Friday, May 29, 2015

Taxi Medallion Lenders Sue, Claim Taxi Medallions Could Become Worthless

Four credit unions that specialize in financing taxi medallions filed a lawsuit against Mayor Bill de Blasio, the city's Taxi and Limousine Commission and Attorney General Eric Schneiderman Wednesday, alleging they are letting Uber illegally pick up street-hail passengers.

Melrose Credit Union, Montauk Credit Union, Progressive Credit Union and LOMTO Federal Credit Union are seeking a preliminary injunction ordering the city to enforce the law that prohibits any vehicle other than a yellow taxi from responding to street hails.

According to the complaint (paragraph 47), the secondary market for taxi medallion is all but frozen and auctions have been indefinitely postponed.

Furthermore, the complaint alleges that "borrowers are falling behind on their monthly loan payments, and performing loans will soon fail as they mature with balloon payments that medallion owners cannot afford to pay."

The plaintiffs claim that liquidation of these taxi medallions will drive the value lower and ultimately these medallions could become worthless.

In anticipation of loan losses, these credit unions are building their reserves for loan losses.

For example, Melrose Credit Union has significantly increased its reserves for loan losses from $4.9 million as of March 2014 to almost $28.3 million at the end of the first quarter of 2015.

But are these loan loss reserves sufficient given the plaintiff's view that the taxi medallion industry faces an imminent collapse, if relief is not granted?

Hopefully, the National Credit Union Administration is closely monitoring the situation.

Read the story.

Read the complaint.

Thursday, May 28, 2015

Massachusetts: Maximum Fee for Dishonored Checks Is $6.84

The Massachusetts Division of Banking has set the maximum fee for dishonored checks (deposit returned items) at $6.84, which was the median cost for a sample of state chartered financial institutions to process deposit returned items. This maximum fee goes into effect on June 1.

Previously, the maximum fee was $5.71 per item.

Massachusetts State Law authorizes the commissioner of banks to annually establish a reasonable fee that compensates a bank or credit union for the direct cost incurred in processing deposit return items.

The fee was determined from cost data of 74 state chartered banks and credit unions. The sample included 39 banks and 35 credit unions.

The cost of processing a deposit return item ranged from $1.21 to $22.65 per item. The average cost for banks and credit unions were $6.97 and $8.95, respectively.

Based upon the survey, half of the banks and credit unions will not be able to recoup their cost for processing a deposit return item. That is just wrong.

Banks and credit unions should have the freedom to set their prices, not have them dictated by the state. Price controls have the unintended consequence of distorting economic decisions.

Read more.

Wednesday, May 27, 2015

CU Tax Exemption Lacks Accountability and Transparency

The credit union tax exemption from corporate income taxes is treated as a tax expenditure for budgetary purposes. Tax expenditures are viewed as alternatives to other policy instruments, such as government spending or regulatory programs.

But unlike government spending, some tax expenditures, such as the credit union tax exemption, lack accountability and transparency. In other words, is this preferential tax exemption being used for its intended purpose?

For example, last week Senator Jeff Flake (R - Arizona) requested detailed information from Secretary of Defense Ash Carter and Chief of the National Guard Bureau General Frank Grass regarding marketing, advertising, and promotion contracts between branches of the Department of Defense and professional sports and collegiate sports teams. Senator Flake requested this additional information on taxpayer-funded payments to sports teams for honoring U.S. military service members, after the senator highlighted a $115,000 payment from the New Jersey Army National Guard to the New York Jets for advertising services that included recognizing soldiers as “Hometown Heroes” at games.

Because these marketing arrangements are taxpayer funds spent by the government, Congress is able to exercise its oversight authority. Congress can shine a light on these practices.

The same cannot be said about the credit union tax exemption. The National Credit Union Administration (NCUA) has no clue about how the credit union tax exemption is being used, despite being grilled by former House Ways and Means Chairman Thomas almost a decade ago in November 2005 during a hearing.

For example, the NCUA does not have any information on marketing and advertising arrangements between credit unions and sports teams. NCUA does not have information on how much credit unions are spending on the naming rights to sport and entertainment venues. NCUA does not appear to collect information on senior management compensation at federal credit unions. NCUA does not collect information on who federal credit unions serve.

Outside of a few muckrakers, there is a paucity of information on how credit unions are using their preferential tax treatment.

Congress should demand greater accountability and transparency from NCUA regarding how the credit union taxpayer subsidy is being used.

Tuesday, May 26, 2015

Tom Brown Responds to Critics of "Let's Tax Credit Unions" Column

In a column, Tom Brown responds to reader pushback on taxing credit unions.

Tom Brown wrote that some readers "raised a number of objections, few of which, truth be told, I found especially convincing."

According to Brown, readers argued that credit unions should retain their exemption because of banker greed, trusting credit unions more than big banks, and credit unions pay other taxes.

But he pointed out that these arguments do not warrant exempting credit unions from paying taxes on their income.

He did find one argument that he was willing to buy -- small credit unions with well-defined common bonds would be exempt from taxation, while large credit unions with broad common bonds should pay taxes.

Read the column.

Orange County's CU to Pay $1.8 Million Settlement for Illegal Overdraft Fees

As part of a preliminary class action settlement, Orange County's Credit Union (OCCU) has agreed to pay $1.8 million and change and clarify its disclosures of its overdraft practice.

According to the complaint in Cynthia Casey v. Orange County’s Credit Union, it was alleged that OCCU breached its customer account agreement by unlawfully charging overdraft fees for debit transactions when customers had sufficient money in their accounts to cover these transactions.

Affected OCCU customers will receive approximately $28.00 for each improper $29.00 overdraft fee imposed.

Read more.

Friday, May 22, 2015

Technology CU to Launch Asset-Based Business Lending Program

San Jose, California-based Technology Credit Union announced that it will now provide asset-based loans, including accounts receivable and inventory financing. The credit union will provide small- and mid-size companies revolving credit facilities between $100,000 and $5 million, to be used for debt refinancing and equipment purchases, as well as to supplement working capital.

Read more.

Thursday, May 21, 2015

Landmark CU Granted Exception to MBL Cap

Almost a year after denying Landmark Credit Union's request for an exception to the aggregate member business loan (MBL) cap, the Wisconsin Office of Credit Unions approved Landmark Credit Union's application for an exception to the aggregate MBL limit.

On April 8, 2015, the Office of Credit Unions approved Landmark's exception. The credit union can grant MBLs up to 15 percent of its assets.

Kim Santos, Director for the Office of Credit Unions, wrote that the exception can be revoked for safety and soundness reasons. She noted that at Landmark's next exam the Office of Credit Unions will evaluate the new limit of 15 percent of assets.

Wednesday, May 20, 2015

Lawsuit Accuses Scott Credit Union of Fraud

Former NFL player Dave Butz and Eugene Schill have filed a lawsuit against Scott Credit Union and its officers alleging fraud.

The Madison-St. Clair Record reports that the complaint alleges "Scott Credit Union removed currency and opened unsecured lines of credit from the plaintiffs’ accounts. The suit also claims the defendants falsified documents, forged signatures, attempted to collect millions from past due accounts that were unauthorized and unsupported and that they willfully used the plaintiffs’ names to extend commercial lines of credit to fictitious and/or random companies unrelated to the plaintiffs.

Butz and Schill says they endured obstacles in their ability to legitimately borrow money, start new business ventures and uphold their professional reputations. They claim they are now personal guarantors for millions of dollars in fraudulent lines of credit that are now in arrears. They further claim violations of the Illinois Credit Union Act and breach of fiduciary duty."

Read the story.

Tuesday, May 19, 2015

NCUA's Lawsuit Dismissed

U.S. District Judge Katherine Forrest in Manhattan dismissed the National Credit Union Administration's lawsuit against U.S. Bancorp and Bank of America Corp accusing them of breaching their duties as trustees for residential mortgage-backed securities that suffered losses tied to the global financial crisis.

Forrest said the National Credit Union Administration lacked standing to sue US Bancorp and Bank of America over 74 RMBS trusts from which five corporate credit unions that later failed had bought certificates, because the certificates had been re-securitized.

However, the Judge will give NCUA a chance to amend its complaint.

Tom Brown: Let's Tax Credit Unions

If you missed Tom Brown's an excellent column "Let's Tax Credit Unions," it is a must read.

Brown is responding to an opinion piece written by Alex Sanchez, CEO of the Florida Bankers Association, that appeared in the Wall Street Journal.

Tom Brown states upfront that there is a place for credit unions in our financial system. But then proceeds to make the case for taxing credit unions. He points out that credit unions are highly valued by their customers and tend to score better than banks in customer satisfaction surveys.

However after praising credit unions, Brown proceeds to make the case for taxation.

He notes that common bond, which was the foundation of credit unions, has become largely meaningless. He wrote:

The problem is that the definition of the “common bond” that members of a given credit union are supposed to have has become so broad as to be meaningless. Thus many big credit unions have become sizable financial institutions that are indistinguishable from banks.

He points out that "CUs have made a clear, concerted effort to find ways to expand their potential customer base to include basically everyone in the country. Some have set up shell associations and charities that new customers can “join” by paying a token fee."

He then comments on credit union buying naming rights to arenas. In his opinion, these credit unions have changed their spots.

My rule of thumb: when you start paying out money to slap your name on a sports arena, you’ve completed your transition from high-minded, communitarian do-goodism to plain old capitalism.

He concludes that now "many [credit unions] are turning into large multi-line institutions, they should be forced to play by the same rules banks do."

Monday, May 18, 2015

2013 Compensation for Large State Chartered CU CEOs

The chief executive officers of state chartered credit unions with at least $1 billion in assets earned on average a total compensation package of slightly more than $965,000 in 2013. The median chief executive officer (CEO) compensation package was $768,888.

The information is pulled from the Form 990s filed by these large state chartered credit unions with the Internal Revenue Service.

The table does not include information for Federal credit unions, which are not required to file Form 990s. Also, the Form 990s for Texans and DFCU Financial Credit Unions did not provide any information on CEO pay. Suncoast Credit Union (which switched from a federal to state charter in December 2013) had not filed a Form 990 for 2013.

Thirty-two CEOs had total compensation packages of $1 million or more. Larry Scott of Campus USA Credit Union in Gainesville (FL) was the highest compensated CEO at over $5.56 million.

The average base CEO salary was almost $457,000 and the average bonus was nearly $151,000.

The following table provides information on the 2013 compensation for the CEOs of state chartered credit unions with at least $1 billion in assets at the end of 2013. (click on images to enlarge)

Sunday, May 17, 2015

Jury Awards Developer $3.2 Million after CU Fails to Close on Loan

A Worcester Superior Court jury last week awarded the developer of an abandoned Shrewsbury hotel project $3.2 million after finding that Central One Federal Credit Union intentionally misled him about the status of a loan that fell through.

According to the plaintiff's lawyer, the judgment could increase significantly, if the judge finds the credit union engaged in unfair or deceptive practices.

The lawsuit claimed that the project fell apart after Central One failed to close on an $8 million loan despite repeated assurances the deal would go through.

Read the story.

Thursday, May 14, 2015

Supplemental Capital and Interdependency Risk

Low income credit unions can accept supplemental capital as part of their net worth and earlier this year National Credit Union Administration (NCUA) Chairman Matz stated that the agency would issue a proposed rule allowing complex credit unions to count supplemental capital as part of the numerator for their risk-based capital ratio.

However, since supplemental capital is available to absorb losses, NCUA has expressed concerns about the source of this supplemental capital. In other words, does this supplemental capital come from within the credit union industry or outside the credit union industry?

In its 2010 Supplemental Capital White Paper, NCUA wrote that "a supplemental capital structure which allows for investment between credit unions has the potential for increasing systemic risk within the credit union industry without actually producing new capital to buffer losses. The result is increased risk exposure to the NCUSIF without a corresponding increase in new capital."

Therefore, the NCUA needs to adopt measures to protect the credit union industry when credit unions invest in each other so as to minimize interdependency risk.

The simplest way to control for this risk would be to follow the standards set in NCUA's corporate credit union regulation regarding adjusted core capital. According to its corporate rule, if a corporate credit union contributes any capital to another corporate credit union, that corporate credit union must deduct an amount equal to this capital contribution when calculating its adjusted core capital.

But it is not clear whether NCUA has the authority to require such an adjustment via regulation for natural person credit unions.

Wednesday, May 13, 2015

Are Credit Unions Achieving Their Mission?

Bill Brooks with CU Prosper wrote a column in Credit Union Times challenging the credit union industry for not achieving its mission of serving people of modest means.

Brooks wrote:
Are credit unions really successful at achieving their mission? Do credit unions have an objective system to assess how successful they are reaching out to people of modest means? Are credit unions just wearing white hats of virtue, but do they have no cattle? If Diogenes shined his lamp on your credit union, would he find an honest operation?

With more people on the fringe turning to usurious solutions to their financial needs, the answer seems to be no. Yet, credit unions market the legend, not the reality.

Read the column.

Tuesday, May 12, 2015

Florida Depositors Lodge More Complaints against CUs than Banks

A study by a banking analyst once again finds that Florida depositors lodge more complaints against credit unions than banks after controlling for complaint market share versus deposit market share for the institution.

"Miami banking analyst Ken Thomas analyzed consumer complaints filed by Floridians in 2014 against 12 financial institutions. He found that four credit unions had the worst records.

Space Coast Credit Union of Melbourne had the highest incidence of complaints, followed by MidFlorida Credit Union of Lakeland, Suncoast Credit Union of Tampa and VyStar Credit Union of Jacksonville. Among banks, the highest complaint indexes were for PNC and JPMorgan Chase."

Read the story.

Monday, May 11, 2015

Keating: NFL Tax Decision Should Be Signal to Credit Unions

Following the National Football League’s decision to give up its much-maligned tax-exempt status, ABA President and CEO Frank Keating called on Congress to examine “another outrageous tax exemption: the one that allows multibillion-dollar credit unions that function just like taxpaying banks to avoid paying any federal taxes whatsoever.”

In an op-ed appearing today in the Capitol Hill newspaper Roll Call, Keating examined the foundations of the credit unions’ tax exemption: serving people of “modest means” who share a meaningful common bond. The biggest bank-like CUs are failing at this, Keating noted -- nearly half of credit union members are upper income. In Oregon, just 1 percent of CU home loans went to low-income borrowers.

Meanwhile, credit unions have all but gutted “common bond” requirements using loopholes that allow new members to join via organizations whose primary apparent purpose is to qualify people for CU membership.

“I have no problem with the many credit unions that hew to their original mission, honor their common bond and serve people of modest means with unique financial needs,” he concluded. “But like the NFL, the big credit unions that continue to abuse their tax privileges should voluntarily agree to pay. And if they don’t, Congress should insist on it.”

Read the op-ed.

Sunday, May 10, 2015

Valor CU Pays $500,000 for Stadium Naming Rights

Valor Credit Union (Scranton, PA) bought the naming rights for the Scranton School District’s Memorial Stadium.

The deal is for $500,000 over the next ten years in Scranton.

Read more.

Thursday, May 7, 2015

NCUA Walks Back from Associational Common Bond Limits

Despite a promising proposal, the National Credit Union Administration walked back somewhat from its plan to rein in expansive fields of membership (FOM) for federal credit unions via associational common bonds.

The NCUA Board approved a final rule amending the associational common bond provisions of the agency’s chartering and field of membership requirements, including a requirement that the association must not have been formed primarily for the purpose of expanding credit union membership.

However, the final rule included carveouts and exceptions that undermine its stated purpose of the final rule. For example, NCUA expanded the pool of associations that will be considered to automatically meet associational common bond requirements to include parent-teacher associations, chambers of commerce, athletic booster clubs, fraternal organizations and professional associations. It also removed a requirement that an association operate independently for at least a year before being added to an FOM.

Moreover, the agency significantly weakened the requirement that a federal credit union (FCU) and the association the FCU wishes to add to its FOM demonstrate corporate separateness exists between the two entities. NCUA initially proposed looking at five factors to demonstrate corporate separateness, including an association maintains a separate physical location, which does not include a P.O. Box or other mail drop, and not on premises owned or leased by the FCU; the FCU and association are held out to the public as a separate enterprise; the FCU’s and the association’s respective business transactions, accounts, and records are not intermingled. The final rule will now only look at one factor to determine corporate separateness -- if an FCU’s and an association’s respective business transactions, accounts, and records are not intermingled.

Read the final rule.

Tuesday, May 5, 2015

28 CUs Fined for Filing Q4 Call Report Late

The National Credit Union Administration is reporting that 28 federally insured credit unions subject to civil money penalties for filing fourth-quarter 2014 Call Reports late have consented to those penalties.

The late filers will pay a total of $13,650 in penalties. Individual penalties range from $150 to $6,752. The median penalty was $187.50.

Of the 28 credit unions agreeing to pay penalties for the fourth quarter, twenty-four had assets of less than $10 million; three had assets between $10 million and $50 million; and one credit union had assets of more than $250 million.

Read the press release.

Achieva CU to Acquire Calusa Bank

Achieva Credit Union has signed an agreement to acquire Calusa Bank, a Florida state-chartered bank in Sarasota and Charlotte counties with $165 million in assets.

Under the terms of the merger agreement, Achieva will purchase all of the issued and outstanding shares of Calusa Bank, making this the first “whole bank” acquisition by a credit union, according to the negotiators.

The transaction requires shareholders and regulatory approval.

The Herald-Tribune is reporting that the purchase price is $23.2 million.

Read the news story.

Read the Herald-Tribune story.

Notre Dame FCU Provides $5.5 Million Credit Facility to Relevant Radio

Notre Dame Federal Credit Union (Notre Dame, IN) announced that it provided Relevant Radio of Green Bay, Wisconsin a $5.25 million Term Loan Facility.

Notre Dame Federal Credit Union stated that five other credit unions participated in this business loan.

The participating credit unions included Kellogg Community Federal Credit Union (Battle Creek, MI), Diversified Members Credit Union (Detroit, MI), Mountain River Credit Union (Salida, CO), CorePlus Federal Credit Union (Norwich, CT) and Ohio Catholic Federal Credit Union (Cleveland, OH).

Monday, May 4, 2015

Flying First Class

The 2013 Form 990s for some state-chartered credit unions are reporting that credit union officials (senior management and directors) are traveling first class.

For example, OnPoint Community Credit Union (Portland, OR) pays for its CEO and Board of Directors to travel via first class.

Other credit unions that provided first class or charter travel to their officials in 2013 were TruMark Financial Credit Union (PA), Redwood Credit Union (CA), Veridian Credit Union (IA), Hapo Community Credit Union (WA), Washington State Employees Credit Union (WA) and Public Service Credit Union (CO). The list is not exhaustive.

However, the Form 990 does not provide any information on how much these credit unions spent on first class travel. An e-mail inquiry to OnPoint Community CU regarding how much the credit union spent on first class travel went unanswered.

Unfortunately, there is no data regarding federal credit unions extending this perk to credit union officials, as federal credit unions are not required to file Form 990s.

Credit unions need to be accountable about how they use their tax subsidy. The tax subsidy is not meant to be used to pay for first class travel by credit union officials.

Friday, May 1, 2015

One CU Failed, Another Conserved

The National Credit Union Administration (NCUA) yesterday closed one credit union and conserved another credit union.

NCUA liquidated TLC Federal Credit Union of Tillamook, Oregon. Fibre Federal Credit Union of Longview, Washington, immediately assumed TLC Federal Credit Union’s members, shares, loans and certain other assets and liabilities.

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

TLC Federal Credit Union reported a loss of almost $3.7 million for all of 2014. As of March 2015, the credit union was critically undercapitalized with a net worth ratio of minus 0.74 percent.

At the time of liquidation, TLC served 13,375 members and had assets of approximately $109 million, according to the credit union’s most recent Call Report.

TLC is the third credit union to be liquidated in 2015

Also, NCUA placed New Bethel Federal Credit Union of Portsmouth, Virginia, into conservatorship due to safety and soundness issues. New Bethel reported losses for all of 2014 and the first quarter of 2015.

ABNB Federal Credit Union, of Chesapeake, Virginia, will operate New Bethel during the conservatorship under a management agreement with NCUA.

New Bethel serves 176 members and has assets of $105,562, according to the credit union’s most recent Call Report.

Read the TLC press release. Read the New Bethel press release.


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