Friday, June 28, 2013

Ochsner Clinic FCU Closed

The National Credit Union Administration (NCUA) liquidated Ochsner Clinic Federal Credit Union of New Orleans, La. ASI Federal Credit Union of Harahan, La., immediately assumed Ochsner Clinic Federal Credit Union’s members, deposits and loans.

NCUA made the decision to liquidate Ochsner Clinic Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations. Ochsner Clinic Federal Credit Union served 3,099 members and had assets of approximately $9.25 million, according to its most recent Call Report.

Ochsner Clinic Federal Credit Union is the tenth federally insured credit union liquidation in 2013.

Read the press release.

SBA Nearly Triples Small Business Size Standard for Banks and Credit Unions

The Small Business Administration (SBA) issued a final rule increasing small business size standards for several industries, including commercial banks, savings institutions, and credit unions. The rule increases the size standard from $175 million in assets to $500 million.

This change to the size standard will enable more community banks and credit unions to benefit from provisions that require federal agencies to assess and minimize regulatory costs on small entities under the Regulatory Flexibility Act and the Small Business Regulatory Enforcement and Flexibility Act.

The Consumer Financial Protection Bureau uses SBA size standards to identify small banks and credit unions that are eligible to serve as “small entity representatives” during the SBREFA review process.

Read the final rule.

Tuesday, June 25, 2013

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).

Monday, June 24, 2013

Loan Servicing Issues

NCUA Region V examiners are uncovering loan servicing issues at credit unions.

According to the June 2013 NCUA Report, "examiners have noted problems with interest accrual calculation, how late fees are applied and how payments are applied. Misapplication of payments may violate contracts with not only the borrower,
but with third-parties, such as the secondary mortgage market, or participants in a commercial loan."

NCUA recommended that "credit unions review their own systems to ensure that all of their loan servicing practices and procedures are correct and proper."

Read the NCUA Report (story can be found on pages 6 and 7).

Friday, June 21, 2013


The National Credit Union Administration (NCUA) today assumed control of service and operations at PEF Federal Credit Union of Highland Heights, Ohio.

Chartered in 1957, PEF Federal Credit Union serves 2,974 members and has assets of approximately $31.3 million, according to the credit union’s most recent Call Report.

PEF FCU reported losses of $3.6 million for 2012 and $48,707 for the first quarter of 2013. The credit union reported a delinquent loan ratio of 10.59 percent and net charge-off rate of 6.17 percent at the end of March 2013.

However, the change in the net worth position of the credit union is a head scratcher. At the end of 2012, the credit union reported a net worth of minus 81,643. But as a March 2013, the credit union reported a net worth of positive 1,337,252.

The change in net worth was primarily due to undivided earnings going from -494,116 at the end of 2012 to 973,485 at the end of March 2013.

Read the press release.

Canada's Desjardins Group Receives SIFI Designation

The Quebec Financial Markets Authority has designated Canada's largest credit union, Desjardins Group, as a domestic significantly important financial institution (SIFI).

Should FSOC designate Navy Federal Credit Union as a SIFI, if Desjardins Group is designated a SIFI?

Here is the press release.

Thursday, June 20, 2013

Taxed Twice?

Some large credit unions are making outrageous statements about how taxation may impact their members.

One of the more outlandish comments came from Pennsylvania State Employees Credit Union. In encouraging their members to write Congress, the $4.1 billion credit union states:

"We support the idea of all taxpayers paying their fair share. The CU taxation issue, however, is not fair. As a member-owner of this credit union, the credit union's money is your money, which you've already been taxed on. If PSECU gets taxed, your money is getting taxed twice.(emphasis added)"

This is an absurd statement and shows how desperate some credit unions have become.

This credit union is trying to equate credit union dividend payments to dividends paid by corporations. Nothing is further from the truth.

Corporations pay dividends from income after taxes. Note the words "after taxes."

Dividends paid by credit unions would be treated like any other interest expense. Expenses are deducted from revenues to determine taxable income. In other words, credit union dividends are paid before taxes.

A change in the credit union tax status will not alter this. Therefore, members would not be taxed twice.

Tuesday, June 18, 2013

Undercapitalized Credit Unions, Q1 2013

At the end of the first quarter of 2013, 94 credit unions were undercapitalized. These undercapitalized credit unions held almost $4.5 billion in assets.

Eight credit unions were critically undercapitalized and 14 credit unions were significantly undercapitalized.

Since the end of the first quarter. three undercapitalized credit unions were liquidated by NCUA (names in red).

Saturday, June 15, 2013

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.

Friday, June 14, 2013

Small Illinois CU Issuing Fee Harvesting Credit Card

Credit Union Times is reporting that Services Credit Union of Naperville (IL) is issuing a fee-harvesting credit card.

According to the article, the cards are issued through the credit union; but serviced through Continental Finance Company, which advertises that it "is one of America's leading originators of credit cards for consumers with less-than perfect credit."

To review the fees and interest rates on the Cerulean Card, click here.

Continental Finance on its webpage has the audacity to talk about the credit union difference of people helping people. If this is people helping people, then I don't want to be helped.

The Credit Union Times' article notes that Daniel Plauda, who is the President of the Illinois Credit Union League, is also the CEO of the credit union.

Read the story.

Wednesday, June 12, 2013

Interest Rate Risk and Net Long-Term Asset Ratio

One financial measure that is probably giving the National Credit Union Administration heartburn has been the continued increase in net long-term assets relative to total assets.

The net long-term assets to total assets ratio is a simple measure of interest rate risk exposure at credit unions. Currently, credit unions have limited options in managing interest rate risk. So, the higher the ratio, the greater the level of interest rate risk.

At the end of the first quarter of 2013, the net long-term assets to total assets ratio was 33.48 percent. This is 321 basis points higher than the 10-year average and up 57 basis points from the end of 2012. In comparison, the net long-term asset ratio was approximately 25 percent in 2004.

In general, larger credit unions tend to have higher net long-term assets to total assets ratio than smaller credit unions.

For credit unions with at least $500 million in assets, their net long-term asset ratio was 35.17 percent at the end of the first quarter of 2013. Credit unions with $100 million to $500 million reported a ratio of 33.44 percent. Credit unions with between $10 million and $100 million in assets had a net long-term asset ratio of 24.73 percent, while credit unions under $10 million had a net long-term assets ratio of 9.91 percent.

For credit unions with at least $100 million in assets, 62 federally-insured credit unions have a net long-term asset ratio of 50 percent or higher.

The following table shows the 25 credit unions with largest net long-term asset ratio, as of March 2013.

Monday, June 10, 2013

Grover Norquist Chooses Credit Unions over Community Banks

Grover Norquist, the President of Americans for Tax Reform, has sided with credit unions over community banks.

In a June 5th e-mail to members of Americans for Tax Reform, Grover Norquist encourages his members to contact Congress about protecting credit unions by opposing any attempt to repeal their tax exempt status.

Grover Norquist in justifying his organization's position stated: “Credit unions are superior to banks in many local communities because they are essentially owned by the customers, not a board of elites.”

However, it seems that Norquist does not understand community banking.

Community banks are the foundation of their local communities. They obtain their retail deposits locally and make their loans locally. Community banks are in most cases locally controlled by individuals from their local communities, not "elites."

Norquist claims that "credit unions are often the only source of financing for disadvantaged communities."

But the evidence indicates that the credit union tax exemption is not going to people of modest means. A 2006 Government Accountability Office (GAO) found that credit union lag behind banks in serving people of modest means (low- and moderate-income customers). GAO also found that 49 percent of credit union customers were of upper-income compared to 41 percent for banks.

Moreover, Norquist claims that if liberals and big government politicians repeal the tax exempt status of credit unions, this would make it nearly impossible for hardworking Americans to achieve financial independence.

However, advocating for the preservation of the credit union tax exemption, which is considered a tax expenditure for budgetary purposes, smacks of big government that Grover Norquist opposes.

Economists view tax expenditures as distorting economic activity, increasing the complexity of the tax code, and violating principles that businesses with similar characteristics should be treated equally.

For a group calling itself Americans for Tax Reform, supporting the continuation of the credit union industry's preferential tax treatment certainly doesn’t sound like “tax reform” to me.

Friday, June 7, 2013

Study: Community Banks Marginally Outperform CUs on CD Rates

This may shock consumer reporters; but a study by found that community banks are competitive with credit unions with respect to their rate offerings on CDs.

The study found that interest rates offered by community banks on CDs were marginally better than on comparable CD interest rates offered by credit unions.

The study looked at the interest rate being offered on a $10,000 CD with six-month, one-year and two-year maturities and found that community banks paid slightly higher rates on CDs with six-month and two-year maturities, while credit unions offered a slightly higher rate on the one-year CD.

So, this study supports the findings of an earlier study by the Tax Foundation that concluded that, on average, the credit union tax subsidy was not being passed through to savers.

Read the study.

Wednesday, June 5, 2013

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.

Monday, June 3, 2013


An advertisement by Truliant Federal Credit Union in the Charlotte Observer blatantly said "EVERYONE CAN JOIN!"

EVERYONE CAN JOIN! was in large, bold font and was conspicuously placed in the ad to draw your attention to it.

Buried in the fine print was a barely legible disclaimer "must meet eligibility requirements to join."

This advertisement is clearly misleading, because federal credit unions are required to have a defined field of membership.

Stating that “everyone can join” misrepresents the common bond requirement for membership at Truliant and may violate the National Credit Union Administration’s accuracy in advertising regulation.

This is not the first instance of such blatant advertising by credit unions. The California Department of Financial Institutions in its April 2013 DFI Bulletin warned credit unions that advertisements stating “everyone can join” or “all individuals can join” are impermissible.

Saturday, June 1, 2013

NCUA Closes Two Credit Unions

The National Credit Union Administration (NCUA) liquidated NCP Community Development Federal Credit Union (NCP) of Norfolk, Va. and First Kingdom Community Credit Union of Selma, Ala.

Chartway Federal Credit Union of Virginia Beach, Va. assumed NCPs member shares. NCUA placed NCP into conservatorship on Feb. 8, 2013. NCUA made the subsequent decision to liquidate NCP and discontinue operations after determining the credit union was insolvent with a net worth ratio of negative 1.02 percent and had no prospect for restoring viable operations.

Riverdale Credit Union of Selma immediately assumed First Kingdom Community Federal Credit Union’s members’ shares. NCUA placed First Kingdom Community Federal Credit Union into conservatorship on May 16, 2013 and made the decision to liquidate First Kingdom and discontinue its operations after determining this was the best course of action.

NCP Community Development and First Kingdom Community FCUs were the eighth and ninth credit union to be liquidated in 2013.

Read NCP Community Development FCU press release.

Read First Kingdom Community FCU press release.

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