Number of Outstanding Enforcement Orders Fell in 2019

The National Credit Union Administration is reporting that outstanding enforcement orders against federally-insured credit unions fell in 2019.

Outstanding enforcement orders were 278 at the end of 2018. In comparison, outstanding enforcement orders at the end of 2019 were 227.

An enforcement order includes Preliminary Warning Letters (PWLs), Letters of Understanding and Agreement (LUAs), Cease and Desist Orders (CDOs), and Conservatorships.

The following table shows the number of outstanding enforcement orders by type for state chartered credit unions and federal credit unions from 2014 through 2019.

Enforcement Actions Issued in 2019 by NCUA

The National Credit Union Administration stated that the number of preliminary warning letters (PWLs) and unpublished Letters of Understanding and Agreement (LUAs) fell in 2019 compared to 2018, but the number of Cease and Desist Orders (CDOs) increased in 2019.

The following chart shows the number of PWLS, LUAs, and CDOs from 2013 to 2019.

The information on the number of PWLS, LUAs, and CDOs was obtained from a Freedom of Information Act request to the agency.

The two credit unions that were issued Orders to Cease and Desist were Defense Logistics Federal Credit Union (Dover, NJ) and Phi Beta Sigma Federal Credit Union (Washington, D.C.).

Fewer Enforcement Orders Issued by NCUA in 2018

Fewer enforcement orders were issued by the National Credit Union Administration (NCUA) during 2018.

The number of Preliminary Warning Letters (PWLs) issued during 2018 fell by 10 to 46.

Letters of Understanding and Agreement (LUAs) issued in 2018 declined to 96 from 105 in 2017. All LUAs issued in 2018 were unpublished.

There were zero Cease and Desist Orders (CDOs) issued in 2018, down from 2 in 2017.

The information was obtained from NCUA by a Freedom of Information Act request.

The following chart shows the number of orders issued by NCUA from 2013 to 2018.

Fewer Outstanding Enforcement Actions at the End of 2018

The number of outstanding enforcement actions for federally insured credit unions decreased from 296 at the end of 2017 to 278 at the end of 2018, according to the 2018 Annual Report of the National Credit Union Administration (NCUA).

Enforcement actions include Preliminary Warning Letters (PWLs), Letters of Understanding and Agreement (LUAs), Cease-and-Desist Orders (CDOs), and Conservatorships.

The following table shows the number of outstanding enforcement actions by type for both state chartered and federal credit unions between 2014 and 2018 (click on image to enlarge).

Outstanding Enforcement Actions, 2010 - 2017

In the National Credit Union Administration's 2017 Annual Report, the agency reported outstanding enforcement actions against federally insured credit unions fell from 306 in 2016 to 296 in 296.

Enforcement actions include Preliminary Warning Letters, Letters of Understanding and Agreement (both published and unpublished), Cease and Desist Orders, and Conservatorships.

The following table provides information on the number of outstanding enforcement actions by type of action for both state chartered credit unions (SCCU) and federal credit unions (FCU) between 2010 and 2017.

Fewer Regulatory Actions Issued by NCUA in 2017

The National Credit Union Administration (NCUA) issued fewer Preliminary Warning Letters (PWLs) and Letters of Understanding and Agreement (LUAs) in 2017.

According to information obtained by a Freedom of Information Act, the agency issued 56 PWLs in 2017 -- down from 69 in 2016.

There were 10 fewer LUAs issued in 2017 compared to 2016 with 105 issued in 2017. All of the LUAs were unpublished.

In addition, there was not a change in the number of cease and desist orders (CDOs) issued at 2.

The following chart shows the number of PWLs, LUAs, and CDOs issued by NCUA between 2013 and 2017.

New Horizons CU Under Cease and Desist Order

The Alabama Credit Union Administration issued a cease and desist order against New Horizons Credit Union (Mobile, AL).

The cease and desist order found that the $221.5 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an February 23, 2017 Letter of Understanding and Agreement (LUA).

Specifically, the cease and desist order found:

• The credit union failed to comply with full and fair disclosure of its financial and operating conditions.
• The board of directors failed to adequately supervise and direct credit union's management.
• The credit union had inadequate management.
• The credit union failed to address a number of material deficiencies listed in the Document of Resolution Status Report in a March 2017 Examination Report and comply with terms and conditions specified in the LUA.
• The credit union operated with capital that was classified as adequately capitalized.
• The credit union had ineffective credit risk management practice and poor underwriting practices that resulted in poor asset quality and high net charge offs.
• The credit union did not timely charge off uncollectible loans.
• The credit union failed to follow Generally Accepted Accounting Principles to calculate its allowance for loan and lease losses.

The cease and desist order mandated that the credit union needed to take a number of corrective actions.

The cease and desist order required the credit union to address corporate governance deficiencies. The credit union's board is expected to improve its oversight of the credit union's affairs.

The credit union is further required to form a director's committee. One of its duties is to identify at least 3 potential merger partners. Discussions with potential merger partners are to be reported to the credit union's board and the credit union's regulator in writing no later than October 1, 2017.

The credit union will implement a prompt corrective action plan to become well-capitalized.

The credit union must also address credit risk and compliance risk problems. For example, credit union management must immediately charge off all loans that meet or exceed the credit union's charge off policy. If loans 90 days or more past due are not charged off, management must document the reason why these loans are not charged off. the collateral repossessed, and the collateral is in the process of foreclosure and repossession.

The cease and desist order became effective on September 3, 2017.

Read the order.

Alabama CU Regulator Issues Cease and Desist Order to Craig Credit Union

The Alabama Credit Union Administration issued a cease and desist order against Craig Credit Union (Selma, AL).

The cease and desist order found that the $12.8 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an April 24, 2017 Letter of Understanding and Agreement (LUA).

Among the items enumerated by the cease and desist order are the following:

• The board of directors failed to adequately supervise and direct credit union's management.
• The credit union had inadequate management.
• The credit union failed to address material deficiencies and comply with terms and conditions specified in the LUA.
• The credit union operated with a net loss or insufficient income to support net worth growth.
• The credit union had declining net worth.
• The credit union had ineffective loan and collection policies and practices.
• The credit union failed to reduce delinquencies by 25 percent as specified in the LUA.

The order requires the board of directors to improve its oversight of the affairs of the credit union. Also, the board is expected to do its due diligence in identifying a merger partner.

The credit union is expected to retained qualified management.

The enforcement order further mandates a 50 percent reduction in delinquent loans by December 31, 2017 from December 31, 2016 levels.

Read the order.

Disclosures, Supplemental Capital, and Material Risk

The National Credit Union Administration (NCUA) is seeking input regarding disclosures for credit unions issuing supplemental capital.

The credit union Call Report does not provide adequate disclosures about material facts affecting a credit union to protect investors.

According to the Advanced Notice of Proposed Rulemaking, "[t]he disclosure must not contain any untrue statement of a material fact and must not omit to state a material fact ... the disclosure must be clear, accurate and verifiable."

Topics that should be covered in the disclosure include:

• Material risks relating to the issuer and the industry in which the issuer operates;
• Material risks relating to the security being offered;
• The issuer’s planned uses for the proceeds of the offering;
• Regulatory matters impacting the issuer and its operations;
• Tax issues associated with the security being offered; and
• How the securities are being offered and sold, including any conditions to be met in order to complete the offering.

In other words, credit unions issuing supplemental capital will be required to provide details about their business models. This would include discussion about the type of lending by credit unions, risk profile of these loans, geographic diversity of loans, any legal actions that could materially impact the operations of credit unions, and so on.

In addition, to protect investors, credit union regulators will need to end their practices of not publishing enforcement actions. In 2015, there were 286 outstanding unpublished Letters of Understanding and Agreement. These unpublished enforcement actions identify material risks that are affecting the operation of credit unions. This is information that investors would find important.

Moreover, credit unions will be expected to provide "ongoing communications with investors, reporting of compliance with the contractual covenants, and sharing of information with current and prospective investors."

The Board notes that "[f]ailure to comply with the investment contracts or to properly monitor communications and sharing of information could subject the credit union to liability, which could negatively impact the Share Insurance Fund."

Outstanding Enforcement Actions Fell in 2016

The National Credit Union Administration (NCUA) in its 2016 Annual Report wrote that the number of enforcement actions has steadily declined over the last several years.

Enforcement actions include preliminary warning letters, letters of understanding and agreement (LUA), cease-and-desist orders, and conservatorships.

The number of total outstanding enforcement actions for federally insured credit unions decreased, from 359 at the end of 2015 to 303 at the end of 2016.

Both federal credit unions and federally-insured state-chartered credit unions reported a drop in outstanding enforcement actions.

NCUA attributed the decline in the number of outstanding enforcement actions to an improved economy and the implementation of corrective actions at credit unions to mitigate identified risks.

NCUA Issued Fewer Enforcement Actions in 2015

The National Credit Union Administration (NCUA) issued fewer enforcement actions in 2015 compared to 2014.

Enforcement actions include preliminary warning letters, letters of understanding and agreement, and cease and desist orders.

According to information obtained under a Freedom of Information Act request, NCUA in 2015 issued 47 preliminary warning letters, 134 letters of understanding and agreement (all were unpublished), and 2 cease and desist orders.

In comparison, NCUA in 2014 issued 69 preliminary warning letters, 152 letters of understanding and agreement (all were unpublished), and 5 cease and desist orders.

Bakery Employees Credit Union under Enforcement Order

California Department of Business Oversight (DBO) disclosed a final order against Bakery Employees Credit Union (Montebello, CA).

According to the order, Bakery Employees CU shall commence a search to identify a merger partner who is acceptable to the Commissioner of DBO. Bakery Employees shall provide a monthly written progress report to the Commissioner and the Regional Director of the National Credit Union Administration (Regional Director) detailing the due diligence of its search for a merger partner.

The final order also requires the $6.9 million credit union to retain management and maintain a Board of Directors (Board) acceptable to the Commissioner. Such person (or persons) shall be qualified to restore the credit union to a sound condition, operate the credit union in a safe and sound manner, comply with the provisions of this Order, and comply with applicable laws and regulations.

The credit union is ordered to complete corrective actions to address all accounting and internal control deficiencies related to the general ledger account balances that were identified in the examination dated March 31, 2015. Also, the credit union shall engage a qualified independent third party to obtain an opinion audit to validate the reconciliation of the general ledger accounts for Catalyst Corporate Credit Union and Money Gram for the periods beginning 12/31/2013 and continuing to the current month at time of reconciling.

The supervisory committee shall ensure the development and maintenance of a monthly progress report on all concerns noted in regulatory examination reports and independent audits.

Furthermore, the Board shall ensure that management maintains a list of all of vendors, including a description of the service provided by each vendor; the level of importance of each vendor’s service to the credit union’s business; and identification of the vendors that provide critical services to the credit union.

The credit union is required to develop a plan that is satisfactory to the Commissioner and Regional Director to achieve profitability with a benchmark of 0.1% of total assets for each quarter in years 2015 and 2016. At a minimum, the plan shall include the following: (a) Loan growth by type and interest rate; (b) Increased quality control to ensure the loan growth is consistent with current policy and the credit union’s loss reserves; (c) Anticipated provisions for loan loss expense; (d) Reduced operating expenses by amount and category; (e) Fee income by type and amount; (f) Specific quarterly performance benchmarks, minimally to include return on assets, operating expenses and net worth; and (g) Contingency plans in the event the above goals are not met, including trigger points for specific actions.

This order supersedes and replaces the Letter of Understanding dated December 9, 2014.

Read the final order.

Once Again, NCUA's 2014 Annual Report Lacks Info on the Number of Enforcement Actions

The National Credit Union Administration (NCUA) released its Annual Report yesterday and once again did not publish the number of preliminary warning letters, the number of letters of understanding and agreement (published and unpublished), and the number of cease and desist orders issued to credit unions for 2014.

On the other hand, the other federal banking agencies provide summary statistics regarding enforcement actions taken against institutions they supervise in their annual reports to Congress.

I do not understand why this agency is averse to releasing this information. Does NCUA believe releasing this information would caste credit unions in a negative light?

Read the 2014 Annual Report.

LUA with Sperry Associates FCU Terminated

The National Credit Union Administration announced today that it has terminated its Published Letter of Understanding and Agreement (LUA), dated May 28, 2010, with Sperry Associates Federal Credit Union of Garden City Park, New York.

LUA Against Lynn Municipal Employees CU Terminated

The National Credit Union Administration announced today that it has terminated its Letter of Understanding and Agreement, dated Oct. 12, 2012, with Lynn Municipal Employees Credit Union and the Massachusetts Division of Banks.

NCUA Refuses to Release Telesis LUA

In a June 19th letter, the National Credit Union Administration (NCUA) denied a Freedom of Information Act Appeal regarding the disclosure of a Letter of Understanding and Agreement (LUA) between NCUA and failed Telesis Credit Union entered into in June 2010 and amended in May 2011.

In denying the appeal, NCUA wrote that "[t]he LUA at issue in this case is not an order issued in connection with a formal enforcement proceeding, nor is it a written agreement that is specifically enforceable by the NCUA Board. Instead, the LUA is a supervisory tool that memorializes a commitment undertaken by the management of Telesis to take affirmative steps to address concerns identified by the examiner."

The agency rejected the FOIA appeal because it determined that LUA was an outgrowth of Telesis's last examination and was exempt from release based upon exemption 8. NCUA wrote that "all records, regardless of the source, of a financial institution's financial condition and operations that are in possession of a federal agency responsible for its regulation or supervision are exempt."

Also, the agency said that much of the material comprising the LUA is confidential in nature and thus qualify for protection under exemption 4.

Below is the letter (click on image to enlarge).

Valley Pride Under Enforcement Order

The National Credit Union Administration has entered into a Letter of Understanding and Agreement (LUA) with the Valley Pride Federal Credit Union of Plains, Pa.

The LUA identified significant safety and soundness issues at Valley Pride and stated that the credit union was in troubled condition.

The LUA cited that the credit union had not:

• complied with requirements from previous Reports on Examination and enforcement actions;
• operated with adequate supervision by the Board;
• maintained accurate books and records; and
• developed adequate internal controls.

The specific steps required of Valley Pride include:

• Engage a qualified individual to reconcile bank and corporate accounts;
• Engage a Certified Public Accountant to perform an opinion audit;
• Obtain training for the board of directors; and
• Implement internal control procedures through the Supervisory Committee

Read the enforcement order.

Enforcement Orders in 2012

The National Credit Union Administration (NCUA) failed to disclose any information about enforcement orders in its Annual Report for 2012. This is the second year in a row, where the agency did not disclose this information.

Through a Freedom of Information Act request, I discovered that in 2012 NCUA issued:

• 75 preliminary warning letters;
• 205 unpublished letters of understanding and agreement;
• 1 published letter of understanding and agreement; and
• 5 cease and desist orders.

The following table compares the number of enforcement orders issued by NCUA for the years 2010 through 2012. What jumps out is the total lack of transparency with regard to enforcement orders. Between 2010 and 2012 NCUA issued 1,004 letters of understanding and agreement and only published 6 of those letters.

NCUA Goes Rogue

On April 30, 2013, NCUA denied my FOIA request for the Letter of Understanding and Agreement (LUA) between the agency and failed Telesis Community Credit Union from June 2010 and May 2011. The denial letter from NCUA is posted below (click on image to enlarge).

However, this FOIA denial shows how NCUA seems to flaunt the rule of law. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 modified the Federal Credit Union Act requiring the disclosure of enforcement actions. But NCUA is using the FOIA exemptions to keep from releasing this information.

Section 206(s)(1) of the Federal Credit Union Act states the following:

(s) Public Disclosure of Agency Action.—
(1) In general.—The Board shall publish and make available to the public on a monthly basis—
(A) Any written agreement or other written statement for which a violation may be enforced by the Board, unless the Board, in its discretion, determines that publication would be contrary to the public interest;
(B) any final order issued with respect to any administrative enforcement proceeding initiated by the Board under this
section or any other law; and
(C) any modification to or termination of any order or agreement made public pursuant to this paragraph.

Paragraph (s)(5) of Section 206 states that the publication of the order can be delayed for a reasonable time under exceptional circumstances.

Delay of publication under exceptional circumstances.—If the Board makes a determination in writing that the publication of a final order pursuant to paragraph (1)(B) would seriously threaten the safety and soundness of an insured depository institution, the agency may delay the publication of the document for a reasonable time.

I can't see how releasing the two LUAs would constitute a serious threat to the safety and soundness of Telesis Community CU, because the credit union has already failed.

Moreover, this rogue agency rarely discloses any enforcement action in a reasonable time.

Whistleblower Lawsuit Reveals Undisclosed Enforcement Order

A whistleblower lawsuit filed by the former CEO of Ukrainain National Federal Credit Union reveals that the credit union was under an enforcement order.

The Credit Union Journal (paid subscription) reported that the Letter of Understanding and Agreement required the credit union to adopt a new governance structure, follow its own bylaws, and hire new executives as chief financial officer and chief operating officer.

If this lawsuit had not been filed, this enforcement action would never had been disclosed.

You would assume that members have a right to know that their credit union had regulatory issues, which rose to the level of an enforcement order.

Unfortunately, the National Credit Union Administration continues to cover up for credit unions by not disclosing enforcement orders.

This practice needs to come to an end.

It is a sorry state of affairs when you learn about an enforcement order through a news story reporting on a lawsuit.