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).
Wednesday, October 31, 2018
Tuesday, October 30, 2018
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.
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.
Monday, October 29, 2018
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.
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.
Thursday, October 25, 2018
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.
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.
Wednesday, October 24, 2018
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.
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.
Monday, October 22, 2018
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.
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.
Friday, October 19, 2018
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.
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.
Thursday, October 18, 2018
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.
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.
Wednesday, October 17, 2018
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.
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.
Tuesday, October 16, 2018
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.
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.
Monday, October 15, 2018
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.
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.
Sunday, October 14, 2018
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.
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.
Friday, October 12, 2018
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.
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.
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.
Thursday, October 11, 2018
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.
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.
Wednesday, October 10, 2018
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.
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.
Tuesday, October 9, 2018
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.
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.
Monday, October 8, 2018
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.
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.
Saturday, October 6, 2018
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.
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.
Friday, October 5, 2018
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.
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.
Tiny California Church-Based CU Hit with Enforcement Order
The California Department of Business Oversight issued a consent order against Jones Methodist Church Credit Union (San Francisco, CA).
The final order is based upon a December 31, 2017 Report of Examination, which detailed unsafe and unsound practices at the $590,634 credit union.
The final order requires the credit union to:
The final order is based upon a December 31, 2017 Report of Examination, which detailed unsafe and unsound practices at the $590,634 credit union.
The final order requires the credit union to:
- hold and document monthly board meetings;
- establish a comprehensive succession plan;
- develop a list of suitable merger partners;
- develop key ratio goals for net worth, return on average assets, operating expenses to gross income, total loans to total shares, and other metrics identified by the board;
- update 2018 budget with documented budget assumptions and what-if scenarios;
- develop and document contingency plans if budget projections are not met;
- post member and investment transactions on a weekly basis;
- complete OFAC audit and complete FinCEN 314(a) scrubs; and
- control share growth and manage the high concentration of shares in one member's account.
Thursday, October 4, 2018
Federal Regulators Issue Statement on Sharing Resources for BSA/AML Compliance
The financial regulatory agencies and the Financial Crimes Enforcement Network on October 3 issued a joint statement outlining how banks and credit unions may enter into collaborative arrangements to share resources in order to more effectively manage their Bank Secrecy Act and anti-money laundering obligations.
Collaborative arrangements described in this statement are most suitable to financial institutions with a community focus, less complex operations, and lower-risk profiles for money laundering or terrorist financing.
The agencies described several situations in which collaboration might be beneficial for financial institutions, such as conducting internal control functions, independent testing and BSA/AML training.
When entering into collaborative arrangements, banks and credit unions should carefully consider the arrangement in relation to their risk profile, ensure adequate documentation, consider legal restrictions, establish appropriate oversight mechanisms, and ensure that the arrangement is consistent with sound principles of corporate governance, the statement said.
The agencies added that “ultimately, each bank is responsible for ensuring compliance with BSA requirements” and that “sharing resources in no way relieves a bank of this responsibility.”
The National Credit Union Administration noted "[t]his may benefit some credit unions, especially smaller institutions which may find hiring or retaining staff with the necessary knowledge a challenge."
Read the statement.
Collaborative arrangements described in this statement are most suitable to financial institutions with a community focus, less complex operations, and lower-risk profiles for money laundering or terrorist financing.
The agencies described several situations in which collaboration might be beneficial for financial institutions, such as conducting internal control functions, independent testing and BSA/AML training.
When entering into collaborative arrangements, banks and credit unions should carefully consider the arrangement in relation to their risk profile, ensure adequate documentation, consider legal restrictions, establish appropriate oversight mechanisms, and ensure that the arrangement is consistent with sound principles of corporate governance, the statement said.
The agencies added that “ultimately, each bank is responsible for ensuring compliance with BSA requirements” and that “sharing resources in no way relieves a bank of this responsibility.”
The National Credit Union Administration noted "[t]his may benefit some credit unions, especially smaller institutions which may find hiring or retaining staff with the necessary knowledge a challenge."
Read the statement.
Study: Service Charge Revenues Up at CUs, Down at Banks
Study finds that service charge revenues were up at credit unions for the 12 months ending June 30, 2018.
According a study by Moebs $ervices, credit unions reported service charge revenues increased by 4.9 percent to $8.6 billion for the year ending on June 30, 2018. However, banks reported a decline in service charge revenues of 1.7 percent to $35.3 billion over the same time period.
Service charges include: account fees, check cashing, overdrafts, penalties for early withdrawal, etc., but does not include swipe fees.
When controlled for asset size, the incidence of service charge revenues at credit unions was nearly double that of banks as of June 30, 2018. Service charge revenues as a percent of assets were 0.43 percent at credit unions versus 0.21 percent at banks.
According a study by Moebs $ervices, credit unions reported service charge revenues increased by 4.9 percent to $8.6 billion for the year ending on June 30, 2018. However, banks reported a decline in service charge revenues of 1.7 percent to $35.3 billion over the same time period.
Service charges include: account fees, check cashing, overdrafts, penalties for early withdrawal, etc., but does not include swipe fees.
When controlled for asset size, the incidence of service charge revenues at credit unions was nearly double that of banks as of June 30, 2018. Service charge revenues as a percent of assets were 0.43 percent at credit unions versus 0.21 percent at banks.
Wednesday, October 3, 2018
McWatters Makes Legislative Recommendations
National Credit Union Administration (NCUA) Chairman McWatters on October 2 in testimony before the Senate Banking Committee recommended four legislative priorities for the agency.
The four areas involve modification of provisions related to field of membership, granting the NCUA vendor authority, authorizing alternative forms of capital, and giving the NCUA Board broader authority to establish a maximum loan rate ceiling for federal credit unions.
Field of Membership
The NCUA is requesting that Congress consider legislation to provide the agency with examination and enforcement authority over certain third-party vendors — including credit union service organizations (CUSOs).
Currently, the NCUA may only examine CUSOs and third-party vendors with their permission and cannot enforce any necessary corrective actions or share the results of a voluntary review with customer credit unions of the third-party vendor. This lack of vendor authority stands in contrast to the powers of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and most state regulators.
In making his case for the authority to examine third-party vendors, McWatters noted that the top five technology service providers serve more than half of all credit unions, representing 92 percent of the credit union system’s assets. Data from the fourth quarter of 2017 show that credit unions using the services of a CUSO accounted for $1.375 trillion in assets or 99.7 percent of the system’s assets.
He also stted that a failure of even one of these vendors represents significant potential risk to the Share Insurance Fund. For example, since 2008, CUSOs have caused more than $500 million in losses to federally insured credit unions, and they have contributed to the failure of 11 credit unions.
Alternative Forms of Capital
Under the Federal Credit Union Act, only low-income credit unions are able to include secondary capital (a form of alternative capital) in the calculation of their statutory net worth ratio. NCUA wants Congress to authorize alternative forms of capital that would count towards the statutory net worth ratio of a credit union without a low-income designation.
Maximum Interest Rate Ceiling on Loans
Federal credit unions are currently subject to a statutory usury rate on loans. The NCUA Board is seeking broader authority to establish a maximum loan rate ceiling for federal credit unions based on financial criteria and for periods as the NCUA Board may determine. McWatters believes this would dramatically simplify the administration of interest rate changes and make it much easier for credit unions to comply.
However, McWatters' testimony does not address reforming the National Credit Union Share Insurance Fund. It also fails to make any recommendations regarding the Central Liquidity Facility.
Read the testimony.
The four areas involve modification of provisions related to field of membership, granting the NCUA vendor authority, authorizing alternative forms of capital, and giving the NCUA Board broader authority to establish a maximum loan rate ceiling for federal credit unions.
Field of Membership
- NCUA is recommending that all types of federally chartered credit unions, not just multiple common bond charters, be allowed to add underserved areas to their fields of membership.
- NCUA urges Congress to consider allowing federal credit unions to serve underserved areas without also requiring those areas to be local communities.
- NCUA recommend that Congress simplify or remove the “facilities” test for determining if an area is underserved.
- Congress consider eliminating the Federal Credit Union Act’s requirement that a multiple common-bond credit union be within “reasonable proximity” of the location of a group to provide services to members of that group.
- Congress should grant explicit authority for web-based communities as a basis for a credit union charter.
- Congress should consider providing greater flexibility for low-income individuals to join federal credit unions. Specifically, NCUA believes that Congress revise the Federal Credit Union Act to allow the NCUA to permit federal credit unions to add anyone residing in a census tract where current projections indicate he or she qualifies as low-income.
The NCUA is requesting that Congress consider legislation to provide the agency with examination and enforcement authority over certain third-party vendors — including credit union service organizations (CUSOs).
Currently, the NCUA may only examine CUSOs and third-party vendors with their permission and cannot enforce any necessary corrective actions or share the results of a voluntary review with customer credit unions of the third-party vendor. This lack of vendor authority stands in contrast to the powers of the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and most state regulators.
In making his case for the authority to examine third-party vendors, McWatters noted that the top five technology service providers serve more than half of all credit unions, representing 92 percent of the credit union system’s assets. Data from the fourth quarter of 2017 show that credit unions using the services of a CUSO accounted for $1.375 trillion in assets or 99.7 percent of the system’s assets.
He also stted that a failure of even one of these vendors represents significant potential risk to the Share Insurance Fund. For example, since 2008, CUSOs have caused more than $500 million in losses to federally insured credit unions, and they have contributed to the failure of 11 credit unions.
Alternative Forms of Capital
Under the Federal Credit Union Act, only low-income credit unions are able to include secondary capital (a form of alternative capital) in the calculation of their statutory net worth ratio. NCUA wants Congress to authorize alternative forms of capital that would count towards the statutory net worth ratio of a credit union without a low-income designation.
Maximum Interest Rate Ceiling on Loans
Federal credit unions are currently subject to a statutory usury rate on loans. The NCUA Board is seeking broader authority to establish a maximum loan rate ceiling for federal credit unions based on financial criteria and for periods as the NCUA Board may determine. McWatters believes this would dramatically simplify the administration of interest rate changes and make it much easier for credit unions to comply.
However, McWatters' testimony does not address reforming the National Credit Union Share Insurance Fund. It also fails to make any recommendations regarding the Central Liquidity Facility.
Read the testimony.
Tuesday, October 2, 2018
Two CUs Switch from Federal to Private Share Insurance
American Share Insurance has announced that $240 million Rocky Mountain Credit Union (Helena, MT) and the $344 million River Valley Credit Union (Miamisburg, OH) have converted from federal to private share insurance provided by American Share Insurance (ASI).
Rocky Mountain Credit Union is the first credit union in Montana to convert from federal to private insurance since American Share Insurance was approved to do business in the state effective January 1, 2018.
With the addition of River Valley Credit Union, ASI now insures 51 credit unions in Ohio.
Read the news release.
Rocky Mountain Credit Union is the first credit union in Montana to convert from federal to private insurance since American Share Insurance was approved to do business in the state effective January 1, 2018.
With the addition of River Valley Credit Union, ASI now insures 51 credit unions in Ohio.
Read the news release.
Two Bank Mergers with CUs Completed
Two bank mergers into credit unions were completed at the end of the third quarter.
The merger of Georgia Heritage Bank (Dallas, GA) into LGE Community Credit Union (Marietta, GA) became effective on October 1, 2018.
Achieva Credit Union (Dunedin, FL) completed its merger with Preferred Community Bank (Fort Myers, FL) on September 30, 2018.
Customers of Preferred Community Bank (PCB) must sign and submit the Opt-In Agreement by December 31, 2018 indicating their desire to become a member of Achieva Credit Union (ACU).
Achieva Credit Union stated:
For customers of Preferred Community Bank that do not otherwise meet Achieva's eligibility requirements, the credit union will waive the $10 donation to the Achieva Foundation.
The merger of Georgia Heritage Bank (Dallas, GA) into LGE Community Credit Union (Marietta, GA) became effective on October 1, 2018.
Achieva Credit Union (Dunedin, FL) completed its merger with Preferred Community Bank (Fort Myers, FL) on September 30, 2018.
Customers of Preferred Community Bank (PCB) must sign and submit the Opt-In Agreement by December 31, 2018 indicating their desire to become a member of Achieva Credit Union (ACU).
Achieva Credit Union stated:
If you are currently a PCB depositor, ACU will convert your current account(s) at PCB to a comparable account(s) at ACU at the time of consolidation. For any loan customers without a deposit relationship with PCB, ACU will make the first $1 deposit into your savings account to ensure your ownership of at least one membership share. In either case, to make this transition, ACU will waive its customary $15 membership fee for all PCB customers.
For customers of Preferred Community Bank that do not otherwise meet Achieva's eligibility requirements, the credit union will waive the $10 donation to the Achieva Foundation.
Monday, October 1, 2018
Taxi Medallion Lender LOMTO Closed
The National Credit Union Administration on Sept. 30 liquidated LOMTO Federal Credit Union of Woodside, New York, as troubled taxi medallion loans ultimately caused the failure of the credit union.
Teachers Federal Credit Union, of Hauppauge, New York, assumed LOMTO’s members and most shares as well as some loans and other assets.
This follows Teachers FCU purchase and assumption of Melrose Credit Union on September 1.
At the time of liquidation and subsequent purchase by Teachers Federal Credit Union, LOMTO served 2,283 members and had assets of approximately $156 million, according to the credit union’s most recent Call Report.
The credit union was insolvent as of June 30, 2018. Click here, to review LOMTO's financial performance at the end of the second quarter of 2018.
LOMTO Federal Credit Union is the sixth federally insured credit union liquidation in 2018. LOMTO is the third credit union that specialized in taxi medallion lending to be liquidated this year.
Read the press release.
Teachers Federal Credit Union, of Hauppauge, New York, assumed LOMTO’s members and most shares as well as some loans and other assets.
This follows Teachers FCU purchase and assumption of Melrose Credit Union on September 1.
At the time of liquidation and subsequent purchase by Teachers Federal Credit Union, LOMTO served 2,283 members and had assets of approximately $156 million, according to the credit union’s most recent Call Report.
The credit union was insolvent as of June 30, 2018. Click here, to review LOMTO's financial performance at the end of the second quarter of 2018.
LOMTO Federal Credit Union is the sixth federally insured credit union liquidation in 2018. LOMTO is the third credit union that specialized in taxi medallion lending to be liquidated this year.
Read the press release.
Merger Creates $2.2 Billion Multi-State Credit Union
The merger between Nuvision Credit Union (Huntington, CA) and Denali Federal Credit Union (Anchorage, AK) became effective on October 1.
The merger was approved by National Credit Union Administration on August 15 and Denali's members on September 21.
The combined credit union would operate in five states -- Alaska, Washington, California, Arizona and Wyoming -- and have over $2.2 billion in assets.
As of the June 2018, Nuvision had almost $1.59 billion in assets and Denali had $671 million in assets.
Denali will operate as a division of Nuvision Credit Union.
The merger was approved by National Credit Union Administration on August 15 and Denali's members on September 21.
The combined credit union would operate in five states -- Alaska, Washington, California, Arizona and Wyoming -- and have over $2.2 billion in assets.
As of the June 2018, Nuvision had almost $1.59 billion in assets and Denali had $671 million in assets.
Denali will operate as a division of Nuvision Credit Union.
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