The National Taxpayers Union along with other conservative public policy groups on April 24 wrote the Senate Finance Committee Chairman Orrin Hatch (R - UT) and the committee urging them to examine the tax exemption of large credit unions to ensure that these credit unions are adhering to the original intent of the statute.
The group expressed concerns that some of these large credit unions have strayed from their intended purpose.
The letter noted that many credit unions remain focused on their core mission, but some large credit unions operate like banks instead of credit unions.
The group wrote: "A tax exemption gives these select few credit unions a distinct edge over taxpaying banks and creates an uneven playing field, particularly over smaller community banks, which compete for similar customers."
The organizations stated that as credit unions evolve Congress should regularly review the governing tax and regulatory provisions to ensure that the tax exemption "is aligned with the intent of Congress and the interest of sound economic principles."
Read the letter.
Monday, April 30, 2018
Friday, April 27, 2018
FOM Type and Risk
Since the enactment of the Credit Union Membership Access Act in 1998, the credit union industry has undergone a structural transformation as many credit unions have switched from a single-common bond to community and multiple-common bond charters.
There is a belief that the expansion in community and multiple-common bond credit unions would permit the diversification of membership bases, making credit unions safer.
However, a 2014 paper, Credit Unions and Risk, published in the Journal of Regulatory Economics found that credit unions with broader fields of membership operated at greater risk than single-bond credit unions.
The paper examined the impact of field of membership (FOM) type on credit union risk. The paper employed two measures of risk -- risk of bankruptcy and risk of breaching regulatory capital standards.
The paper examines the performance of credit unions between 2001 and 2011. Only federal credit unions with more than $2 million in assets and more than 100 members are included in the study. The paper also excludes federal credit unions that had five or more mergers during the time period of the analysis.
The author, David Ely, found that "community and multiple-bond credit unions are found to operate at greater risk than similarly-sized single-bond credit unions, all else equal." The author attributed this finding to greater volatility of earnings, lower return on average assets, and lower net worth ratios.
The paper also concluded that community credit unions have a greater risk of bankruptcy and of breaching regulatory capital standards than multiple-bond credit unions. This is due to community charters having lower net worth ratios than multiple-common bond credit unions.
An additional finding is that asset size is inversely related to the probability of bankruptcy and of breaching regulatory capital standards. Thus, the direct impact of a broader FOM is less on larger credit unions than on smaller credit unions.
Evidence was also presented that credit unions that switched from single-bond institutions to broader field-of-membership types operated with greater risk.
A policy implication of this study is that credit unions with broader membership bases have greater risk. In addition, regulatory priorities should focus on smaller credit unions with community and multiple-common bond charters; because these credit unions lack the benefits arising from scale.
Read the paper (subscription required).
There is a belief that the expansion in community and multiple-common bond credit unions would permit the diversification of membership bases, making credit unions safer.
However, a 2014 paper, Credit Unions and Risk, published in the Journal of Regulatory Economics found that credit unions with broader fields of membership operated at greater risk than single-bond credit unions.
The paper examined the impact of field of membership (FOM) type on credit union risk. The paper employed two measures of risk -- risk of bankruptcy and risk of breaching regulatory capital standards.
The paper examines the performance of credit unions between 2001 and 2011. Only federal credit unions with more than $2 million in assets and more than 100 members are included in the study. The paper also excludes federal credit unions that had five or more mergers during the time period of the analysis.
The author, David Ely, found that "community and multiple-bond credit unions are found to operate at greater risk than similarly-sized single-bond credit unions, all else equal." The author attributed this finding to greater volatility of earnings, lower return on average assets, and lower net worth ratios.
The paper also concluded that community credit unions have a greater risk of bankruptcy and of breaching regulatory capital standards than multiple-bond credit unions. This is due to community charters having lower net worth ratios than multiple-common bond credit unions.
An additional finding is that asset size is inversely related to the probability of bankruptcy and of breaching regulatory capital standards. Thus, the direct impact of a broader FOM is less on larger credit unions than on smaller credit unions.
Evidence was also presented that credit unions that switched from single-bond institutions to broader field-of-membership types operated with greater risk.
A policy implication of this study is that credit unions with broader membership bases have greater risk. In addition, regulatory priorities should focus on smaller credit unions with community and multiple-common bond charters; because these credit unions lack the benefits arising from scale.
Read the paper (subscription required).
Thursday, April 26, 2018
UNIFY CU Becomes the Official CU for the LA Rams
UNIFY Credit Union (Torrance, CA) announced a multi-year partnership with the National Football League's Los Angeles Rams, as the official credit union of the team.
According to the announcement, the Rams team members and staff employees can now become UNIFY members.
The partnership will include Rams ticket/merchandise giveaways and events with Rams players, cheerleaders and mascots at UNIFY’s retail branch locations in the Los Angeles area.
UNIFY Credit Union will also have sponsor presence at the Rams training camp and all home games (at the Los Angeles Memorial Coliseum).
The price of the partnership was not disclosed.
Read the announcement.
According to the announcement, the Rams team members and staff employees can now become UNIFY members.
The partnership will include Rams ticket/merchandise giveaways and events with Rams players, cheerleaders and mascots at UNIFY’s retail branch locations in the Los Angeles area.
UNIFY Credit Union will also have sponsor presence at the Rams training camp and all home games (at the Los Angeles Memorial Coliseum).
The price of the partnership was not disclosed.
Read the announcement.
Wednesday, April 25, 2018
Hatch Writes IRS Requesting Large or Complex FCUs File Form 990s
In a letter to the Acting Commissioner of the Internal Revenue Service (IRS) David Kautter, Senator Orrin Hatch (R - UT) called on the IRS to require "the largest federal credit unions or those with expanded commercial activities or fields of membership" to file Form 990 informational returns.
Currently, federal credit unions are exempt from filing Form 990 informational returns, in part because they are regulated by the National Credit Union Administration and are not subject to Unrelated Business Income Tax (UBIT).
Senator Hatch wrote that "federal credit unions have grown in size and complexity" and it is possible that the credit union tax exemption is no longer warranted for at least some credit unions.
Senator Hatch noted that it is the IRS' responsibility for monitoring and judging whether federal credit union activities still meet their tax exempt purpose.
Requiring large or complex federal credit unions to file Form 990 information returns would improve transparency and accountability, as the credit union business model has significantly evolved.
The filing of the Form 990 would provide needed insights into federal credit union activities and practices.
Read the letter.
Currently, federal credit unions are exempt from filing Form 990 informational returns, in part because they are regulated by the National Credit Union Administration and are not subject to Unrelated Business Income Tax (UBIT).
Senator Hatch wrote that "federal credit unions have grown in size and complexity" and it is possible that the credit union tax exemption is no longer warranted for at least some credit unions.
Senator Hatch noted that it is the IRS' responsibility for monitoring and judging whether federal credit union activities still meet their tax exempt purpose.
Requiring large or complex federal credit unions to file Form 990 information returns would improve transparency and accountability, as the credit union business model has significantly evolved.
The filing of the Form 990 would provide needed insights into federal credit union activities and practices.
Read the letter.
Tuesday, April 24, 2018
NCUA to Sen. Hatch: CUs Would Need a Taxpayer Bailout, If Taxed
In a March 28 letter to Senator Hatch (R - UT), National Credit Union Administration (NCUA) Chairman McWatters wrote that that eliminating the credit union tax exemption without addressing the remaining regulatory differences between banks and credit unions “would almost certainly have a detrimental effect on the credit union system and increase losses to the Share Insurance Fund, which could ultimately fall to U.S. taxpayers.”
The letter was in response to Senator Hatch's January 31 letter expressing concerns that credit unions may be operating beyond their tax-exempt purpose.
According to McWatters' letter, NCUA's analysis found that "without eliminating the field of membership restrictions, member business lending restrictions, investment capital restrictions, investment authority restrictions, and other restrictions", the elimination of the tax exemption would almost certainly create safety and soundness issues.
McWatters also mentioned that if credit unions were taxed, they "would need an appropriate transition period to incorporate any such changes into their business model" and credit unions should have the option of "something akin to an S corporation election."
However, the letter does not include any details from the agency's analysis.
In response to questions regarding what data the agency has on rejected associational common bonds and community charters, NCUA wrote that it has denied or deferred less than 10 percent of applications for new associational common bonds since its updated associational common bond rule became effective in 2015. The agency stated that it has approved nearly 80 percent of its applications with another 10 percent of applications pending.
“Instead of outright denial, the NCUA typically defers action on requests the agency cannot approve and, to the extent reasonably possible, offers alternative solutions consistent with the FCUA and the agency’s regulatory framework,” McWatters noted.
In response to a question from Hatch about the proposed community charter expansions that NCUA rejects, McWatters said that “NCUA’s tracking system does not distinguish between denials based on the geographic area requested as opposed to other reasons, such as safety and soundness,” thus limiting the agency’s ability to discern where credit unions are pushing field of membership boundaries.
With regard to the disclosure of executive compensation, NCUA noted in 2010 it required corporate credit unions to disclose executive compensation. In 2011, NCUA finalized a regulation eliminating most golden-parachute arrangements for troubled credit unions.
Unfortunately, NCUA has not acted on a staff recommendation to require all federal credit unions to disclose executive compensation.
Read NCUA's letter to Senator Hatch.
The letter was in response to Senator Hatch's January 31 letter expressing concerns that credit unions may be operating beyond their tax-exempt purpose.
According to McWatters' letter, NCUA's analysis found that "without eliminating the field of membership restrictions, member business lending restrictions, investment capital restrictions, investment authority restrictions, and other restrictions", the elimination of the tax exemption would almost certainly create safety and soundness issues.
McWatters also mentioned that if credit unions were taxed, they "would need an appropriate transition period to incorporate any such changes into their business model" and credit unions should have the option of "something akin to an S corporation election."
However, the letter does not include any details from the agency's analysis.
In response to questions regarding what data the agency has on rejected associational common bonds and community charters, NCUA wrote that it has denied or deferred less than 10 percent of applications for new associational common bonds since its updated associational common bond rule became effective in 2015. The agency stated that it has approved nearly 80 percent of its applications with another 10 percent of applications pending.
“Instead of outright denial, the NCUA typically defers action on requests the agency cannot approve and, to the extent reasonably possible, offers alternative solutions consistent with the FCUA and the agency’s regulatory framework,” McWatters noted.
In response to a question from Hatch about the proposed community charter expansions that NCUA rejects, McWatters said that “NCUA’s tracking system does not distinguish between denials based on the geographic area requested as opposed to other reasons, such as safety and soundness,” thus limiting the agency’s ability to discern where credit unions are pushing field of membership boundaries.
With regard to the disclosure of executive compensation, NCUA noted in 2010 it required corporate credit unions to disclose executive compensation. In 2011, NCUA finalized a regulation eliminating most golden-parachute arrangements for troubled credit unions.
Unfortunately, NCUA has not acted on a staff recommendation to require all federal credit unions to disclose executive compensation.
Read NCUA's letter to Senator Hatch.
Puerto Rico Issues Revised Fiscal Plan for COSSEC
On April 19, the Government of Puerto Rico issued its Revised Fiscal Plan for the Public Corporation for the Supervision & Insurance of Cooperatives in Puerto Rico (COSSEC). However, the Financial Oversight and Management Board for Puerto Rico on April 20 postponed certifying the Fiscal Plan for COSSEC until it can complete further analysis of COSSEC's projections.
COSSEC is responsible for insuring deposits and shares at the island's cooperatives up to $250,000 per person, regulating the island's cooperatives, and promoting the benefits of cooperatives.
According to the plan, Puerto Rico's 116 financial cooperatives have $8.7 billion in assets, $8.1 billion in shares and deposits, and $4.7 billion in loans as of December 2017.
The report notes that cooperatives have played an essential role of meeting the financial service needs of Puerto Ricans after Hurricane Maria.
The report noted that at the end of 2017, approximately 56 percent of the cooperatives investment portfolio of $1.5 billion or $852 million was in distressed Puerto Rico bonds. But the market value of these distressed Puerto Rico bonds was $235 million. In other words, the market value to par value was 27.6 percent.
The report notes that these Puerto Rico bonds are treated as special investments and subject to regulatory accounting principles (RAP). These special investments are carried on the books of these cooperatives at par value and losses on these special investments are to be amortized over 15 years.
The Revised Fiscal Plan states that the cooperatives will suffer a reduction in cash flows due to the probable restructuring of Puerto Rico government bonds.
The revised fiscal plan further notes that under RAP Member Shares are treated as capital instead of a liability. This overstates the cooperatives capital base and understates its liabilities.
However, RAP has been widely discredited, as it was viewed as one of the underlying causes of the savings and loan crisis in the late 1980s.
According to the plan, COSSEC estimated that it will need $391 million in capital support and $150 million in additional liquidity to address at-risk cooperatives. This includes a capital injection of $45 million from COSSEC, $200 million in COSSEC reserves for expected losses from Puerto Rico bonds, $46 million in COSSEC reserves for unexpected losses, and $100 million in possible capital injections from Banco Cooperative.
The Revised Fiscal Plan also discusses the need to address the governance structure of COSSEC. Currently, cooperatives constitute a majority of the COSSEC Board of Directors. This limits the ability of COSSEC to act as an independent regulator.
In addition, the plan outlines regulatory reforms, such as strengthening cooperative's capital and accounting reforms, and tools to monitor capital and liquidity of Puerto Rico's cooperatives.
Go to the Financial Oversight and Management Board for Puerto Rico to find the Revised Fiscal Plan.
COSSEC is responsible for insuring deposits and shares at the island's cooperatives up to $250,000 per person, regulating the island's cooperatives, and promoting the benefits of cooperatives.
According to the plan, Puerto Rico's 116 financial cooperatives have $8.7 billion in assets, $8.1 billion in shares and deposits, and $4.7 billion in loans as of December 2017.
The report notes that cooperatives have played an essential role of meeting the financial service needs of Puerto Ricans after Hurricane Maria.
The report noted that at the end of 2017, approximately 56 percent of the cooperatives investment portfolio of $1.5 billion or $852 million was in distressed Puerto Rico bonds. But the market value of these distressed Puerto Rico bonds was $235 million. In other words, the market value to par value was 27.6 percent.
The report notes that these Puerto Rico bonds are treated as special investments and subject to regulatory accounting principles (RAP). These special investments are carried on the books of these cooperatives at par value and losses on these special investments are to be amortized over 15 years.
The Revised Fiscal Plan states that the cooperatives will suffer a reduction in cash flows due to the probable restructuring of Puerto Rico government bonds.
The revised fiscal plan further notes that under RAP Member Shares are treated as capital instead of a liability. This overstates the cooperatives capital base and understates its liabilities.
However, RAP has been widely discredited, as it was viewed as one of the underlying causes of the savings and loan crisis in the late 1980s.
According to the plan, COSSEC estimated that it will need $391 million in capital support and $150 million in additional liquidity to address at-risk cooperatives. This includes a capital injection of $45 million from COSSEC, $200 million in COSSEC reserves for expected losses from Puerto Rico bonds, $46 million in COSSEC reserves for unexpected losses, and $100 million in possible capital injections from Banco Cooperative.
The Revised Fiscal Plan also discusses the need to address the governance structure of COSSEC. Currently, cooperatives constitute a majority of the COSSEC Board of Directors. This limits the ability of COSSEC to act as an independent regulator.
In addition, the plan outlines regulatory reforms, such as strengthening cooperative's capital and accounting reforms, and tools to monitor capital and liquidity of Puerto Rico's cooperatives.
Go to the Financial Oversight and Management Board for Puerto Rico to find the Revised Fiscal Plan.
Monday, April 23, 2018
Marine CU to Buy 10 Branches and Deposits from Old National Bancorp
Old National Bancorp (Evansville, IN) entered into a branch purchase and assumption agreement for the sale of 10 Old National branches in Wisconsin to Marine Credit Union of La Crosse, Wisconsin.
The branch sale includes the assumption of approximately $274 million in deposits and no loans.
The branches are located in Chippewa Falls, Columbus, Dodgeville, Eau Claire, Lancaster, Monroe, New Glarus, Platteville, Prairie du Chien and Stanley.
Subject to regulatory approval and other terms and conditions, the sale is expected to close in the third quarter of 2018.
Read the story.
The branch sale includes the assumption of approximately $274 million in deposits and no loans.
The branches are located in Chippewa Falls, Columbus, Dodgeville, Eau Claire, Lancaster, Monroe, New Glarus, Platteville, Prairie du Chien and Stanley.
Subject to regulatory approval and other terms and conditions, the sale is expected to close in the third quarter of 2018.
Read the story.
Lake Michigan CU Finalizes Merger with Encore Bank
Lake Michigan Credit Union (Grand Rapids, MI) announced that it has finalized its merger with Encore Bank (Naples, FL).
Both state and federal regulators approved the merger last week.
Terms remain undisclosed.
Read the story.
Both state and federal regulators approved the merger last week.
Terms remain undisclosed.
Read the story.
New York City Taxi Medallions Valued at $160,000
Signature Bank of New York announced on April 18 that it has valued each of its New York City taxi medallion loan or asset at approximately $160,000 at the end of the first quarter.
In addition, the bank during its April 18 conference call regarding its first quarter performance stated that each medallion loan in its Chicago portfolio was wrote down to $27,000.
The bank commented that it viewed these valuations to be conservative given the declining cash flows arising from taxi medallions.
Below is comments from Joseph DPaolo, President and CEO of Signature Bank of New York, from the conference call.
Furthermore, this could cause pending losses to the National Credit Union Share Insurance Fund to increase.
In addition, the bank during its April 18 conference call regarding its first quarter performance stated that each medallion loan in its Chicago portfolio was wrote down to $27,000.
The bank commented that it viewed these valuations to be conservative given the declining cash flows arising from taxi medallions.
Below is comments from Joseph DPaolo, President and CEO of Signature Bank of New York, from the conference call.
"Let's hit the taxi medallion portfolio head on. During the quarter - during the first quarter, market sales and cash flows continued to exhibit significant weakness. As such, we further wrote down the value of our New York medallion loans to 160,000 each and our Chicago portfolio to 27,000."This would suggest larger potential losses arising from taxi medallion loans on the balance sheets of credit unions, since some credit unions are valuing taxi medallions at significantly higher values.
Furthermore, this could cause pending losses to the National Credit Union Share Insurance Fund to increase.
Saturday, April 21, 2018
NCUA Considering Appeal, Will Not Grant Charters Under Vacated Provisions
The National Credit Union Administration (NCUA) is considering whether to appeal the U.S. District Court for the District of Columbia's decision to strike down provisions of the agency's field-of-membership (FOM) rule.
The two provisions that a federal judge vacated dealt with rural district and combined statistical areas.
In a notice to the court, NCUA informed the court that it has instructed credit unions to not accept any new members who would only be eligible under the vacated portions of the FOM rule.
However, the agency stated that it advised credit unions that members enrolled on or before April 4, who would have been ruled ineligible by the court's decision, may remain members.
NCUA also stated that it will not grant any new charters under the vacated provisions.
Read the Notice.
The two provisions that a federal judge vacated dealt with rural district and combined statistical areas.
In a notice to the court, NCUA informed the court that it has instructed credit unions to not accept any new members who would only be eligible under the vacated portions of the FOM rule.
However, the agency stated that it advised credit unions that members enrolled on or before April 4, who would have been ruled ineligible by the court's decision, may remain members.
NCUA also stated that it will not grant any new charters under the vacated provisions.
Read the Notice.
Friday, April 20, 2018
Public Service CU Pays $37.7 Million for Naming Rights to College Football Stadium
Public Service Credit Union (Lone Tree, CO) has agreed to a naming rights deal for the new football stadium with Colorado State University and Learfield Sports.
The credit union will pay $37.7 million over 15 years for the naming rights to the on-campus stadium.
The name of the new stadium will be unveiled in the coming weeks as the credit union is undergoing a rebranding initiative.
According to the press release, this is one of the largest collegiate athletic venue naming agreements in history.
However, shouldn't the credit union use its tax exemption to provide its members with lower fees or better rates instead of buying the naming rights to a college football stadium?
Read the press release.
The credit union will pay $37.7 million over 15 years for the naming rights to the on-campus stadium.
The name of the new stadium will be unveiled in the coming weeks as the credit union is undergoing a rebranding initiative.
According to the press release, this is one of the largest collegiate athletic venue naming agreements in history.
However, shouldn't the credit union use its tax exemption to provide its members with lower fees or better rates instead of buying the naming rights to a college football stadium?
Read the press release.
Thursday, April 19, 2018
Wisconsin CU Regulator Writes CUs about Purchases of Whole Loans
The Wisconsin credit union regulator on April 5 wrote that the purchase of whole loans by Wisconsin chartered credit unions is not permissible under state law.
The Office of Credit Unions noted that during recent examinations it discovered "several situations in which credit unions have purchased whole loans (either individually or in a pool of loans)." The regulator also stated that these loans were non-member loans.
According to the letter, the purchasing of whole loans of non-members is not a permissible activity for Wisconsin state-chartered credit unions.
The Office of Credit Unions advised credit unions that have purchased non-member loans to contact your legal counsel to become compliant.
Read the letter.
The Office of Credit Unions noted that during recent examinations it discovered "several situations in which credit unions have purchased whole loans (either individually or in a pool of loans)." The regulator also stated that these loans were non-member loans.
According to the letter, the purchasing of whole loans of non-members is not a permissible activity for Wisconsin state-chartered credit unions.
The Office of Credit Unions advised credit unions that have purchased non-member loans to contact your legal counsel to become compliant.
Read the letter.
Tuesday, April 17, 2018
Orion FCU Receives Property Tax Abatement
Orion Federal Credit Union (Memphis, TN) will receive a 20-year property tax abatement for the renovation of a building into 75,000 square feet of office space.
The credit union is planning a $7 million renovation of the former Wonder Bread building.
Read the story.
The credit union is planning a $7 million renovation of the former Wonder Bread building.
Read the story.
Monday, April 16, 2018
129 CUs Borrowed from Fed's Discount Window in Q1 2016
During the first quarter of 2016, 129 credit unions borrowed from the Federal Reserve Discount Window. In comparison, 228 credit unions borrowed from the Federal Reserve during the 4th quarter of 2015.
Credit unions accessed the Discount Window 150 times and borrowed slightly more than $72 million in aggregate.
The median amount borrowed by credit unions was $10,000. The average amount borrowed was $480,493. The maximum amount borrowed was $15 million by First Financial Credit Union (West Covina, CA).
During the first quarter of 2016, True North FCU (Juneau, AK) was the most frequent credit union borrower from the Discount Window, visiting it 10 times. The next most frequent borrower was Aurora Credit Union (Milwaukee, WI), which visited the Discount Window 5 times.
Most credit unions borrowing from the Discount Window used the primary credit program, which is reserved for healthy credit unions. Three credit unions used the secondary credit program -- Keys Federal Credit Union (Key West, FL), Southeast Financial Credit Union (Franklin, TN), and Valor Federal Credit Union (Scranton, PA).
The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.
Credit unions accessed the Discount Window 150 times and borrowed slightly more than $72 million in aggregate.
The median amount borrowed by credit unions was $10,000. The average amount borrowed was $480,493. The maximum amount borrowed was $15 million by First Financial Credit Union (West Covina, CA).
During the first quarter of 2016, True North FCU (Juneau, AK) was the most frequent credit union borrower from the Discount Window, visiting it 10 times. The next most frequent borrower was Aurora Credit Union (Milwaukee, WI), which visited the Discount Window 5 times.
Most credit unions borrowing from the Discount Window used the primary credit program, which is reserved for healthy credit unions. Three credit unions used the secondary credit program -- Keys Federal Credit Union (Key West, FL), Southeast Financial Credit Union (Franklin, TN), and Valor Federal Credit Union (Scranton, PA).
The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.
Friday, April 13, 2018
CUs Buying Banks Are Here to Stay, But Raise Policy Issues
The American Banker is reporting that a trend has emerged of credit unions buying banks.
In the first quarter of 2018, four such deals were announced. In comparison, six deals were announced during 2017.
Michael Bell, an attorney at Howard & Howard law firm who specializes in these transactions, estimates that there are approximately 150 credit unions with the capital, management experience, and desire to buy banks. He told the American Banker that he is currently working on 20 possible deals.
However, these transactions suggest that the lines of distinction between banks and credit unions are blurring and raise several issues that need to be addressed by policymakers.
Credit unions are exempt from federal income taxation. However, banks are subject to federal taxation. The acquisition of a bank by a credit union shifts income from a taxable base to a non-taxable base. If credit unions are using their tax-exempt status to buy taxpaying financial institutions, then this warrants policymakers revisiting the credit union tax exemption.
In fact, these transactions have attracted the interest of Senate Finance Committee Chairman Orrin Hatch (R - UT), who earlier this year wrote National Credit Union Administration Chairman McWatters questioning whether credit unions have outgrown their tax exempt status.
Credit unions are also exempt from the Community Reinvestment Act (CRA), while banks are not. These acquisitions may potentially create gaps with regard to service and lending to low- and modest-income consumers. The Government Accountability Office reported earlier this year that policymakers should consider extending CRA to credit unions, although the Treasury Department did not act on this recommendation.
Read the story (subscription may be required).
In the first quarter of 2018, four such deals were announced. In comparison, six deals were announced during 2017.
Michael Bell, an attorney at Howard & Howard law firm who specializes in these transactions, estimates that there are approximately 150 credit unions with the capital, management experience, and desire to buy banks. He told the American Banker that he is currently working on 20 possible deals.
However, these transactions suggest that the lines of distinction between banks and credit unions are blurring and raise several issues that need to be addressed by policymakers.
Credit unions are exempt from federal income taxation. However, banks are subject to federal taxation. The acquisition of a bank by a credit union shifts income from a taxable base to a non-taxable base. If credit unions are using their tax-exempt status to buy taxpaying financial institutions, then this warrants policymakers revisiting the credit union tax exemption.
In fact, these transactions have attracted the interest of Senate Finance Committee Chairman Orrin Hatch (R - UT), who earlier this year wrote National Credit Union Administration Chairman McWatters questioning whether credit unions have outgrown their tax exempt status.
Credit unions are also exempt from the Community Reinvestment Act (CRA), while banks are not. These acquisitions may potentially create gaps with regard to service and lending to low- and modest-income consumers. The Government Accountability Office reported earlier this year that policymakers should consider extending CRA to credit unions, although the Treasury Department did not act on this recommendation.
Read the story (subscription may be required).
Thursday, April 12, 2018
Southeast Financial CU Settles with NY over Financing Phony Academic Services
New York Attorney General Eric T. Schneiderman announced a settlement with Southeast Financial Credit Union (Franklin, TN) for fraudulently aiding in the sale of ineffective nursing school study guides.
The credit union was named in a lawsuit against The College Network and and its owner Gary Eyler, among others (read more about the lawsuit in my June 24, 2015 blog).
The settlement requires Southeast Financial Credit Union to pay $2.25 million in refunds to duped New Yorkers and requires the credit union to clean up any students’ negatively-affected credit ratings.
Read the press release.
The credit union was named in a lawsuit against The College Network and and its owner Gary Eyler, among others (read more about the lawsuit in my June 24, 2015 blog).
The settlement requires Southeast Financial Credit Union to pay $2.25 million in refunds to duped New Yorkers and requires the credit union to clean up any students’ negatively-affected credit ratings.
Read the press release.
Financial Trades Support CFPB Commission Bill
In an April 9th letter, over 20 financial trade groups expressed support for a bill that would transition the governance structure of the Consumer Financial Protection Bureau (CFPB) from having a sole director to a five-person, bipartisan commission.
The Financial Product Safety Commission Act of 2018 (H.R. 5266) was introduced by Reps. Dennis Ross (R-Fla.), Kyrsten Sinema (D-Ariz.), David Scott (D-Ga.) and Ann Wagner (R-Mo.).
“The current single director structure leads to uncertainty as we have witnessed in CFPB leadership from the Obama administration to the Trump administration. This uncertainty is not only borne by financial institutions providing significant lending services, but it negatively impacts America’s consumers, small businesses and our local economies,” the groups said. “A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation and enforcement by encouraging input from all stakeholders.”
The associations added that transitioning to a bipartisan commission structure has wide support, both from Congress and the public; similar bills have been passed multiple times on bipartisan votes by the House Financial Services Committee and the full House, and a recent Morning Consult poll noted that only 14 percent of the public favors maintaining the bureau’s current leadership structure.
Read the letter.
Read the bill.
The Financial Product Safety Commission Act of 2018 (H.R. 5266) was introduced by Reps. Dennis Ross (R-Fla.), Kyrsten Sinema (D-Ariz.), David Scott (D-Ga.) and Ann Wagner (R-Mo.).
“The current single director structure leads to uncertainty as we have witnessed in CFPB leadership from the Obama administration to the Trump administration. This uncertainty is not only borne by financial institutions providing significant lending services, but it negatively impacts America’s consumers, small businesses and our local economies,” the groups said. “A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation and enforcement by encouraging input from all stakeholders.”
The associations added that transitioning to a bipartisan commission structure has wide support, both from Congress and the public; similar bills have been passed multiple times on bipartisan votes by the House Financial Services Committee and the full House, and a recent Morning Consult poll noted that only 14 percent of the public favors maintaining the bureau’s current leadership structure.
Read the letter.
Read the bill.
Wednesday, April 11, 2018
United FCU Buys Naming Rights to Rooftop Apartment Deck at Minor League Field
The South Bend Cubs announced that United Federal Credit Union (St. Joseph, MI) bought the naming rights for the new Rooftop Apartment Deck at Four Winds Field.
United Federal Credit Union Rooftop will be positioned over the left field wall of Four Winds Field in the Ivy at Berlin apartments. It will feature space for 300 fans with a full bar, food service and grandstand.
An illuminated United Federal Credit Union sign will be displayed on the south face of the building and other United Federal Credit Union branding will be featured throughout the stadium.
The rooftop deck is scheduled to open in June.
The South Bend Cubs are the Class A minor league affiliate of the Chicago Cubs.
The terms of the naming rights was not disclosed.
Read the story.
United Federal Credit Union Rooftop will be positioned over the left field wall of Four Winds Field in the Ivy at Berlin apartments. It will feature space for 300 fans with a full bar, food service and grandstand.
An illuminated United Federal Credit Union sign will be displayed on the south face of the building and other United Federal Credit Union branding will be featured throughout the stadium.
The rooftop deck is scheduled to open in June.
The South Bend Cubs are the Class A minor league affiliate of the Chicago Cubs.
The terms of the naming rights was not disclosed.
Read the story.
Tuesday, April 10, 2018
NCUA's Metsger Criticizes Judge's Decision Invalidating Portions of Its FOM Rule
In an April 5 speech before the Minnesota Credit Union Network, National Credit Union Administration (NCUA) Board member Metsger delivered critical remarks regarding a recent decision by a federal judge invalidating portion of NCUA's new field of membership (FOM) rule.
The American Bankers Association sued NCUA over four provisions in the agency's FOM rule. The federal judge invalidated two of the provisions, while upholding two other provisions.
The federal judge overturned the agency's provision allowing rural district charters to serve rural areas with populations of up to one million people, up from the old limit of 250,000. The judge also overturned the provision that defined a Combined Statistical Area with a population up to 2.5 million people as a de facto local well-defined community.
However, Metsger did not mince his words expressing his disapproval of the judge's decision. He stated that judge's decision was only "half right."
Metsger argued that the two overturned provisions of the FOM rule were neither arbitrary nor capricious.
Metsger was also critical of the judge's ruling because it failed to give deference to the agency in interpreting the Federal Credit Union Act.
He further commented that the agency adhered to the law, because no member of Congress objected to the rule or even introduced a resolution to veto the rule.
In addition with respect to the rural district definition, Metsger argued that banks are abandoning rural America and the expansion of the rural district definition was "designed to solve very real financial access problems for residents of rural America."
Metsger's harshest comments were directed at the American Bankers Association and the banking industry. He referred to the banking industry as protectionist, seeking to deny consumers access to not-for-profit credit unions.
NCUA has 60-days to decide whether it will appeal the judge's decision.
Below is the speech.
The American Bankers Association sued NCUA over four provisions in the agency's FOM rule. The federal judge invalidated two of the provisions, while upholding two other provisions.
The federal judge overturned the agency's provision allowing rural district charters to serve rural areas with populations of up to one million people, up from the old limit of 250,000. The judge also overturned the provision that defined a Combined Statistical Area with a population up to 2.5 million people as a de facto local well-defined community.
However, Metsger did not mince his words expressing his disapproval of the judge's decision. He stated that judge's decision was only "half right."
Metsger argued that the two overturned provisions of the FOM rule were neither arbitrary nor capricious.
Metsger was also critical of the judge's ruling because it failed to give deference to the agency in interpreting the Federal Credit Union Act.
He further commented that the agency adhered to the law, because no member of Congress objected to the rule or even introduced a resolution to veto the rule.
In addition with respect to the rural district definition, Metsger argued that banks are abandoning rural America and the expansion of the rural district definition was "designed to solve very real financial access problems for residents of rural America."
Metsger's harshest comments were directed at the American Bankers Association and the banking industry. He referred to the banking industry as protectionist, seeking to deny consumers access to not-for-profit credit unions.
NCUA has 60-days to decide whether it will appeal the judge's decision.
Below is the speech.
Monday, April 9, 2018
Nusenda FCU Expands Administrative Offices
Nusenda Federal Credit Union is expanding its administrative offices in Northeast Albuquerque (NM), according to the Albuquerque Business Journal.
The credit union is constructing a four-story, 60,000-square-foot office building. A pedestrian bridge will connect the new office building to the credit union's existing main office/training center.
The new office building will contain a branch, a full commercial kitchen and a dining area.
The cost of the project was not disclosed.
Read the story.
The credit union is constructing a four-story, 60,000-square-foot office building. A pedestrian bridge will connect the new office building to the credit union's existing main office/training center.
The new office building will contain a branch, a full commercial kitchen and a dining area.
The cost of the project was not disclosed.
Read the story.
Saturday, April 7, 2018
Consumer Credit at CUs Fell in February
The Federal Reserve reported that outstanding consumer credit at credit unions fell for the month of February, according to its G. 19 report.
In January 2018, outstanding consumer credit at credit unions was $430.4 billion. In February 2018, consumer credit was $429.5 billion.
The decline in outstanding consumer credit was due to a drop in both revolving and nonrevolving credit.
Revolving credit declined from approximately $58.1 billion in January to almost $57.2 billion in February. This was the second consecutive monthly decline in revolving credit at credit unions.
Nonrevolving consumer credit fell by almost $200 million during February to $372.2 billion.
In January 2018, outstanding consumer credit at credit unions was $430.4 billion. In February 2018, consumer credit was $429.5 billion.
The decline in outstanding consumer credit was due to a drop in both revolving and nonrevolving credit.
Revolving credit declined from approximately $58.1 billion in January to almost $57.2 billion in February. This was the second consecutive monthly decline in revolving credit at credit unions.
Nonrevolving consumer credit fell by almost $200 million during February to $372.2 billion.
Friday, April 6, 2018
Quorum's Annual Report Provides More Insight into Taxi Medallion Exposure
The 2017 Annual Report of Quorum Federal Credit Union (Purchase, NY) provides greater insight into the credit union's taxi medallion participation loan portfolio.
At December 31, 2017, Quorum had almost $64.4 million of loans collateralized by taxi medallions, primarily from New York City and Chicago. However, the credit union does not breakdown the distribution of loans by geography.
The credit union reported an increase in provisions for loan losses for taxi participation loans of $8.1 million during 2017. The credit union also reported net charge-off of taxi medallion participation loans of $2 million during 2017. As a result, the credit union saw its allowance for loan and lease losses associated with taxi medallion participation loans increase from $19.6 million at the beginning of 2017 to $25.7 million at the end of 2017. Approximately 75 percent of the credit unions allowances for loan and lease losses were for taxi medallion participation loans.
At the end of 2017, Quorum stated that the fair value of a taxi medallion was $365 thousand in New York City and $93 thousand in Chicago. The credit union used a third-party valuation specialist to value the underlying collateral of taxi medallions, which was used to determine specific reserves on impaired taxi medallion loans. However, these valuations seem to be too high given recent transaction data from Chicago and New York City.
Quorum stated that at the end of 2017, $21.7 million in taxi medallion loans were current, another $3.6 million were 30-to-89 days delinquent, and almost $39.2 million were 90 days or more past due.
The credit union noted $409 thousand in troubled debt restructured (TDR) taxi medallion participation loans in 2017, after reporting $18.5 million in TDR taxi medallion participation loans in 2016. The credit union reported that all modifications in taxi medallion loans in 2016 and 2017 dealt with maturity and interest rate adjustments.
However, the credit union warned that further deterioration in the value of medallions may result in higher delinquencies and losses.
According to the Annual Report, $47.3 million in taxi medallion loans are scheduled to mature in 2018 and another $13.2 million in 2019. The remainder will mature in 2020 or later.
In closing, I wish more credit unions would post their audited financial statements, so that credit union members and analysts could get more granular information on their performances.
Read Note 4 of the Annual Report for more info.
At December 31, 2017, Quorum had almost $64.4 million of loans collateralized by taxi medallions, primarily from New York City and Chicago. However, the credit union does not breakdown the distribution of loans by geography.
The credit union reported an increase in provisions for loan losses for taxi participation loans of $8.1 million during 2017. The credit union also reported net charge-off of taxi medallion participation loans of $2 million during 2017. As a result, the credit union saw its allowance for loan and lease losses associated with taxi medallion participation loans increase from $19.6 million at the beginning of 2017 to $25.7 million at the end of 2017. Approximately 75 percent of the credit unions allowances for loan and lease losses were for taxi medallion participation loans.
At the end of 2017, Quorum stated that the fair value of a taxi medallion was $365 thousand in New York City and $93 thousand in Chicago. The credit union used a third-party valuation specialist to value the underlying collateral of taxi medallions, which was used to determine specific reserves on impaired taxi medallion loans. However, these valuations seem to be too high given recent transaction data from Chicago and New York City.
Quorum stated that at the end of 2017, $21.7 million in taxi medallion loans were current, another $3.6 million were 30-to-89 days delinquent, and almost $39.2 million were 90 days or more past due.
The credit union noted $409 thousand in troubled debt restructured (TDR) taxi medallion participation loans in 2017, after reporting $18.5 million in TDR taxi medallion participation loans in 2016. The credit union reported that all modifications in taxi medallion loans in 2016 and 2017 dealt with maturity and interest rate adjustments.
However, the credit union warned that further deterioration in the value of medallions may result in higher delinquencies and losses.
According to the Annual Report, $47.3 million in taxi medallion loans are scheduled to mature in 2018 and another $13.2 million in 2019. The remainder will mature in 2020 or later.
In closing, I wish more credit unions would post their audited financial statements, so that credit union members and analysts could get more granular information on their performances.
Read Note 4 of the Annual Report for more info.
Thursday, April 5, 2018
Kinecta FCU and MLS LA Galaxy Ink Partnership Agreement
Major League Soccer (MLS) LA Galaxy and their home stadium, StubHub Center, have launched a marketing partnership with Kinecta Federal Credit Union (Manhattan Beach, CA).
Kinecta was named the exclusive financial services partner of the LA Galaxy and the StubHub Center.
In addition, the credit union received the naming rights to the LA Galaxy's Torrance-bases indoor soccer and recreational facility, which will be known as Kinecta Soccer Center.
The terms of the partnership deal were not disclosed.
Read more.
Kinecta was named the exclusive financial services partner of the LA Galaxy and the StubHub Center.
In addition, the credit union received the naming rights to the LA Galaxy's Torrance-bases indoor soccer and recreational facility, which will be known as Kinecta Soccer Center.
The terms of the partnership deal were not disclosed.
Read more.
Wednesday, April 4, 2018
Data Indicate NCUA Bias Against New Charters
The National Credit Union Administration (NCUA) only chartered four federal credit unions in 2017.
Only three of the charters were de novo credit unions. One credit union was privately-insured, state charter that flipped to a federal charter with federal share insurance.
In comparison, the agency added 90 groups with at least 3,000 potential members to existing multiple common bond credit unions, despite Congress' encouraging the agency to form new credit unions instead of adding the groups to existing credit unions.
As I wrote last year, Congress granted NCUA an exception to adding groups with at least 3,000 potential members to existing credit unions, if the agency determined that the group is unlikely to succeed as a new credit union.
The following table shows the number of new charters versus groups with at least 3,000 potential members added to existing credit unions between 2008 - 2017.
The data would suggest a bias against the formation of new credit unions by NCUA.
Do you mean to tell me that none of these groups could form a successful credit union?
Only three of the charters were de novo credit unions. One credit union was privately-insured, state charter that flipped to a federal charter with federal share insurance.
In comparison, the agency added 90 groups with at least 3,000 potential members to existing multiple common bond credit unions, despite Congress' encouraging the agency to form new credit unions instead of adding the groups to existing credit unions.
As I wrote last year, Congress granted NCUA an exception to adding groups with at least 3,000 potential members to existing credit unions, if the agency determined that the group is unlikely to succeed as a new credit union.
The following table shows the number of new charters versus groups with at least 3,000 potential members added to existing credit unions between 2008 - 2017.
The data would suggest a bias against the formation of new credit unions by NCUA.
Do you mean to tell me that none of these groups could form a successful credit union?
Tuesday, April 3, 2018
Washington Municipalities Can Invest Unlimited Public Funds in CUs
Washington Governor Jay Inslee on March 22 signed a bill into law granting local governments the ability to invest unlimited public funds deposits in credit unions.
Currently, municipal governments’ deposits in credit unions are capped at $250,000.
Under the new law, municipalities will be able to deposit unlimited public funds above the $250,000 insurance limit, into credit unions located in counties populated by 300,000 or fewer people.
However, the uninsured portion of public funds needs to be secured with eligible collateral.
The new law will allow municipalities in 34 of Washington's 39 counties to place public funds in excess of the insured deposit limit in credit unions.
Read the bill.
Currently, municipal governments’ deposits in credit unions are capped at $250,000.
Under the new law, municipalities will be able to deposit unlimited public funds above the $250,000 insurance limit, into credit unions located in counties populated by 300,000 or fewer people.
However, the uninsured portion of public funds needs to be secured with eligible collateral.
The new law will allow municipalities in 34 of Washington's 39 counties to place public funds in excess of the insured deposit limit in credit unions.
Read the bill.
Monday, April 2, 2018
CU Provided More Than 80 Percent Financing for SF Taxi Medallion Loans
Yesterday, I reported on San Francisco Federal Credit Union's lawsuit suing the San Francisco Municipal Transportation Agency (SFMTA) over taxi medallion loans.
The complaint also suggests that the credit union provided more than 80 percent financing of taxi medallion loans.
Taxi medallions were being sold for $250,000 by SFMTA.
In paragraph 87 of the complaint, the credit union reported that it offered down payment assistance loans to people, who did not have $50,000 in cash for the down payment (20 percent of the purchase price).
This indicates that for some medallion loans the loan-to-value ratio exceeded 80 percent, once you include the amount of the down payment assistance loan with the amount of the medallion financed by the credit union.
This would suggest a higher loss rate on some defaulted taxi medallion loans.
The complaint also suggests that the credit union provided more than 80 percent financing of taxi medallion loans.
Taxi medallions were being sold for $250,000 by SFMTA.
In paragraph 87 of the complaint, the credit union reported that it offered down payment assistance loans to people, who did not have $50,000 in cash for the down payment (20 percent of the purchase price).
This indicates that for some medallion loans the loan-to-value ratio exceeded 80 percent, once you include the amount of the down payment assistance loan with the amount of the medallion financed by the credit union.
This would suggest a higher loss rate on some defaulted taxi medallion loans.
Sunday, April 1, 2018
Credit Union Sues San Francisco over Taxi Medallion Loans
San Francisco Federal Credit Union is suing the San Francisco Municipal Transportation Agency (SFMTA) seeking damages from defaulted taxi medallion loans.
The complaint states that the credit union partnered with SFMTA to finance taxi medallion loans. The credit union underwrote and financed over 700 medallions worth more than $125 million in taxi medallion loans.
The lawsuit alleges that the city did not enforce its own transportation code when it failed to crack down on ride sharing companies. As a result, the taxi medallion market has collapsed with no medallion sales in two years.
The credit union claims numerous borrowers have defaulted on their medallion loans with at least 99 medallion loans in foreclosure. The credit union further states that it has suffered million of dollars of losses.
The credit union stated that it "has charged off or increased reserves for loan losses associated with its taxi medallion portfolio by more than $10,000,000."
The lawsuit includes claims of breach of contract, breach of an implied covenant of good faith and fair dealing, violation of the SFMTA's fiduciary duty toward the credit union and negligent misrepresentation of the city's approach to the medallion market.
The credit union is seeking damages of $28 million, attorney fees, and an order requiring SFMTA to repurchase Transferable Medallions from the credit union.
The lawsuit was filed in Superior Court of San Francisco on March 27.
Click here to search for the case and select the case query function.
The complaint states that the credit union partnered with SFMTA to finance taxi medallion loans. The credit union underwrote and financed over 700 medallions worth more than $125 million in taxi medallion loans.
The lawsuit alleges that the city did not enforce its own transportation code when it failed to crack down on ride sharing companies. As a result, the taxi medallion market has collapsed with no medallion sales in two years.
The credit union claims numerous borrowers have defaulted on their medallion loans with at least 99 medallion loans in foreclosure. The credit union further states that it has suffered million of dollars of losses.
The credit union stated that it "has charged off or increased reserves for loan losses associated with its taxi medallion portfolio by more than $10,000,000."
The lawsuit includes claims of breach of contract, breach of an implied covenant of good faith and fair dealing, violation of the SFMTA's fiduciary duty toward the credit union and negligent misrepresentation of the city's approach to the medallion market.
The credit union is seeking damages of $28 million, attorney fees, and an order requiring SFMTA to repurchase Transferable Medallions from the credit union.
The lawsuit was filed in Superior Court of San Francisco on March 27.
Click here to search for the case and select the case query function.