extensions of credit that are excluded from the definition of a member business loan (MBL).
The extensions of credit that are currently excluded from the definition of a MBL pose minimal risk to the National Credit Union Share Insurance Fund, as these loans are fully secured by shares or 1-to-4 primary residence, are fully insured or guaranteed by a governmental agency, or are less than or equal to $50,000.
Read the bill.
This bill would exclude these loans from the aggregate member business loan cap of 12.25 percent of assets.
The legislation was introduced by Rep. Vicente Gonzalez (D-TX) and cosponsored by Rep. Paul Cook (R-CA).
However, this bill represents a fundamental departure from other extensions of credit that are excluded from the definition of a member business loan (MBL).
The extensions of credit that are currently excluded from the definition of a MBL pose minimal risk to the National Credit Union Share Insurance Fund, as these loans are fully secured by shares or 1-to-4 primary residence, are fully insured or guaranteed by a governmental agency, or are less than or equal to $50,000.
Read the bill.
Tuesday, October 3, 2017
Trade Groups Sue CFPB over Arbitration Rule
The American Bankers Association, the U.S. Chamber of Commerce, the Consumer Bankers Association, the Financial Services Roundtable and several other national and regional trade associations on Friday filed suit in federal court to block the Consumer Financial Protection Bureau’s arbitration rule from taking effect.
The lawsuit was filed in the U.S. District Court for the Northern District of Texas, Dallas Division.
The groups challenged the rule on several grounds: that the Consumer Financial Protection Bureau (CFPB) itself is unconstitutional (a claim currently being appealed), that the CFPB violated the Administrative Procedures Act (APA) in its rulemaking, and that the bureau violated the Dodd-Frank Act by precluding use of a consumer-benefiting dispute mechanism.
“For years, our organizations have tried to work with the CFPB to promote strong consumer protection while maintaining a functional arbitration system,” the plaintiffs said in a joint statement. “Unfortunately, the CFPB chose to instead finalize a rule that will harm consumers and businesses by effectively banning arbitration and increasing speculative class action litigation. As Congress continues to consider action within its purview, we are filing this challenge to ensure all legal remedies are utilized to preserve arbitration for consumers.”
By ignoring the results of its own study, which showed that consumers who prevail in disputes under arbitration win 166 times the award that successful class action plaintiffs do, the bureau acted arbitrarily and capriciously in violation of the APA, the lawsuit said.
Read the lawsuit.
The lawsuit was filed in the U.S. District Court for the Northern District of Texas, Dallas Division.
The groups challenged the rule on several grounds: that the Consumer Financial Protection Bureau (CFPB) itself is unconstitutional (a claim currently being appealed), that the CFPB violated the Administrative Procedures Act (APA) in its rulemaking, and that the bureau violated the Dodd-Frank Act by precluding use of a consumer-benefiting dispute mechanism.
“For years, our organizations have tried to work with the CFPB to promote strong consumer protection while maintaining a functional arbitration system,” the plaintiffs said in a joint statement. “Unfortunately, the CFPB chose to instead finalize a rule that will harm consumers and businesses by effectively banning arbitration and increasing speculative class action litigation. As Congress continues to consider action within its purview, we are filing this challenge to ensure all legal remedies are utilized to preserve arbitration for consumers.”
By ignoring the results of its own study, which showed that consumers who prevail in disputes under arbitration win 166 times the award that successful class action plaintiffs do, the bureau acted arbitrarily and capriciously in violation of the APA, the lawsuit said.
Read the lawsuit.
Republican Framework Will Seek to Modernize Special Tax Treatment of Certain Industries
The Republican framework for tax reform will look to modernize special tax regimes that govern the tax treatment of certain industries and sectors of our economy.
The framework proposes to limit opportunities by certain industries for tax avoidance and to ensure the tax code better reflects economic realities.
While the framework did not specifically mention credit unions, credit unions are an example of an industry that currently receives preferential tax treatment.
The framework was released on September 27.
Read Tax Reform Framework.
The framework proposes to limit opportunities by certain industries for tax avoidance and to ensure the tax code better reflects economic realities.
While the framework did not specifically mention credit unions, credit unions are an example of an industry that currently receives preferential tax treatment.
The framework was released on September 27.
Read Tax Reform Framework.
Monday, October 2, 2017
Shreveport FCU Closed, Members and Most Shares and Loans Assumed by Red River Employees FCU
The National Credit Union Administration on October 2 liquidated Shreveport Federal Credit Union of Shreveport, Louisiana.
Red River Employees Federal Credit Union of Texarkana, Texas, immediately assumed Shreveport Federal Credit Union’s membership and most shares, loans, and other assets.
Red River Employees Federal Credit Union serves 84,093 members and has assets of $807,144,475, according to the credit union’s most recent Call Report.
On April 13, NCUA placed the credit union into conservatorship. NCUA made the decision to liquidate Shreveport Federal Credit Union and discontinue its operations after determining the credit union was insolvent and has no prospect for restoring viable operations. As I pointed out earlier, Shreveport Federal Credit Union was critically undercapitalized with a net worth ratio of negative 1.68 percent.
At the time of liquidation and subsequent purchase by Red River Employees Federal Credit Union, Shreveport Federal Credit Union served 22,212 members and had assets of approximately $86 million, according to the credit union’s most recent Call Report.
Shreveport Federal Credit Union is the third federally insured credit union liquidation in 2017.
Read the press release.
Red River Employees Federal Credit Union of Texarkana, Texas, immediately assumed Shreveport Federal Credit Union’s membership and most shares, loans, and other assets.
Red River Employees Federal Credit Union serves 84,093 members and has assets of $807,144,475, according to the credit union’s most recent Call Report.
On April 13, NCUA placed the credit union into conservatorship. NCUA made the decision to liquidate Shreveport Federal Credit Union and discontinue its operations after determining the credit union was insolvent and has no prospect for restoring viable operations. As I pointed out earlier, Shreveport Federal Credit Union was critically undercapitalized with a net worth ratio of negative 1.68 percent.
At the time of liquidation and subsequent purchase by Red River Employees Federal Credit Union, Shreveport Federal Credit Union served 22,212 members and had assets of approximately $86 million, according to the credit union’s most recent Call Report.
Shreveport Federal Credit Union is the third federally insured credit union liquidation in 2017.
Read the press release.
Arbitration Rule Could Raise the Cost of Credit by 25 Percent
A study by the Office of the Comptroller of the Currency (OCC) found that the Consumer Financial Protection Bureau’s arbitration rule is likely to increase the cost of credit by about 25 percent once lenders factor in the cost of class action litigation, Acting Comptroller Keith Noreika said on September 28 at the Philadelphia Fed's fintech conference.
“What we found is that there could be as high as a three-and-a-half percent annual percentage rate increase for consumers who would be subject to the rule,” Noreika said. “That’s a 25 percent increase in credit costs for people who may live week to week. There’s a real, tangible economic effect that it may have on consumers.”
He said the OCC conducted the study because it wanted to review the effects of the CFPB’s rule -- which virtually bans mandatory arbitration agreements in contracts for financial products and services -- on banks and the customers they serve. “What originally caught my eye...was the potential impact that [the rule] may have on small institutions...that really may face a massive litigation exposure,” he said.
Bank and credit union trade groups ares backing efforts in Congress to overturn the arbitration rule. A Congressional Review Act resolution passed the House this summer and is awaiting action in the Senate.
“What we found is that there could be as high as a three-and-a-half percent annual percentage rate increase for consumers who would be subject to the rule,” Noreika said. “That’s a 25 percent increase in credit costs for people who may live week to week. There’s a real, tangible economic effect that it may have on consumers.”
He said the OCC conducted the study because it wanted to review the effects of the CFPB’s rule -- which virtually bans mandatory arbitration agreements in contracts for financial products and services -- on banks and the customers they serve. “What originally caught my eye...was the potential impact that [the rule] may have on small institutions...that really may face a massive litigation exposure,” he said.
Bank and credit union trade groups ares backing efforts in Congress to overturn the arbitration rule. A Congressional Review Act resolution passed the House this summer and is awaiting action in the Senate.