NCUSIF Reserves Fell in October to $116.7 Million

Insurance and Guarantee Program Liabilities Reserves for the National Credit Union Share Insurance Fund (NCUSIF) were $116.7 million, as of October 31, 2018.

Reserves for specific natural person credit unions were $7.9 million and general reserves were $108.8 million.

NCUSIF reserves were $156.2 million, as of September 30, 2018. Reserves for specific natural credit unions were $47.4 million, while general reserves were $108.8 million.

The NCUSIF did not recognize any insurance loss expense during the month of October 2018.

FSOC: CUs Post Strong Performance; But Challenges Persist

The Financial Stability Oversight Council (FSOC) in its 2018 Annual Report stated that the credit union industry posted relatively strong performance due to solid loan demand and a strengthening economy.

FSOC noted the credit union industry performance has bifurcated. Larger credit unions have fared better than smaller credit unions across many performance measures.

FSOC also commented that credit unions continue to struggle with interest rate risk.

It wrote that some credit unions appear to be reaching for yield by lengthening the term of their investments in order to boost near-term earnings. However, these credit unions' financial performance could be adversely impacted, if short-term interest rates rise faster than expected. But it seems that this risk is retreating as markets are anticipating fewer rate hikes from the Federal Open Market Committee in 2019.

The report further noted that credit unions' exposure to localized economic distress can present unique challenges, as they are closely tied to specific geographic areas or business organizations.

For example, credit unions exposed to the taxicab industry, which has been disrupted by ridesharing companies, have undergone significant financial distress. As of the second quarter of 2018, there were seven credit unions with with $3.0 billion in taxi medallion loans either on their balance sheets or sold to other credit unions. Two of these credit unions with total assets more than $1.5 billion and specializing in taxi medallion loans were placed into conservatorship in the first half of 2017 and liquidated in the third quarter of 2018.

Read the report.

Louisiana CU Pays $110,000 to Settle EEOC Lawsuit Charging Racial Discrimination

Meritus Credit Union (Lafayette, LA), formerly Lafayette Schools Federal Credit Union, has agreed to pay a former branch manager $110,000 to settle a racial discrimination lawsuit brought by the U.S. Equal Employment Opportunity Commission (EEOC).

According to the lawsuit, the credit union fired Connie Fields-Meaux because she opposed - and assisted another employee in opposing - the credit union's use of a racially offensive video during a training session, which depicted a caricature of a black fast food worker, as an example of "how not to provide customer service." Within days, the credit union fired her without warning or explanation.

In addition, as part of the settlement agreement, the credit union will provide regular training to its employees on retaliation.

Read more.

Bill Would Ban Implementation of CECL

Representative Blaine Luetkemeyer (R - MO) introduced legislation on December 21 that would block the implementation of the Financial Accounting Standards Board’s (FASB) Current Expected Credit Loss (CECL) standard by federal financial regulators.

The legislation would make implementation contingent on a quantitative study that analyzes the impact of CECL on the broader United States economy, market stability, and credit availability, particularly to small businesses and low- and moderate-income borrowers.

Read the press release.

Read the bill.

NCUA to Fast Track Alternative Capital for CUs

The Credit Union Journal is reporting that the National Credit Union Administration (NCUA) may fast track a proposal to give complex credit unions access to alternative capital.

Complex credit unions have at least $500 million in assets and are subject to the agency's risk-based capital requirement, which will become effective on January 1, 2020.

The agency on December 13 approved a report calling for action on alternative capital by May of 2019.

Currently, only low-income credit unions have the authority to issue secondary or alternative capital.

While granting credit unions access to alternative capital will generate strong support from the credit union trade associations, the proposal, when issued, will also fuel vehement opposition from banking trade groups.

Alternative capital could become the Pandora's Box for credit unions. Once opened, it will become a curse for the credit union industry.

Read the story (subscription required).

WSECU Pays Almost $3 Million to Settle OD Fee Lawsuit

Another credit union settled an overdraft fee class action lawsuit in 2018.

Washington State Employees Credit Union (WSECU), headquartered in Tacoma, Washington, agreed to pay $2.99 million to settle a class action lawsuit over the credit union's overdraft (OD) practices.

The lawsuit claims that WSECU charged overdraft fees for transactions for which there were funds in the checking account to cover the transaction.

The class action includes any member who was charged an overdraft privilege fee for non-recurring debit card or ATM transactions at any time from October 1, 2009 through December 31, 2016, and, at the time such fee was imposed, that person had sufficient funds in the ledger balance but not the available balance in his or her account to complete the transaction.

The $2.99 million settlement fund was approximately 47 percent of identified sufficient fund damages of $6,363,771.

Payments to eligible class members were mailed around October 20, 2018.

Read more.

Graphs Look at Relationship Between Membership Growth and Deposit and Loan Growth

Looking at state level data, membership growth at credit unions is partially explained deposit and loan growth at credit unions.

The analysis uses state level data from the National Credit Union Administration for the 3rd quarter of 2018. Variables included in the analysis are median year-over-year membership growth rate, median year-over-year deposit growth rate, and median year-over-year loan growth rate.

Membership growth is treated as the independent variable and the dependent variables are deposit growth and loan growth.

The first graph looks at state level data regarding membership growth and deposit growth. There is a positive relationship between membership growth and deposit growth. The R-squared (goodness of fit) was almost 30 percent.

R-squared values range from 0 to 100 percent. A higher R-squared value means that the independent variable is doing a better job in explaining variances in the dependent variable.

The second graph looks at the relationship between loan growth and membership growth by state. Once again, there is a positive relationship between these variables and the R-squared was nearly 29 percent.

NCUSIF Normal Operating Level Lowered to 1.38 Percent

The National Credit Union Administration (NCUA) Board lowered the normal operating level for the National Credit Union Share Insurance Fund (NCUSIF) from 1.39 percent of insured shares to 1.38 percent of insured shares.

The NCUSIF normal operating level will be set by the NCUA Board between 1.20 percent and 1.50 percent, according to the Federal Credit Union Act.

NCUA stated that setting the normal operating level at 1.38 percent would insure that the NCUSIF equity ratio would not fall below 1.20 percent under a moderate recession scenario. If the equity ratio drops below 1.20 percent, NCUA would be required by law to assess premiums.

NCUA assumed that a moderate recession would cause a 13 basis point decline in the NCUSIF equity ratio.

NCUA estimates that the value of the NCUSIF's claim on the corporate estate is 2 basis points in a moderate recession, down from 4 basis points.

Finally, investment income to the NCUSIF fell as its investment portfolio shrank, because of the resolution of a large credit union. The estimated decline in the equity ratio was 3 basis points.

Read more.

Roughly Half of CUs Had Fewer Members Y-O-Y

While overall membership at credit unions grew in the third quarter, roughly half of the country's credit union reported fewer members at the end of the third quarter of 2018 than a year ago.

Median membership growth was negative in 13 states. The District of Columbia had a median membership growth rate of negative 1.6 percent, followed by Illinois at minus 1.5 percent. Other states with negative median year-over-year membership growth at the end of the third quarter were Connecticut (-0.2 percent), Louisiana (-0.5 percent), Massachusetts (-0.6 percent), Maryland (-0.1 percent), North Carolina (-0.2 percent), North Dakota (-1.1 percent), New Jersey (-1.1 percent), Oklahoma (-0.3 percent), Pennsylvania (-1.4 percent), Texas (-0.2 percent), and West Virginia (-0.6 percent).

Median membership growth was unchanged in New York, Tennessee, and Virginia.

Credit unions reporting negative membership growth tend to be smaller with approximately 75 percent have less than $50 million in assets.

Read more.

Almost 88 Percent of CUs Reported Positive Net Income Thru Q3

Almost 88 percent of federally insured credit unions reported earning a profit thru the first 3 quarters of 2018.

Of the 5,436 federally insured credit unions, 4,783 reported positive net income.

Higher interest rates have caused an improvement in net interest margins at credit unions, which helped to lift net income. Net interest margins are up 13 basis points thru the first 3 quarters of 2018 and 24 basis points since the end of 2016.

There is a positive relationship between net income and credit union size. All credit unions with at least $1 billion in assets reported positive net income.

Landmark Exploring New HQ Building Site

The Milwaukee Journal Sentinel is reporting that Landmark Credit Union (New Berlin, WI) is exploring buying 19.5 acre site in the city of Brookfield for a new headquarters building.

The $3.9 billion credit union would construct a 150,000 to 160,000 square-foot building on the site.

The credit union hopes to close on the property by next spring or summer.

The price tag of the project was not disclosed.

Read the story.

Mazuma CU Settles Overdraft Lawsuit

Mazuma Credit Union (Overland Park, KS) has agreed to pay $1.36 million to settle class action lawsuit over its overdraft practices.

The lawsuit (Bowens v. Mazuma Credit Union) alleges the credit union charged an overdraft fee on transactions although the member had sufficient funds in the current account to complete the transaction. The credit union used the available balance method to levy an overdraft fee.

The lawsuit claims breach of contract and violations of Regulation E.

The class settlement includes anyone charged an overdraft fee by the credit union between April 1, 2011 and September 30, 2015.

Mazuma Credit Union charged approximately $3.4 million in overdraft fees when there was enough money in the account to cover the transaction. Analysis found 12,031 members of Muzama were in the class.

The settlement agreement will also require the credit union to assess overdraft fees using the current balance in a member's account rather than on the available balance. This operational change would have reduced overdraft fees at Muzuma over the four year period by almost $3 million.

Read more.

Merger Will Create $3.3 Billion CU

Gesa Credit Union (Richland, WA) and Inspirus Credit Union (Tukwila, WA) announced their intention to merge.

The merger would create a credit union with $3.3 billion in assets with 23 offices throughout the state of Washington.

Inspirus Credit Union has $1.3 billion in assets and almost 80,000 members.

Gesa Credit Union has $2 billion in assets and almost 163,000 members.

According to the FAQ, the merger would create increased efficiencies, which would provide greater benefits to members and would allow the credit union to invest in new technologies and services.

The merger requires the approval of regulators and is expected to close in April 2019.

Read more.

Consumer Credit at CUs grew at faster pace in October

Outstanding consumer credit at credit unions grew at a faster rate in October, according to the Federal Reserve.

Outstanding consumer credit at credit unions increased by $7 billion in October to $461.6 billion. In September, outstanding consumer credit at credit unions grew by $3.3 billion.

Revolving credit at credit unions was $60.2 billion in October compared to $59.9 billion in September.

Nonrevolving credit jumped by $6.7 billion in September to $401.4 billion.

Read more.

Net Income Tops $10 Billion thru the First 3 Quarters of 2018

The National Credit Union Administration reported that federally insured credit unions (FICUs) reported $10.2 billion in net income thru the first nine months of 2018. This was just below the $10.4 billion in net income recorded for all of 2017.

The industry's return on average asset (ROAA) was 0.96 percent -- this was up from 0.90 percent as of June 2018 and 0.78 percent at the end of 2017.

The improvement in profitability during the third quarter (as a percentage of average assets) was driven by a 5 basis point increase in net interest margin, a 1 basis point increase in fee and other income, and a 3 basis point decline in provisions for loan and lease losses. A 2 basis point increase in operating expenses to 3.12 percent adversely impacted the profitability of credit unions during the quarter.

The median ROAA was 0.60 percent as of September 2018 -- this was up 8 basis points from 0.52 percent as of June 2018.

Net Worth Ratio Increases

The net worth for FICUs was $161.51 billion as of September 2018. The industry's aggregate net worth ratio was 11.21 percent -- this was up 20 basis points from the prior quarter.

Over 98 percent of FICUs (98.33 percent) had a net worth ratio of at least 7 percent, the minimum leverage ratio to be considered well capitalized. Only 23 FICUs had a net worth ratio below 6 percent and no FICU was critically undercapitalized with a net worth ratio below 2 percent.

Loans Grow, While Shares Largely Unchanged

FICUs reported $1.026 trillion in loans as of September 2018. This was up from $1.002 trillion at the end of the second quarter of 2018. Almost all major loan categories grew during the third quarter.

Indirect loans rose during the third quarter from $211.38 billion to $218.94 billion. Approximately 21.34 percent of all loans were indirect loans.

Share and deposit growth stalled in the third quarter. Total shares and deposits were $1.209 trillion as of September 2018. This was just barely above the $1.208 in shares and deposits as of June 2018.

Due to loans growing faster than shares during the third quarter, the loan-to-share ratio rose from 82.98 percent as of June 2018 to 84.91 percent as of September.

To help fund the loan growth, investments and cash at FICUs fell during the third quarter. Cash and short-term investments as a percent of assets declined from 12.19 percent as of June 2018 to 11.38 percent at the end of the third quarter of 2018. The 10-year average for the cash plus short-term investments to assets ratio is 14.69 percent. This might suggest greater scrutiny by regulators of FICUs' liquidity management practices.

Delinquency Rate Unchanged, Net Charge-Off Rates Lower

Delinquent loans rose from $6.7 billion in June to $6.9 billion as of September 30, 2018. The delinquency rate was unchanged between June 2018 and September 2018 at 0.67 percent.

Net charge-offs were $4.2 billion as of September 2018. If annualized, it would equate to $5.6 billion. The net charge-off rate was 0.57 percent. In comparison, the net charge-off rate was 0.60 percent as of June 2018.

Read the Quarterly Credit Union Data Summary.

NCUA Financial Trends in Federally Insured Credit Unions.

Treasury Postal Reform Task Force Says Nyet to Postal Banking

The U.S. Postal Service (USPS) should not move into “postal banking” with new financial services offerings, according to a report issued on December 4 by a Treasury Department task force focused on postal reform.

“Given the USPS’s narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued,” the task force said.

The report instead highlighted areas where USPS could grow revenue without taking on balance sheet risk, such as processing hunting and fishing licenses or renting space to complementary retail establishments.

Both banks and credit unions can agree that the USPS should not be in the business of providing banking services.

The task force was established by President Trump in April 2018.

Read the report.

ABA to NCUA: Appraisal Threshold Proposal Would Create Uneven Playing Field

A recent proposal by the National Credit Union Administration (NCUA) to raise the threshold at which credit unions must obtain appraisals for commercial real estate (CRE) transactions from $250,000 to $1 million would create an unlevel playing field between banks and credit unions, the American Bankers Association (ABA) said in a comment letter to the NCUA today.

The letter was also shared with members of the Federal Financial Institutions Examination Council.

ABA noted that the proposal would “[put] NCUA’s regulatory treatment of credit unions dramatically out-of-step with its sister agencies,” which earlier this year raised the CRE appraisal threshold for banks from $250,000 to $500,000.

ABA stated that it "does not oppose credit unions enjoying the benefit of an increased $500,000 threshold that aligns" with standards recently adopted by other federal banking regulators.

“Two different standards for commercial real estate lending appraisal thresholds or any other real estate lending thresholds, made by what are functionally equivalent lending institutions, would negatively impact prudent risk management practices and undermine local markets,” ABA said. It added that “FFIEC and all participating agencies should uniformly agree to abide by consistent standards, rulemaking and thresholds that are now in jeopardy as a result of this proposal.”

Read ABA's letter.

Regulator Cites CU for Illegally Operating in California, NCUA Is Missing in Action

The California Department of Business Oversight issued a cease and desist order on November 29 against Indian Federal Credit Union (Santa Clara, CA) and Atri Macharla.

The state regulator found that Indian Federal Credit Union was operating in the state without first obtaining a certificate allowing it to operate as a credit union in violation of state law.

The cease and desist order requires Indian Federal Credit Union to stop operating or advertising as a credit union until the credit union has obtained a certificate from the commissioner.

Moreover, Indian Federal Credit Union advertises itself as a federal credit union. But there is no evidence of Indian Federal Credit Union on the National Credit Union Administration's website.

The National Credit Union Administration (NCUA) is the charterer and regulator of federal credit unions.

Also, federal credit unions are required to be insured by the National Credit Union Share Insurance Fund. However, the credit union's website makes no mention to deposit insurance.

So, why hasn't NCUA acted to block this credit union from operating?

Shouldn't NCUA be concerned about a credit union calling itself a federal credit union?

It is possible that NCUA is not aware of this institution calling itself a federal credit union.

But after this commentary, NCUA has no excuse for not acting.

Read the enforcement order.

Lake Michigan CU to Pay $2.45 Million for Bank's Michigan Branch and Deposits

Lake Michigan Credit Union (Grand Rapids, MI) has entered into a purchase and assumption agreement to buy the Rochester Hills (MI) branch of CCF Bank, the subsidiary of Citizens Community Bancorp (Eau Claire, WI).

The purchase and assumption agreement includes approximately $35 million in deposits and approximately $300,000 in fixed assets.

Lake Michigan CU has agreed to pay a 7 percent deposit premium or approximately $2.45 million.

All loans will remain with CCF Bank.

The purchase is subject to regulatory approvals and is expected to close in the second quarter of 2019.

Read more.

Healthy Corporate Governance?

Does your credit union have a healthy corporate governance?

Sarah Moore, Administrator for the Alabama Credit Union Administration, posed the following questions in a November 9 presentation that should be addressed by members of a credit union's Board and supervisory committee regarding healthy corporate governance practices.

• Is the Board performing an evaluation of themselves?
• Does the Board have goals and metrics by which to evaluate the Board performance?
• Does the Board review the mission statement of the credit union annually?
• Do the members of the Board reflect the member base of the credit union, specifically race, gender, age, employer (particularly for SEG groups)?
• Are Board members rewarding themselves through international or luxury training trips or other perks not available to other members of the credit union?
• Are committees, other than Supervisory Committee, acting with specific authority from the board?
• Are committee minutes included in Board packages each month?
• Are committee chairs reporting substantive information to the Board? If there is a “no report” from a committee chair, why?
• Do the bylaws contain term limits for Board members and Supervisory Committee members?
• Do the bylaws contain an age limit in order to run for another term of office?
• Is the Board actively soliciting and recruiting new Board and committee members to run for office?
• Are the bylaws of the credit union up to date with laws and regulations?
• Is the Supervisory Committee actively engaged in audits of the activities of the credit union?
• Is the Supervisory Committee serving as a check on the Board of Directors?
• Are the Board and Supervisory committee reviewing items in enough detail to be an independent check on management?
• Does the Board have a strong conflict of interest policy? Is the policy being adhered to and who is checking to ensure that the policy is adhered to?
• Do Board and Supervisory Committee members maintain their personal finances in good order?

I suspect the Administrator felt the need to discuss these corporate governance issues, because these issues were identified during recent examinations.

Below is a link to her presentation.

View presentation.

Agencies Issue Update on Examination Modernization Project

The Federal Financial Institutions Examination Council (FFIEC) issued a second update on progress made to its Examination Modernization Project.

The update focuses on regulators’ work to tailor examinations based on the risk profiles of individual institutions.

After reviewing and comparing current principles and processes for tailoring community bank and credit union examinations based on risk profile, the agencies committed to issuing reinforcing and clarifying guidance where necessary. This guidance would help ensure that examiners consider the unique risk profile, complexity and business model when developing an examination plan; analyze existing information to identify areas of higher and lower risk; and appropriately tailor document requests based on risk profile, among other things.

Going forward, the issue is how well the regulators execute their plans to tailor examinations to the risk profiles of the individual institutions.

Read more.

NCUSIF: $47.4 Million in Specific Reserves as of September 2018

The September 30, 2018 Preliminary and Unaudited Financial Highlights for the National Credit Union Share Insurance Fund disclosed $47.4 million is specific reserves for natural person credit unions.

General reserves were $108.8 million.

Are these specific reserves associated with the closing of taxi medallion lender LOMTO Federal Credit Union? Or are there other credit unions that the agency has targeted for failure?

Read the report.

NCUA Denies Request on Bids for Two Failed Taxi Medallion Lending CUs

The National Credit Union Administration (NCUA) denied my request for information on bids for failed taxi medallion lenders LOMTO Federal Credit Union and Melrose Credit Union.

Teachers Federal Credit Union assumed the members and most shares as well as some loans and other assets of LOMTO FCU and Melrose CU.

In early October, I contacted NCUA seeking information on the bids for the two failed credit unions.

An NCUA spokesperson replied:

Q: Was Teachers FCU the only bidder for LOMTO? If not, how many bidders were there? If there were multiple bidders, how did Teachers bid compare to others?

A: Decline comment.

Q: Was Teachers FCU the only bidder for Melrose? If not, how many bidders were there? If there were multiple bidders, how did Teachers bid compare to others?

A: Decline comment.

Subsequently, I filed a Freedom of Information Act (FOIA) request seeking written documents, such as a bid summary of winning and losing bids shared with the NCUA Board .

On November 23, NCUA denied my FOIA request citing exemptions at 5 U.S.C. 552(b)(4), (5), (6), and (8).

But why this lack of transparency?

Unlike NCUA, the Federal Deposit Insurance Corporation discloses a bid summary regarding all bids to purchase a failed bank.

It appears that NCUA is abusing FOIA exemptions to deny access to information that another federal agency openly discloses.

Former CEO of Municipal CU Pleads Guilty to Embezzlement

Kam Wong, the former chief executive officer (CEO) and president of Municipal Credit Union (New York, NY), pled guilty in Manhattan federal court on November 19 to embezzling millions of dollars from the credit union.

From 2013 through January 2018, Wong engaged in a long-running multi-faceted scheme to obtain money from the credit union to which he knew he was not entitled and he took steps to conceal what he had done.

Wong pled guilty to one count of embezzlement from a federally insured credit union, which carries a maximum penalty of 30 years in prison.

In addition, as a condition of his plea, Wong also agreed to forfeit at least $9,890,375 and to pay at least $9,890,375 in restitution to the credit union.

Kam Wong is scheduled to be sentenced by Judge Koeltl on April 5, 2019, at 10:00 a.m.

Read the press release.

Credit Union 1 Buys Naming Rights to University Pavilion

Credit Union 1 (Rantoul, IL) bought the naming rights to the pavilion at the University of Illinois at Chicago (UIC).

According to the agreement, Credit Union 1 will pay the university $9.3 million over 15 years for the naming rights to the arena.

The $838 million credit union will also provide $750,000 to support scholarships for students attending UIC.

The arena will be renamed Credit Union 1 Arena.

The agreement needs to be approved by The Board of Trustees of the University of Illinois, which is expected to occur during its January 2019 meeting.

Credit Union 1 is a privately insured credit union operating in Illinois, Indiana, and Nevada.

Read more.

International Training Trips May Signal a Corporate Governance Problem

If your credit union board members are rewarding themselves through international or luxury training trips or other perks that are not available to other members of the credit union, your credit union may have a corporate governance problem.

At least that is the opinion of Sarah Moore, the Administrator of the Alabama Credit Union Administration.

During the November 9, 2018 presentation to the League of Southeastern Credit Unions, Ms. Moore discussed a corporate governance health checklist for credit union boards and supervisory committees.

She posed the following question:

Are Board members rewarding themselves through international or luxury training trips or other perks not available to other members of the credit union?

If your credit union answered yes to this question, this could indicate an unhealthy corporate governance at your credit union.

There is a whole industry catering to the education of credit union leaders and their elected boards.

However, some of these training programs are on luxury cruises or at exotic locations.

For example, the Credit Union National Association's Volunteer Conference will meet in January 2019 at Montego Bay, Jamaica. Educruises is promoting a Seine River Cruise in June of next year or a voyage of the Norwegian fjords in July 2019.

These look like junkets rewarding credit union officials and volunteers.

OIG Investigations Clear NCUA Chairman McWatters

The Office of Inspector General (OIG) of the National Credit Union Administration (NCUA) closed two investigations into NCUA Chairman McWatters with no action taken between April 1 and September 30, 2018.

According to the OIG, it opened a conflict of interest investigation into Chairman McWatters. The complaint alleged that McWatters participated in a vote to rescind the Financial Stability Oversight Committee's Systemically Important Financial Institution designation of American International Group (AIG), while he owned stock and warrants in AIG at the time of the vote. McWatters stated that he believed that his holdings fell under the Office of Government Ethics (OGE) de minimis exemption and he was not required to recuse himself. OGE informed McWatters and the OIG that the exemption only applied to stock holdings, not warrants. McWatters provided information from security lawyers and accountants that warrants are the same as stocks and are publicly traded. The investigation was closed with no action taken against the Chairman.

A second complaint accused McWatters of misuse of NCUA funds for extravagant travel. This included premium air travel and expensive meals. The investigation found that McWatters was reimbursed for alcohol expenses of almost $150 associated with 3 meals. While there was no violation of law, NCUA policy did not permit for the reimbursement of alcohol expenses. NCUA changed its policy after the investigation closed to allow for the reimbursement of alcohol expenses. The OIG also found that the reimbursement of the Chairman for other expenses including premium air travel, UberBlack, and hotels did not violate the agency's policy.

These findings were reported in the agency's Semiannual Report to the Congress.

Read the OIG report.

Texas Trust CU Buys Naming Rights to Epic Theater

Texas Trust Credit Union (Arlington, TX) bought the naming rights to the Epic Theater in the City of Grand Prairie (TX).

The five-year agreement gives Texas Trust naming rights along with signage and advertising opportunities, and more.

The price tag of the five-year sponsorship agreement was not disclosed.

Read more.

Problem CUs Fell During Q3 2018, NCUSIF Liquidation Charges of $743.4 Million

The number of problem credit unions fell during the third quarter of 2018, according to the National Credit Union Administration (NCUA).

At the end of the third quarter of 2018, there were 203 problem credit unions. In comparison, there were 210 problem credit unions at the end of the second quarter of 2018.

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

Total assets and shares (deposits) in problem credit unions fell during the third quarter. Assets in problem credit unions were $11.5 billion at the end of the third quarter compared to $12.9 billion at the end of the second quarter of 2018. Shares in problem credit unions were $10.4 billion as of September 2018 versus $11.8 billion as of June 30, 2018.

NCUA reported that 88 percent of problem credit unions have less than $100 million in assets, while almost 1.5 percent have more than $500 million in assets.

At the end of the third quarter, 0.91 percent of total insured shares were in problem credit unions. As of June 2018, 1.04 percent of total insured shares were in problem credit unions.

In addition, NCUA reported $743.4 million in liquidation charges to the National Credit Union Share Insurance Fund (NCUSIF) due to credit union failures during the third quarter. NCUSIF recaptured $57.4 million in reserves during the third quarter. As a result of the liquidation charge and recapture of reserves, NCUSIF reserve balance was $156.2 million at the end of the third quarter, down from $957 million as of the beginning of the third quarter.

Advia CU to Acquire Illinois Bank

Advia Credit Union (Parchment, MI) has announced that it plan to acquire Golden Eagle Community Bank (Woodstock, IL).

The deal awaits bank shareholder and regulators approvals.

Golden Eagle Community Bank has $155 million in assets and three offices.

When the deal is completed, this will be the third bank acquired by #1.7 billion Advia CU.

The price tag of the deal was not disclosed.

The transaction is expected to be completed in the second quarter of 2019.

Read the press release.

ACSI: Banks and Credit Unions Tie in Customer Satisfaction

Banks match credit unions in consumer satisfaction.

According to the American Customer Satisfaction Index (ACSI®), banks and credit unions both scored an 81. Regional and community banks had a score of 84.

Credit unions saw a dip in customer satisfaction of 1.2 percent year over year, while banks were unchanged.

ACSI found that credit unions offered better in-person customer service than banks, but not by much. Credit unions scored an 89, while banks scored 88.

Credit unions also led banks in speed of service at branches (88 to 85) and call center satisfaction (84 to 81).

However, banking mobile apps were superior in quality (86 to 85) and more reliable (85 to 83).

Read the press release.

Taxi Medallion Loans Wreck Progressive CU

Defaulting taxi medallion loans continue to wreck the financial performance of Progressive Credit Union (New York, NY).

During the third quarter of 2018, the credit union reported a 9.7 percent decline in its assets to $382.8 million. Year-over-year, assets at the credit union fell by almost 23.7 percent.

Progressive CU posted a loss of $53.3 million for the first three quarters of 2018. During the third quarter of 2018, the credit union posted a loss of $35.3 million.

The credit union increased provision for loan and lease losses during the third quarter of 2018 by almost $26.6 million. As of September 2018, provision for loan and lease losses was $46.8 million.

Due to the third quarter loss, the credit union's net worth fell from $80.5 million as of June 2018 to $44.5 million as of September. Between June and September, the credit union's net worth ratio tumbled from 19 percent to 11.63 percent.

Delinquent loans increased by 14.3 percent during the third quarter to almost $98 million. As of September 30, the credit union's delinquency rate was 24.75 percent.

Also, early delinquencies (30 to 59 days past due) rose by 32.9 percent during the most recent quarter to approximately $15.8 million.

As of September 2018, $39.1 million of commercial loans not secured by real estate, presumably taxi medallion loans, were 60 days or more past due. This means that 13.69 percent of the credit union's $285.8 million in commercial loans not secured by real estate were delinquent.

In addition, the credit union reported $133.2 million in troubled debt restructured non-real estate secured commercial loans, of which $45.3 million were delinquent. This indicates that about 34 percent of these loans were 60 days or more past due.

The credit union recorded as of September 2018 year-to-date net charge-offs of almost $34.4 million. Almost all of the net charge-offs were commercial loans not secured by real estate.

Allowance for loan and lease losses increased by 25.5 percent during the third quarter to $108.5 million at the end of the third quarter. The credit union's coverage ratio (allowance for loan and lease losses to delinquent loans) was 110.75 percent.

Interestingly, the credit union reported a large increase in uninsured non-member deposits compared to a year ago. On September 2018, uninsured non-member deposits were $40.3 million, up from $10 a year earlier.

Furthermore, total non-member deposits were almost $84.6 million as of the most recent call report. Non-member deposits were approximately 32.5 percent of all shares and deposits at Progressive Credit Union.

Progressive is the last remaining major New York City taxi medallion lending credit union. Melrose CU and LOMTO FCU were closed this year by the National Credit Union Administration and Montauk CU was merged into Bethpage FCU in 2016.

Report Identifies Top Management and Performance Challenges Facing Federal Financial Regulators

The Council of Inspectors General on Financial Oversight (CIGfO) issued a September 2018 report on top management and performance challenges facing financial regulators.

Cybersecurity was the most frequently identified cross-cutting challenge among CIGFO members. This included risks to the security of information technology (IT) systems and information at financial institutions, those institutions’ third-party service providers, and financial regulatory organizations. For example, the National Credit Union Administration (NCUA) Inspector General noted that "cyber threats continue to pose significant dangers to the stability and soundness of the credit union industry; and credit unions and other small financial institutions are increasingly the target of cyberattacks."

The report also stated that financial-sector regulatory organizations have supervisory responsibilities to identify and mitigate potential systemic problems in the financial sector. With respect to credit unions, The report noted that the NCUA faces several challenges that threaten the safety and soundness of the credit union system and the National Credit Union Share Insurance Fund, including growing disparity in the performance of large and small credit unions specific to loan, net worth, and membership growth; increasing competition in the financial services industry; and continuing consolidation among depository institutions.

Managing human capital is another key challenge facing federal regulators. Federal financial regulators noted that a large percentage of their workforce can retire in the next couple of years. The Office of Personnel Management estimated that 34.3 percent of all Federal employees will be eligible to retire by fiscal year 2020. This pending rollover in the work force will require the “knowledge transfer” from the more experienced personnel to the newer staff to ensure that the federal agencies are able to fulfill their mission critical functions.

Other challenges identified in the report involved the sharing of threat information among government agencies and throughout the entire financial sector and governing risk management and internal control processes to fulfill the agencies' missions and provide stewardship of public resources.

CIGFO members include the Inspectors General of the Department of the Treasury, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Department of Housing and Urban Development, the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection, the Federal Housing Finance Agency, the National Credit Union Administration, the Securities and Exchange Commission, and the Special Inspector General for the Troubled Asset Relief Program.

Read the report.

Judge Rules that Digital FCU Overdraft Lawsuit Can Go Forward

Reuters is reporting that a federal judge ruled that a class action lawsuit can proceed against Digital Federal Credit Union (Marlborough, MA) over its overdraft practices.

The class action lawsuit accuses the credit union of charging overdraft fees to thousands of members based on an artificially low “available balance” when the members had ample money in their accounts.

The judge allowed counts dealing with breach of contract, breach of the implied duty of good faith and fair dealing, and violation of the Electronic Funds Transfer Act (only for claims that occurred on or after June 15, 2017) to stand, while dismissing the count dealing with unjust enrichment.

Read the story.

Read the complaint.

Read the opinion.

Consumer Credit at CUs Grows at Slower Pace in September

The growth of consumer credit at credit unions slowed in September, according to the Federal Reserve.

Outstanding consumer credit at credit unions was $454.6 billion in September, up from $451.3 billion in August.

Revolving credit at credit unions in September increased by about $100 million to $59.9 billion.

Nonrevolving credit rose from $391.5 billion in August to $394.7 billion in September.

Read the G.19 report.

Report Provides Snapshot of CU Remittance Transfers

Credit unions are a small share of the remittance transfer market, according to a recent report by the Bureau of Consumer Financial Protection (Bureau).

The report found that credit unions in 2017 conducted 0.2 percent of remittance transfers and 2.8 percent of the dollar volume based on the average dollar value of remittance transfers by credit unions in the industry survey. Credit unions reported 762,609 remittance transfers in 2017.

The Bureau found that 1,444 credit unions in 2017 offer remittance transfers, up from 863 credit union in 2009.

The number of credit unions that transferred more than 100 remittances in 2017 was 330. In 2014, only 280 credit unions transferred more than 100 remittances, which was down from 372 credit union in 2013. Credit unions that make more than 100 remittance transfers per year are subject to the Bureau's Remittance Rule.

Credit unions that offer and transfer more than 100 remittances are typically larger than credit unions that offer but transfer 100 or fewer remittances. In every year, the median asset size of credit unions that offered and transferred more than 100 remittances exceeded $125 million versus under $20 million for credit unions that offered, but did not transfer 100 remittances.

In 2017, the top 10 credit unions transferred 63 percent of all remittances by credit unions and credit unions that transferred more than 2,000 remittances accounted for 78 percent of all credit union transfers.

Read the report.

Michigan Regulator Approves CUSO to Provide Trust Services

The Michigan Department of Insurance and Financial Services granted regulatory approval to the formation of limited purpose bank, Credit Union Trust, to provide trust services to credit union members.

Credit Union Trust plans to open late in the first quarter of 2019 and will be headquartered in Farmington Hills, Michigan.

Credit Union Trust will operate as both a credit union service organization (CUSO) and a Michigan limited purpose bank.

Prior to a 2016 change in Michigan law, credit unions could not directly offer fiduciary services.

The organizers of the CUSO are seven credit unions -- Alpena Alcona Area Credit Union (Alpena, MI), Community Choice Credit Union (Farmington Hills, MI), ELGA Credit Union (Burton, MI), Frankenmuth Credit Union (Frankenmuth, MI), Honor Credit Union (Berrien Springs, MI), Members First Credit Union (Midland, MI), and Team One Credit Union (Saginaw, MI).

Read more.

Is NCUA AWOL in Examining CUs for SCRA Compliance?

Is the National Credit Union Administration (NCUA) absent without leave (AWOL) with regard to ensuring credit unions are complying with the Servicemembers Civil Relief Act (SCRA)?

On November 2, Hudson Valley Federal Credit Union (Poughkeepsie, NY) settled allegations that it violated the SCRA by repossessing vehicles owned by SCRA-protected service members without first obtaining the required court orders.

But what I found of interest in the press release was that prior to August 2014 Hudson Valley FCU did not have any written policies and procedures that address SCRA's protections against non-judicial auto repossessions.

You would have expected that one of the largest credit unions in the country would have had in place policies and procedures prior to August 2014 to ensure that the credit union was complying with the law.

Also, it is notable that NCUA was not part of this settlement. According to the press release, the Department of Justice launched its investigation after learning about two private SCRA lawsuits filed against the credit union.

This begs the question as to why there was not a referral from NCUA to the Department of Justice regarding these SCRA violations.

The evidence suggests that NCUA has not historically examine federal credit unions for compliance with SCRA. A July 2012 Government Accountability Office (GAO) report found that between 2007 and 2011 NCUA only examined 0.02 percent of federal credit unions for SCRA compliance.

But a NCUA official told GAO that the agency would start to review credit union lending practices to ensure compliance with SCRA.

It is possible NCUA examined Hudson Valley FCU and recommended remedial actions to address the credit union's SCRA issues.

To determine if NCUA has followed through on its pledge to GAO, the NCUA Inspector General should launch an audit reviewing NCUA's examination of credit unions for SCRA compliance.

Scott CU Sponsors NHL's St. Louis Blues

Scott Credit Union (Edwardsville, IL) and the St. Louis Blues announced a five-year sponsorship agreement.

Scott Credit Union’s agreement with the Blues includes naming rights to the new exclusive Rinkside Club & Pub 67 inside of the Enterprise Center.

The agreement also includes signage for the credit union in the arena and in concourse areas during events.

The price tag of the sponsorship deal was not disclosed.

Read the press release.

Several NJ CUs Feel the Impact of Taxi Medallion Loans

The disruption from ride sharing companies of the taxi industry continues to rile the performance of several New Jersey credit unions struggling with loans that financed taxi medallions.

Aspire Federal Credit Union (Clark, NJ)

Aspire Federal Credit Union reported a year-to-date loss of $1.5 million as of September 2018. The credit union posted a loss of $313,741 during the third quarter.

The third quarter loss arose from an increase in provision for loan and lease losses by $795,101 during the quarter.

Due to the third quarter loss, Aspire's net worth fell from $10.26 million as of June 2018 to $9.94 million as of September 2018.

However despite the decline in net worth, Aspire's net worth ratio edged higher by 13 basis points during the third quarter to 6.77 percent. The increase in the net worth ratio was due to $7.67 million decline in assets during the third quarter to $146.8 million. Aspire is adequately capitalized as of September 2018.

The credit union reported a 4.6 percent increase in delinquent loans in the third quarter to almost $5.8 million. As of September 2018, the overall delinquency rate was 5.07 percent, a 31 basis point increase during the quarter.

More than half (51.6 percent) of the delinquent loans were commercial loans not secured by real estate, presumably taxi medallion loans. As of September 2018, almost $3 million in commercial loans not secured by real estate were 60 days or more past due. In other words, 35.70 percent of these loans were delinquent.

Troubled debt restructured (TDR) commercial loans not secured by real estate were $2.7 million at the end of September 2018, a decrease by 22 percent during the quarter. As of September, 20.41 percent of TDR commercial loans were in default.

During the third quarter of 2018, net charge-offs rose by $1.4 million to slightly less than $4.2 million, of which $2.6 million of these net charge-offs were non-real estate secured commercial loans. As of September 2018, the credit union's net charge-off rate was 4.67 percent.

Allowance for loan and lease losses fell by 8.4 percent during the third quarter to $6.7 million. Despite the decline in loan loss reserves, the credit union remained well-reserved with a coverage ratio of 116.91 percent.

United Teletech Financial Federal Credit Union (Tinton Falls, NJ)

Defaulting taxi medallion participation loans at United Teletech Financial FCU caused delinquent loans to surge by almost 72 percent during the third quarter of 2018.

There were $15.9 million in loans that were 60 days or more past due, as of September 2018. This is up from nearly $9.3 million in delinquent loans at the end of June 2018.

The overall delinquency rate between the second and third quarter went from 3.57 percent to 6.28 percent.

Almost 67 percent of all delinquent loans were nonmember commercial loans not secured by real estate, presumably these loans were to finance taxi medallion loans. During the third quarter 2018, delinquent nonmember commercial loans not secured by real estate surged by 123.3 percent to $10.7 million.

The percent of nonmember commercial loans not secured by real estate that were delinquent was 46.18 percent. The credit union reported $23.3 million in nonmember commercial loans not secured by real estate.

The credit union also reported $13 million in troubled debt restructured (TDR) commercial loans not real estate secured. Almost 45 percent of these TDR commercial loans were 60 days or more past due.

Net charge-offs were nearly $2.8 million as of September 2018, up from $1.7 million in June. About one-third of the net charge-offs were participations in commercial loans not secured by real estate.

While the credit union recorded a profit during the third quarter, the credit union had a year-to-date loss of $755,864 as of September 2018.

As a result of the third quarter profit, net worth increased by 3.1 percent during the third quarter to $22.4 million. The credit union's net worth ratio rose by 21 basis points to 7.22 percent at the end of September 2018.

The credit union saw a 3.1 percent decline in its allowance for loan and lease losses (ALLL) to $11.8 million. The combination of a sharp increase in delinquencies coupled with a decline in its ALLL caused the credit union's coverage ratio to fall from 131.89 percent as of June 2018 to 74.43 percent as of September 2018.

First Financial Federal Credit Union (Freehold, NJ)

First Financial FCU reported a year-to-date loss of $1.9 million as of September 2018. During the third quarter, the credit union reported a loss of almost $100 thousand.

Due to the third quarter loss, the credit union's net worth fell by 1.1 percent during the quarter to $9.65 million. Despite the decline in net worth, the credit union recorded an improvement in its net worth ratio from 5.10 percent as of June 2018 to 5.44 percent as of September 2018. The improvement in the net worth ratio arose from a $14.1 million reduction in assets during the third quarter 2018.

Over the last year, the credit union saw a 44.5 percent reduction in nonmember commercial loans not secured by real estate to $8.7 million as of September 2018. Presumably, these commercial loans not secured by real estate were to participate in tax medallion financing.

The $177 million credit union reported a decline in delinquencies during the third quarter. Delinquent loans fell by 9.4 percent during the most recent quarter to $4.8 million. As a result, the percent of loans that were 60 days or more past due fell by 28 basis points during the third quarter to 3.68 percent.

Delinquent nonmember commercial loans not secured by real estate tumbled by 28 percent in the latest quarter to $1.47 million at the end of the third quarter. This means 16.80 percent of these nonmember commercial loans were delinquent.

During the third quarter of 2018, troubled debt restructured commercial loans not secured by real estate increased by 19 percent to $7.1 million. Almost 21 percent of TDR commercial loans not secured by real estate were delinquent.

Net charge-offs as of September 2018 were $2.5 million, up 225 percent from the prior quarter. Almost $1.85 million in delinquent loans were nonmember commercial participation loans.

Due to net charge-offs increasing faster than provision for loan and lease losses during the third quarter, allowance for loan and lease losses fell to $3.5 million on September 30 from $4.9 million on June 30. Over the same time period, the credit union's coverage ratio declined from 92.61 percent to 73.40 percent.

Hudson Valley FCU to Pay $95,000 for Illegally Repossessing Servicemembers' Vehicles

Hudson Valley Federal Credit Union (Poughkeepsie, NY) has agreed to pay $95,000 to resolve allegations that it violated the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles owned by seven SCRA-protected service members without first obtaining the required court orders.

An investigation found that prior to August 2014, Hudson Valley FCU did not have any written policies or procedures that addressed the SCRA’s protections against non-judicial auto repossessions.

Under the agreement, Hudson Valley FCU has agreed to provide $10,000 in compensation to each of the six affected service members, plus any lost equity in the vehicle with interest. An additional service member, whose vehicle was repossessed but returned within 24 hours, will receive $5,000. Hudson Valley has also taken steps to repair the credit of the affected service members.

The credit union will pay a civil penalty of $30,000 to the United States.

Also, the credit union has committed to protecting service members’ rights in the future.

Read the press release.

203 Low-Income CUs Awarded $2 Million in Grants

The National Credit Union Administration announced that it has awarded $2 million in grants to help 203 low-income credit unions improve digital services and security, increase outreach to underserved communities, and train employees.

Grant awards ranged from $1,300 to $20,000.

The NCUA made awards in three categories:

• Digital services and security: 141 grants totaling $1,251,670;
• Leadership development: 40 grants totaling $350,760; and
• Underserved outreach: 22 grants totaling $397,570.

Some of these grants went to large credit unions, including $2.1 billion GTE FCU (Tampa, FL), $2.3 billion Nusenda FCU (Albuquerque, NM), $628 million Notre Dame (Notre Dame, IN), and $926 million Park Community CU (Louisville, KY).

However, is the awarding of grants to large credit unions, which probably have the resources to fund these initiatives on their own, the best use of these grants?

Read the press release.

Navy FCU's Earnings Top $1 Billion

Navy Federal Credit Union (Vienna, VA) is raking in the money through the first 3 quarters of 2018.

Navy FCU reported a year-to-date net income of $1.1 billion through September 30, 2018. A year ago, the credit union reported net income of $978.5 million.

Below is the Statement of Income for the $95 billion credit union (click on image to enlarge).

Evansville Teachers FCU Acquires Small Louisville Bank

Evansville Teachers Federal Credit Union (Evansville, IN) has completed its acquisition of American Founders Bank in Louisville (KY), according to Louisville Business Journal.

The deal closed on November 1 after receiving regulatory approval.

Terms of the deal were not disclosed.

Read the story.

Banks: Credit Unions Are the Chief Nonbank Competitor for Small Business Loans

A survey on Small Business Lending by the Federal Deposit Corporation found that credit unions were the primary nonbank competitor to banks for small business loans.

According to survey responses, both small and large banks (52.3 and 55.0 percent) reported frequent competition with credit unions with regard to small business lending.

The report defined banks with less than $10 billion in assets as small, and banks with at least $10 billion in assets as large.

According to the report, small banks were more concerned than large banks about credit union competition.

Nearly one-third (34.1 percent) of small banks viewed credit unions as a top three competitor, compared with only 12.2 percent of large banks.

Among small banks, those with less than $250 million in assets were about twice as likely as those with $1 billion to $10 billion in assets to view credit unions as a top three competitor (39.0 percent compared with 19.1 percent).

Only 4.5 percent of small banks stated that a credit union was their number one competitor with respect to small business loans.

For banks that identify credit unions as their number one competitor, the top perceived advantages of credit unions dealt with pricing (85.1 percent) and, to a lesser extent, other elements of loan structure. The report noted that the credit union pricing advantage arises from their preferential tax status.

Read the report.

North Island Buys Naming Rights to San Diego Amphitheatre

North Island Credit Union (San Diego, CA) bought the naming rights to San Diego's largest outdoor venue.

The venue will change its name immediately from Mattress Firm Amphitheatre to North Island Credit Union Amphitheatre.

The amphitheatre seats almost 20,000 people.

The naming rights deal is for 10-years.

The price tag of the naming rights agreement was not disclosed.

Read the story.

Taxi Medallion Participation Loans Contribute to YTD Loss of $4.1 Million at Quorum FCU

Taxi medallion participation loans continue to adversely impact the financial performance of Quorum Federal Credit Union (Purchase, NY).

Quorum Federal Credit Union reported a year-to-date (YTD) loss of $4.1 million thru the end of the third quarter of 2018. The loss is up from $493,521 as of June 2018.

The third quarter loss was driven by a large increase in provision for loan and lease losses, which increased by $6.5 million during the third quarter to $15.24 million.

Delinquent loans increased by 6.3 percent during the third quarter to almost $43.9 million at the end of September 2018. As of September 30, 6.09 percent of the credit union's loans were 60 days or more past due.

Almost 71 percent of the delinquent loans ($31 million) were nonmember commercial loans not secured by real estate, which presumably were taxi medallion participation loans.

The credit union reported 58.51 percent of these nonmember commercial loans not secured by real estate were delinquent.

Quorum further reported that troubled debt restructured (TDR) commercial loans not secured by real estate of almost $23.7 million at the end of the third quarter of 2018. Approximately 34.4 percent of the TDR commercial loans were 60 days or more past due.

The credit union reported net charge-offs of $11.4 million as of September 2018, up from $10 million as of June 2018. As of September 2018, net charge-offs from commercial loans not secured by real estate were $6.8 million, of which $5.3 were TDR commercial loans.

Due to the third quarter loss of almost $3.6 million, the credit union's net worth fell to $63.2 million. Quorum's net worth ratio fell by 44 basis points during the third quarter to 7.61 percent, but was only down 4 basis points from a year ago.

However, the increase in provision for loan and lease losses caused the credit union's allowance for loan and lease losses to grow to almost $38 million, up from $32.9 million as of June 2018. As a result, the coverage ratio rose to 86.56 percent as of September 2018 from 79.63 percent on June 30, 2018.

Employees Raise Concerns About PenFed's AML Program

The Wall Street Journal is reporting that employees at Pentagon Federal Credit Union (McLean, VA) reported to executives and regulators concerns about the credit union's anti-money laundering (AML) program.

"The concerns raised about Pentagon Federal Credit Union in 2016 and 2017 included understaffing, gaps in reporting of potentially suspicious transactions to the government, insufficient monitoring of wire transfers, a lack of anti-money-laundering training for senior leaders and inadequate scrutiny of potentially high-risk customers."

However, information obtained by the Wall Street Journal does not provide any evidence of money laundering by the credit union's members.

Pentagon Federal Credit Union (PenFed) told the Wall Street Journal that the allegations were false; but the credit union has made changes to its AML program, including reorganizing management, hiring more staff, adopting new policies and investing in suspicious-activity detection technology.

The article also states that PenFed entered into a document of resolution with the National Credit Union Administration to bolster its AML program.

Read the story (subscription required).

Texas CU Regulator: Complaints Up Almost 20 Percent in FY 2018

The Texas Credit Union Department is reporting that there were 347 complaints against credit unions for fiscal year (FY) 2018. This is up almost 20 percent compared to fiscal year 2017.

The following chart identifies the top complaints received in fiscal year 2018.

Other frequently cited complaints included account/loan balances, collections, electronic funds transfers, hold on checks/accounts, closed or frozen accounts, vehicle title issues, billing disputes, and the purchase of collateral protection insurance for loans.

The Texas regulator noted that credit unions should work with their members to resolve issues before they become complaints.

Read the Department Newsletter.

Marriot Employees FCU Sued for Violating TILA

A lawsuit, seeking class action status, is accusing Marriott Employees Federal Credit Union (Bethesda, MD) of violating the Truth in Lending Act (TILA).

The lawsuit was filed in United States District Court for the Eastern District of Pennsylvania.

This lawsuit comes several weeks after an article in the New York Times scrutinized Marriott Employees FCU's fee practices.

At issue in the lawsuit is the credit union's pattern and practice associated with mini-loans made to its members. These mini-loans are not Payday Alternative Loans authorized by the National Credit Union Administration.

The class members allege that loan charges were not fully disclosed.

By not providing a full picture of the costs associated with taking out the loan, the workers claim in the lawsuit that the credit union is violating the Truth in Lending Act.

Read the complaint.

An Examination of Fee Income, June 2018

A recent article in the New York Times looked at the increased reliance on fee income by credit unions.

As of June 2018, half of credit unions with at least $100 million in assets reported a fee income to interest income ratio of at least 18.3 cents in fee income to every dollar in interest income.

Three credit unions reported having a fee income to interest income ratio in excess of 100 percent. These 3 credit unions were St. Louis Community Credit Union (St. Louis, MO) at 156.9 percent, Geovista Federal Credit Union (Hinesville, GA) at 110.7 percent, and First South Financial Credit Union (Bartlett, TN) at 107.9 percent.

The median fee income to interest income ratio by asset size grouping appears to be inversely related to the size of the credit unions.

In addition, the median fee income at credit unions with at least $100 million in assets was $74.75 per member (mid-year data was annualized).

There were 418 credit unions with at least $100 million in assets reporting a fee income per member in excess of $100 (data annualized). Twenty-six of these credit unions had fee income per member of at least $200.

The following table lists the 10 credit unions with the highest fee income per member.

Once again, there is an inverse relationship between fee income per member and the asset size of the credit union.

For example, median fee income per member was $41.66 for credit unions with at least $10 billion in assets, while median fee income per member for credit unions with between $100 million and $249.99 million was $74.31.

Michigan CUs May Invest without Limitation in Obligations of GSEs

The Michigan Department of Insurance and Financial Services issued an order authorizing all Michigan-state chartered credit unions to invest, without limitation, in the obligations of government sponsored enterprises (GSEs) as long as it is in a safe and sound manner.

GSEs include Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Federal Home Loan Banks (FHLBs), and entities in the federally-chartered Farm Credit System (FCS).

Dow Chemical Employees Credit Union requested a decision from the Director.

The Director found that state law limited a Michigan chartered credit union's investment in the debt obligations of Fannie Mae, Freddie Mac, FHLBs, and FCS up to 25 percent of a credit union's net worth, because these obligations are not insured or guaranteed by the United States government or an agency of the United States, or a state or local government.

However, the Director found that Michigan chartered credit unions compete with federally-chartered credit unions and Michigan chartered non-credit union depositories, which have the authority to invest in these obligations without limitation. This places Michigan chartered credit unions at a competitive disadvantage.

The Director concluded that by permitting Michigan chartered credit unions to exercise these expanded powers that are available to other competitors will allow state chartered credit unions to compete more effectively and will ensure parity among all credit unions operating in Michigan.

Read the order.

Co-borrowers Need to Be Members

The Wisconsin Office of Credit Unions on September 18 issued a letter to Wisconsin state chartered credit unions clarifying that a co-borrower on a loan must be a member.

The credit union regulator wrote that it realizes that "many credit unions have loans with co-borrowers that are not members."

However, the state regulator pointed out that Wisconsin law limits loans to only members -- Wisconsin Statute 186.098 (1) and Wisconsin Statute 186.113 (13).

The regulator wrote that credit unions will not be required to review their existing loans to ensure all borrowers are members; but going forward, all credit unions must only grant loans to members.

The letter noted that a co-signer is not required to be a member; because a co-signer is a guarantor of a loan, not a borrower.

The regulator stated that credit unions will be examined to ensure their compliance with the statutes.

Read the letter.

NCUA Delays Effective Date of Risk-Based Capital Rule, Raises Asset Threshold for Complex CU

The National Credit Union Administration (NCUA) Board approved on October 18 a supplemental final rule delaying the effective date of the agency's risk-based capital rule and raising the asset threshold for defining a complex credit union.

The supplemental final rule will move the effective date of the risk-based capital rule approved in October 2015 from January 1, 2019 to January 1, 2020.

In addition, the rule will raise the current $100 million asset threshold for defining a complex credit union to $500 million.

According to NCUA staff analysis, the change in the complex credit union definition will exempt an additional 1,026 federally insured credit unions from the risk-based capital rule.

NCUA stated 531 credit unions would be subject to the agency's risk-based capital rule.

A vast majority (98.7 percent) of federally insured credit unions would have a risk-based capital ratio in excess of 10 percent, the minimum requirement to be well-capitalized. Only 7 credit unions will fall short of the 10 percent risk-based capital ratio.

The following graph reports on the distribution of complex credit unions by risk-based capital ratios.

Read the press release.

CULAC to Spend $1.8 Million for Vulnerable Incumbents

The political action committee for the Credit Union National Association will spend $1.8 million in independent expenditures supporting vulnerable incumbent members of Congress, according to The Hill.

An independent expenditure is a political campaign communication that expressly advocates for the election or defeat of a clearly identified candidate that is not made in cooperation, consultation or concert with or at the request or suggestion of a candidate, candidate's authorized committee or political party.

The Credit Union Legislative Action Committee (CULAC) has bought digital, radio and mail ads backing vulnerable Democratic Senators Jon Tester (MT) and Joe Donnelly (IN) and Republican Representatives Pete Sessions (TX) and Steve Chabot (OH).

All four of these members of Congress have championed legislation supported by credit unions.

For example, CULAC will spend $525,000 on digital ads and direct mail supporting Donnelly.

The Hill mentions other candidates that are being supported by CULAC.

Read the article.

Read the press release with links to ads.

Township Proposes Property Tax Exemption for Construction of New CU HQ

West Chester Township (OH) Trustees voted on October 9th to recommend to the Butler County Board of Commissioners an agreement to give Kemba Credit Union (West Chester, OH) a 75 percent property tax exemption on a new corporate headquarters for 7 years.

Kemba applied for the property tax exemption under the Ohio Enterprise Zone Program.

Kemba is proposing to build a 90,000-square-foot corporate headquarters in the township on 7 acres of undeveloped land it purchased in August near its current headquarter.

Read the story.

Colorado Regulator Approves Expansion in Ent's Community Charter

The Gazette is reporting that the Colorado Division of Financial Services approved the addition of six counties to the field of membership of Ent Credit Union (Colorado Springs, CO).

The approval adds Adams, Weld, Boulder, Broomfield, Elbert and Larimer counties to the credit union's service area.

The addition of the six counties increases Ent’s potential membership base by 1.57 million people.

The credit union's service area encompasses 14 Colorado counties with more than 4.5 million people.

Read the story.

NY Times: Employees of Modest Means Struggle with CU Fees

The New York Times is reporting how low wage Marriott employees are struggling with credit union fees.

The story noted how one employee making about $30,000 per year spent almost $2,000 on credit union fees. This employee was nickel-and-dimed by minimum-balance fees, excess-transaction fees, automatic money-transfer fees, and occasional overdraft fees charged by Marriott Employees' Federal Credit Union (Bethesda, MD).

The New York Times pointed out that in recent decades credit unions have turned to fee income to replace interest income due to falling interest rates on loans.

"Over the past quarter-century, the average value of the fees collected for every dollar of interest income has risen to nearly 17 cents, from just under 7 cents."

Marriot Employees' FCU is an outlier as it earned 52 cents in fee income for every dollar of interest income. But Marriott Employees' FCU is not alone as the article names several other credit unions with high fee income to interest income ratios.

The article further argues that fee income of $94 per member at the credit union is higher than at similarly sized credit unions.

The article also stated that Marriott Employees' Federal Credit Union is a good deal for affluent Marriott employees, as these fees subsidize favorable loan rates for financially well-off members.

Read the article.

Two CUs Sued over Overdraft Practices

Two credit unions are being sued over improper overdraft practices.

The complaints allege that Digital Federal Credit Union (Marlborough, MA) and Envision Credit Union (Tallahassee, FL) charged overdraft fees even though accounts had enough funds to cover the transactions.

Both credit unions are alleged to engage in practices designed to maximize their overdraft revenues. For example, the complaint against Envision CU claims that transactions were posted in an order designed to maximize the number of overdraft fees charged to consumers. Envision’s Membership and Account Agreement allegedly did not include language addressing the transaction posting order, the lawsuit claims the opt-in disclosures were misrepresentative of the credit union's overdraft policies.

Both credit unions are also accused of violating Electronic Fund Transfers Act (Regulation E) by charging overdraft fees on ATM and nonrecurring transactions.

Both lawsuits are seeking class status.

Read the Digital FCU complaint.

Read Envision CU complaint.

NCUA Liquidates Radio, Television and Communication FCU

The National Credit Union Administration (NCUA) on October 12 liquidated Radio, Television and Communication Federal Credit Union of Staten Island, New York.

Palisades Federal Credit Union of Pearl River, New York, immediately assumed most of Radio, Television and Communication Federal Credit Union’s assets and all members, shares, and loans.

The NCUA made the decision to liquidate Radio, Television and Communication Federal Credit Union and discontinue its operations after determining the credit union was insolvent with no prospect for restoring viable operations on its own.

The credit union posted losses of $263 thousand for 2017 and $75,355 thru mid-year 2018.

At the time of liquidation and subsequent purchase by Palisades Federal Credit Union, Radio, Television and Communication Federal Credit Union served 416 members and had assets of $3 million, according to its most recent Call Report. Chartered in 1964, Radio, Television and Communication Federal Credit Union served various groups in New York.

Radio, Television and Communication Federal Credit Union is the seventh federally insured credit union liquidation in 2018 and the third credit union headquartered in New York closed this year.

Read the press release.

Community Banks View CUs as Primary Competitor for Consumer Loans

Community banks view credit unions as their primary competitor for consumer loans, according to a survey.

The survey was conducted by the Federal Reserve and the Conference of State Bank Supervisors.

The survey found that 41.3 percent of community banks stated that credit unions are currently their primary competitor for consumer loans. Survey respondents believe credit unions will in the future be their primary competitor for consumer loans (35.6 percent).

With regard to mortgage loans, 13.5 percent of community banks identified credit unions as their current primary competitor. In the future, 13 percent of community banks expect credit unions to be their primary competitor.

Only 5.5 percent of community banks view credit unions as a primary competitor for small business loans. However, the expectations is for competition from credit unions in small business lending to grow as 10.7 percent identified credit unions as their primary future competitors.

Only 3.3 percent of community banks identify credit unions as their primary competitor for commercial real estate loans. In the future, 6.9 percent of community banks believe credit unions will be their primary competitor for commercial real estate loans.

With regard to agricultural loans, banks don't view credit unions as a primary competitor in the present or the future.

Read the survey report.

Checking Account Balances Per Account at CUs Reach Historic High

A report by Moebs $ervices found that checking account balances per account at credit unions reached historic highs.

The Moebs Checking Study found that consumers at banks reduced checking balances by 1.8 percent for the 12 months ending June 2018, while members at credit unions increasing their checking balances 3.0 percent. Thrift customers saw a 20.7 percent increase in checking account balances.

As of June 2018, checking account balances per account at banks were $4,019. For credit unions and thrifts, balances per account were $2,837 and $2,374, respectively.

Moebs noted that members are warehousing their money at credit unions, as credit unions are more likely to offer free checking relative to banks. Also, fees on credit union checking accounts are lower, especially overdraft fees.

Texas CU Regulator Warns CUs about Indirect Auto Loans

The Texas Credit Union Department in September cautioned state-chartered credit unions about indirect auto lending programs.

According to the the Texas Credit Union Department, there has seen a steady increase in indirect auto lending by credit unions over the past few years.

While the regulator notes that indirect lending programs can benefit the credit union by growing its auto loan portfolio, these programs require specialized knowledge and skills to be successful.

The state regulator wrote that before starting an indirect auto loan program, a credit union's officials and management should determine whether indirect lending program is consistent with the credit union’s overall business strategies and risk tolerances.

The Texas credit union regulator stated that a credit union needs to perform adequate due diligence of the dealers involved in the program.

A credit union needs to develop and implement proper internal controls to monitor the overall performance of these programs. "Absent adequate internal controls, credit unions may be assuming significant credit risk and exposure to losses that could create safety and soundness implications."

According to the Texas Credit Union Department, its "examiners will ... carefully review the quality of loan underwriting, the overall credit risk of the portfolio, collateral values, title work, internal controls, and the credit union’s due diligence of its dealer participants."

Furthermore, with the recent increase in interest rates, a credit union should weigh the risk/reward of indirect loan yields versus risk-free investments yields. The state regulator commented that a rapid expansion "in a competitively priced indirect auto loan program could be detrimental to earnings."

Read the September Bulletin.

Landmark CU Settles Overdraft Class Action Lawsuit

Landmark Credit Union (New Berlin, WI) settled a class action lawsuit over the credit union's overdraft practices.

Danell Behrens filed a class action overdraft fees lawsuit in February 2017 against Landmark Credit Union, alleging the credit union charged its members more than $2 million in overdraft fees, in violation of the Electronic Fund Transfer Act (ETFA) and the credit union’s own overdraft program contract.

According to analysis, there were 14,286 members of Landmark that were assessed at least one overdraft fee between February 9, 2011 and February 28, 2017 when they had sufficient funds to cover the transaction (first class). These overdraft fees totaled $1,576,955.

The second class had 6,020 credit union members that were assessed at least one overdraft fee for an ATM or debit card transaction between February 9, 2016 and February 28, 2017. These overdraft fees totaled $652,410.

After accounting for overlaps, improper overdraft fees totaled almost $2.1 million.

As part of the settlement agreement, Landmark Credit Union has agreed to refund some of those fees and change its overdraft practices.

Specifically, Landmark Credit Union will pay $950,000 into a settlement fund.

Landmark will change its overdraft assessment policy so that it charges overdraft fees using the available balance method. This change will last at least 3 years. It is estimated that class members will save an estimated $385,000 per year.

Also, Landmark will waive $10,000 in assessed, but uncollected, overdraft fees.

The class representative will receive an award of $10,000.

Read the settlement agreement.

205 CUs Borrowed from Fed's Discount Window During Q3 2016

The aggregate amount borrowed by 205 credit unions from the Federal Reserve's Discount Window was $200,956,000 during the third quarter of 2016.

In comparison, during the second quarter of 2016, 186 credit unions borrowed from the Federal Reserve's Discount Window and borrowed an aggregate amount of $92.92 million.

During the quarter, credit unions visited the Federal Reserve's Discount Window 222 times.

The average amount borrowed during the third quarter of 2016 was $905,207. The median amount borrowed was $10,000.

The largest amount borrowed was $25 million by Chevron FCU for a one day term.

Most credit unions borrowing from the Discount Window used the primary credit program, which is reserved for healthy credit unions. Four credit unions used the seasonal credit program, which assists small depository institutions in managing significant seasonal swings in their loans and deposits.

The Federal Reserve is required by law to disclose with a two year delay information on borrowings from the Discount Window.

Consumer Credit at CUs Grew in August

Outstanding consumer credit at credit unions increased during the month of August.

Total outstanding credit grew by $6.1 billion during August to $451.3 billion.

Revolving credit edged higher in August by $300 million to $59.8 billion.

Nonrevolving credit increased by $5.8 billion in August to $391.5 billion.

10 Credit Unions Penalized for Late Filing Call Reports

Ten federally insured credit unions agreed to civil monetary penalties for filing late Call Reports in the first quarter of 2018, according to the National Credit Union Administration.

The penalties totaled $4,133.

Individual penalties for the first quarter of 2018 ranged from $150 to $920. The median penalty was $415.

Eight of the 10 credit unions that agreed to pay penalties for the first quarter had assets of less than $10 million. One credit union had assets between $10 million and $50 million, and one credit union had assets between $50 million and $250 million.

All 10 had been late in at least one prior quarter.

Read the press release.