Thursday, August 28, 2014

ASI Announces No Special Premium Assessment

American Mutual Share Insurance Corporation (ASI) announced to its member credit unions that there would be no Special Premium Assessment in 2014.

ASI noted that partial recoveries from its $26.4 million in capital assistance to Silver State Schools Credit Union (Las Vegas, NV) allowed the insurer to forgo a special assessment this year.

Read the press release.

Quality Control Review of Associational Common Bonds

The American Consumer Council (ACC) revealed this month that the National Credit Union Administration (NCUA) has for nearly a year been conducting a “quality control review” of the organization and other associations that partner with federal credit unions for purposes of growing membership. NCUA’s review comes after ABA advocacy last year.

In a July 8, 2013 letter to NCUA, ABA pointed out that almost 50 FCUs were allowing anyone to join through ACC. ABA wrote: “These federal credit unions have partnered with ACC for the express purpose of qualifying individuals who otherwise are ineligible for credit union membership.”

NCUA is reviewing ACC to see whether it complies with the agency’s “totality of the circumstances” test for associational common bonds.

During the review period, NCUA has not acted on between 12 and 15 applications from credit unions to add ACC as an associational select employee group. According to ACC, thousands of people who are otherwise ineligible for credit union membership have been blocked from joining during the audit.

The fact that NCUA is conducting this review is frustrating ACC.

Thomas Hinton, president of ACC, told members at the association’s June annual meeting, “For the past ten months, ACC has voluntarily responded to every question asked of us by the NCUA in an effort to demonstrate our full compliance with their associational SEG requirements."

He goes on to say: "It should not be the purview of the NCUA to dictate to ACC how we manage or operate our association. That is the Board of Director’s purview."

While Hinton is correct in saying that NCUA should not dictate how the association is managed or operated, it is NCUA's responsibility to see if the association meets the associational common bond requirements.

As NCUA's Chartering and Field of Membership Manual states, "[t]he common bond for an associational group cannot be established simply on the basis that the association exists."

Wednesday, August 27, 2014

PenFed Discloses Senior Management Pay, Other FCUs Should Do the Same

As readers of this blog know, I have be an advocate of credit union transparency with regard to the pay of senior executives.

State chartered credit unions disclose the compensation of their senior management in their Form 990 filings with the Internal Revenue Service.

On the other hand, federal credit unions are not required to file Form 990s. As a result, credit union members and taxpayers do not have the ability to evaluate the pay of senior management and to determine if this valuable tax exemption that credit unions receive is being diverted into excessive compensation of senior federal credit union officials.

However, I was very pleased to see that Pentagon Federal Credit Union is disclosing the pay of senior management.

In Note 15 of its 2013 Annual Report, Pentagon Federal Credit Union discloses the compensation package of its CEO and 8 other senior executives.

Also, Note 15 discusses how the credit union sets the pay for senior management at the credit union.

The only criticism is that Pentagon Federal Credit Union could have provided more granularity with regard to pay by separating salary (or base pay) from bonus.

Other federal credit unions should follow Pentagon Federal Credit Union's example and disclose the compensation of their senior management.

Tuesday, August 26, 2014

How Much Did NCUA Recover from Former Texans CEO?

On Friday, the National Credit Union Administration (NCUA) announced a lifetime ban against David Addison, the former CEO of Texans Credit Union (TCU) in Richardson, Texas, from becoming an employee of, holding any office in or serving as a board member of any federally insured credit union or credit union service organization.

Addison consent to the cease and desist order without admitting fault.

NCUA also announced the settlement of its lawsuit against Mr. Addison.

When NCUA announced its lawsuit against Mr. Addison on December 20, 2012, NCUA Chairman Matz said the following:

"NCUA is required by statute to take every action we can to recover TCU’s losses, including legal action. Any recoveries in this case will go directly to TCU, assisting in NCUA’s rehabilitation efforts at TCU. Mr. Addison’s actions were very costly to the credit union, and financial institution regulators have a responsibility to hold accountable those parties—institutions or individuals—when they undermine safety and soundness."

However, the cease and desist order did not include any information on recoveries and a NCUA spokesperson was not able to comment on any monetary settlement with Mr. Addison.

So, one can only speculate -- did NCUA trade-off a lifetime ban for not pursuing damages against Mr. Addison?

We may never know.

Read the cease and desist order.

Monday, August 25, 2014

75 Federally Insured CUs Late in Filing Call Report

The National Credit Union Administration (NCUA) announced today that 75 federally insured credit unions were late filing their Call Reports for the second quarter and now face potential civil money penalties.

Four credit unions that filed late in the second quarter also missed the first quarter deadline.

According to NCUA, sixty-three of the late filers had less than $50 million in assets, while 4 had total assets in excess of $250,000.

In addition, almost 30 percent of the late filers were more than 3 dates late in filing their call reports with 5 credit unions more than 10 days late.

NCUA will use three factors to determine the penalty: size of the credit union, lateness in filing the Call Report and history of violations.

Read the press release.

Texas Adds S to CAMEL, Where is NCUA?

The Texas Credit Union Department announced in its August newsletter that it will add Sensitivity to market risk (S) to its CAMEL rating system. As a result, the updated rating system now will be referred to as the CAMELS rating system. The revised rating system will be used on all examinations beginning on or after September 1, 2014.

Texas joins credit union regulators for the states of Connecticut, Michigan and Maine, which have added “S” to the CAMEL.

However, not all state credit union regulators are pushing forward with adding S to CAMEL rating system. For example, the Kansas Department of Credit Unions in its third quarter newsletter has decided to wait until NCUA moves forward.

It appears that the ball is in NCUA's court.

NCUA needs to exhibit some leadership and move forward with adding Sensitivity to market risk to its CAMEL ratings system like the other federal banking regulators and state credit union regulators.

Thursday, August 21, 2014

Credit Union Overdraft Fees Up 14 Percent Since 2009

According to a MarketWatch article, credit unions have raised their overdraft fees 14 percent since 2009 to a median fee of $28.50 in 2014, while banks have only raised their fees 3 percent over that same time period.

Read the article.

Regulator as Zealot

In a February 19, 2014 webinar, Domonic Carullo, an Economic Development Specialist with the Office of Small Credit Union Initiatives at the National Credit Union Administration (NCUA), said: "I love credit unions."

This comment reflects the core values or the DNA of the NCUA.

For example, I was on a panel with a NCUA Regional Director, who said she was a credit union evangelist.

An evangelist practices evangelism. According to the American Heritage College Dictionary, evangelism is defined as "militant zeal for the cause."

Having a militant zeal for credit unionism is not appropriate for an agency that is responsible for the safety and soundness regulation of credit unions.

Tuesday, August 19, 2014

Florida Regulator Approves CU's Purchase of Branch and Assumption of Deposits

The Florida Office of Financial Regulation approved Florida Central Credit Union’s application to purchase the Cattleman Road Branch in Sarasota (FL) of First Federal Bank of Florida, as well as buy certain assets and assume certain liabilities from First Federal Bank of Florida.

According to the order, existing depositors of First Federal Bank of Florida’s Cattleman Road Branch must be given a notice to opt-in. The notification requests each depositor to decide whether they agree to move their account to Florida Central or remain with First Federal upon consummation of the transaction.

First Federal depositors will have the option to move their accounts to Florida Central either by mail, electronically or by facsimile.

According to the Summary of Deposit data, the Cattleman Road branch had slightly more than $14.9 million in deposits as of June 2013.

The transaction must still be approved by NCUA.

Read the order.

Monday, August 18, 2014

NASA FCU's Surprising CD Disclosure

Bankaholic recently reported on a surprising disclosure related to NASA FCU's share certificate or certificate of deposit (CD) rates.

The disclosures stated the following regarding CD rates: “The rate will not change during the term of your certificate unless the Credit Union notifies you at least 30 calendar days prior to any rate decrease.” (emphasis added)

Here is a link to the certificate terms and conditions disclosures.

In other words, NASA FCU can lower the rate on an outstanding fixed-rate share certificate without the approval of the member as long as it provides such a notice.

This clause does not seem to be in the best interest of the member.

The blogger reminded consumers that they should "review this legally mandated summary of terms in advance of establishing an account with a new institution."

Friday, August 15, 2014

Discount Window Borrowings by CUs, Q2 2012

During the second quarter of 2012, 40 credit unions borrowed 79 times from the Federal Reserve's discount window.

The Federal Reserve publishes information regarding discount window loans with a two-year lag.

The most frequent borrower was Northwest Community Credit Union (Springfield, OR), which access the window 19 times during the quarter.

Delta Community Credit Union (Atlanta, GA) had the largest overnight discount window loan of $30 million.

Thirty-nine credit unions used the primary credit program and one credit union, Marine Credit Union, used the secondary credit program. The primary credit program is available to depository institutions that are in generally sound financial condition. The secondary credit program is available to institutions that cannot borrow from the primary credit program.

The following table provides information on the date of the loan, maturity date of the loan, the name of the credit union, and the amount borrowed.

Wednesday, August 13, 2014

Is Arizona FCU $3 Per Month Membership Fee Legal?

A 1993 National Credit Union Administration (NCUA) legal opinion letter would suggest that a monthly membership fee may be illegal.

The legal opinion letter was in response to a request from the Wisconsin Credit Union League on whether a FCU could pass along its League dues to its membership inthe form of an annual assessment. NCUA stated that this practice is impermissible.

NCUA analysis found that Section 109 of the FCU Act allowed FCUs to charge "a uniform entrance fee if required by the board of directors" when becoming a member of the FCU.

The letter goes on to state that "no annual membership fees of FCU members may be assessed except for the initial entrance fee."

I would presume that the same would apply to a monthly membership fee.

I did not find any subsequent letter that overturned this opinion.

If the assessment of a monthly membership fee is illegal, NCUA should require Arizona FCU to cease and desist from this practice. It should also require Arizona FCU to reimburse all monthly membership fees paid by members.

It seems that there may be a class action lawsuit that is waiting to be filed.

Read the letter.

Monday, August 11, 2014

Small Business Loan Reporting Nightmare Recommendations

The National Community Reinvestment Coalition (NCRC) released a white paper on recommendations to the Consumer Financial Protection Bureau (CFPB) on the implementation of Section 1071 of the Dodd-Frank Act dealing with small business loan data collection.

The purpose of Section 1071 is to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.

The proposed recommendations would increase the reporting burden on banks, credit unions, and other non-depository lenders to small businesses.

The law requires the CFPB to collect data on the race and ethnicity of the borrower. However, NCRC recommends that it is not enough to require disclosures of whether the business is Asian or Hispanic; but should consider sub-categories to fully capture the experiences of Asians and Hispanics of various nationalities in the marketplace.

Also, the law requires the reporting of revenue size of the small business. NCRC wants this required disclosure to be sufficiently detailed so that policymakers and the general public can track loans to microbusinesses.

In addition to the other required data elements that are to be collected, NCRC is recommending that CFPB collect information on the pricing of the loan, points and fees and loan terms, creditworthiness of the small business and its owner, the number of employees of the small business, colateral pledged by borrowers, start up status of the business, and loan performance.

Read the white paper.

Friday, August 8, 2014

No Disclosure Between CUs Partenering with Big Ten Universities

In a recent blog post by the Consumer Financial Protection Bureau (CFPB) looking at financial institutions that have partnered with Big Ten universities, the CFPB wrote it could not find any contracts between two universities and the credit unions that are the university's financial partner.

As background, on December 13, 2013, CFPB Director Cordray alerted financial institutions about the potentially risky practice of making secret payments to colleges and universities to market deposit accounts, prepaid cards, debit cards, and other financial products to students. He called on financial institutions to voluntarily make these agreements available on their websites.

The two universities and their credit union partners are:
  • Michigan State University and MSU Federal Credit Union: and
  • University of Wisconsin and UW Credit Union.
The CFPB wrote that it is sending alerts to schools to make sure they know that their financial partners are not committed to transparency when it comes to student financial products.

Editorial Note: This post has been updated to reflect corrections made by the CFPB to its earlier blog post.

Read the blog post.

Thursday, August 7, 2014

CUs Should Celebrate Membership Milestone by Paying Taxes

ABA President and CEO Frank Keating responded to a credit union trade group announcement Tuesday that credit union membership has surpassed 100 million.

“If we take CUNA’s questionable assertion at face value, two out of three Americans are subsidizing a $1 trillion credit union industry that doesn’t pay a dime in federal income taxes,” Keating said. “That’s nearly $2 billion a year that could be used to help shrink the federal deficit, but instead goes to what have simply become tax-exempt banks.”

“Credit unions should celebrate their ‘milestone’ by doing their patriotic duty and paying taxes like everyone else,” he added.

Wednesday, August 6, 2014

Director Liability

Should credit union directors be held professionally liable, if their conduct contributed to the failure of a credit union?

I know that this is a sensitive subject. Credit union advocates will say that since directors are volunteers and most directors are not compensated, it would be unfair to hold them personally liable for a credit union's failure.

However, after reviewing a number of the Material Loss Reviews conducted by NCUA's Inspector General, there is a re-occurring theme that the board of directors were negligent in their oversight of the credit union. These reports note that the board of directors failed to exercise adequate oversight of management and/or exposed the failed credit union to excessively risky business models.

Here are some excerpts from recent Material Loss Reviews.

In the case of the failure of Taupa Lithuanian Credit union, the NCUA Inspector General found that "Taupa’s Board of Directors failed in its duties to adequately oversee the activities of management. During the scope period of our review, multiple examinations identified the need for more consistent Board of Directors meetings and adequate minutes. Examiners cited Board deficiencies in examinations effective June 30, 2006; December 31, 2007; March 31, 2009; June 30, 2010; December 31, 2011; and December 31, 2012."

The Material Loss Review (MLR) for Vensure FCU concluded that "Vensure’s management and Board exposed the credit union to excessive amounts of financial risk due to its affiliation with high risk members and a high risk business model. Specifically, Vensure’s management and Board failed to manage the credit union’s risk related to its ACH payment processing activity for a member that processed payments for internet gambling websites."

NCUA's Inspector General cited weak Board of Directors oversight in the failure of G.I.C. FCU. The MLR reported that "[a]lthough the supervisory committee is the entity charged with primary responsibility over the records of the Credit Union, the Board of Directors acts as control over the supervisory committee by providing a forum for receiving the audit report and minutes of the Committee meetings. We believe G.I.C.’s Board failed in these responsibilities as evidenced by the Board’s failure to keep complete and accurate minutes or to obtain Board packets with information sufficient to execute its duties."

The MLR for Chetco FCU found that the "Board of Directors and management exposed the credit union to excessive amounts of credit and liquidity risk due to its failure to set appropriate limits and maintain the appropriate risk management infrastructure to support the growth in the Member Business Loan (MBL) portfolio."

As these MLRs demonstrate, the actions of these directors contributed to the failures of these credit unions.

NCUA has the authority to pursue these credit union directors, as well as officers, if their gross negligence led to the demise of the credit union. However, outside of a lawsuit suing the directors of WesCorp, it is unclear whether NCUA has chosen to exercise this power.

At a minimum, NCUA's Office of the Inspector General should conduct a study, just like the study performed by the Inspector Generals for the federal banking agencies, on enforcement actions and professional liabilities claims against institution-affiliated parties and individuals associated with failed institutions.

Tuesday, August 5, 2014

Monterey CU Members Vote to Become a Bank

Members of Monterey Credit Union have voted overwhelmingly to become a mutual savings bank, step one of a planned two-step process to become a commercial savings bank.

Eighty percent of the members, who voted, favored becoming a mutual savings bank, pending regulatory approvals.

Twenty-one percent of the members voted.

Read the story.

100 Million Members Do Not Equal 100 Million People

The credit union industry is trumpeting that credit union membership probably reached the 100 million milestone in June.

However, this 100 million member number should not be confused for 100 million people belonging to credit unions.

For example, if a person joins credit union A and credit union B, this person would be counted twice as a member.

In fact, a 2002 study by CUNA found that credit union members on average belonged to 1.2 credit unions and nearly 20 percent of credit union members belong to more than one credit union. [Don't criticize me for using a 2002 study. If you have more up-to-date numbers, please provide].

So, the evidence indicates that far fewer Americans belong to credit unions than the membership numbers indicate.

Monday, August 4, 2014

First Commerce CU to Purchase FNB of Crestview

First Commerce Credit Union (Tallahassee, FL) and First National Bank of Crestview (FNBC) have entered into an agreement for First Commerce to purchase FNBC.

The agreement has been approved by the boards of both financial institutions and includes the purchase of assets and assumption of liabilities.

The transaction will require the approval of four state and federal regulatory agencies, which the financial institutions hope can be processed by late 2014/early 2015.

If this transaction is completed, this would be the sixth bank to be acquired by a credit union.

Read more.

Friday, August 1, 2014

Bensenville Community CU Closed

American Mutual Share Insurance Corporation (ASI) announced that it has accepted appointment as liquidating agent of Bensenville Community Credit Union, located in Bensenville, Illinois, when the Illinois Division of Financial Institutions ordered it closed on July 31, 2014 due to inadequate capital.

Credit Union 1 of Rantoul, Illinois, purchased all of Bensenville Community Credit Union’s loans and other assets and assumed all of its share account liabilities.

Read ASI press release.

No Guidance on Flood Insurance Compliance Coming from Federal Financial Regulators

The federal financial regulators in a letter to ABA stated they would not be able to provide requested information to facilitate compliance with the 2012 Biggert-Waters flood insurance reform law and this year’s Homeowner Flood Insurance Affordability Act, which addressed affordability problems in Biggert-Waters.

ABA had written the agencies in April asking for timetables and implementation plans and agency expectations for flood insurance changes (read the letter).

Acknowledging “[t]he importance of information and guidance to institutions in light of the various statutory changes,” the interagency letter nevertheless disavowed responsibility for updating the guidance because “much of the information contained in the [Guidelines] pertained to flood insurance matters outside of the Agencies’ authority.”

The agencies did announce that “provisions pertaining to detached structures [HFIAA §13] became effective upon enactment.” HFIAA §13 permits a bank to exercise its discretion not to require a flood policy covering detached, non-residential structures.

The letter is below.


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