The Illinois Department of Financial and Professional Regulation, Division of Financial Institutions assessed a civil money penalty against SmartChoice Credit Union (Spring Valley, IL) for its failure to take timely remedial action with respect to specific violations.
During a December 31, 2014 exam, a Document of Resolution (DOR) was issued noting that required Financial Crimes Enforcement Network (FinCEN) searches had not been completed.
A follow up contact was completed on April 30, 2015, the issue had not be resolved and another DOR was issued.
During another full exam at the end of 2015, the issue was unresolved.
A 2017 contact with the credit union further noted the issue had not been addressed. Also, the Examiner in Charge obtained evidence from a 2018 FinCEN report that the credit union had not downloaded the reports from FinCEN to complete a search.
The state regulator fined the credit union $1,000 -- the maximum amount permissible for credit unions with less than $10 million in assets.
Read the enforcement order.
Showing posts with label Document of Resolution. Show all posts
Showing posts with label Document of Resolution. Show all posts
Thursday, October 10, 2019
Wednesday, October 2, 2019
GAO Reports on Information Sharing Between Regulators and FinCEN
The Government Accountability Office (GAO) recently released a report on the Bank Secrecy Act (BSA).
The report examined, among other objectives, how the Financial Crimes Enforcement Network (FinCEN) and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting.
However, GAO found that FinCEN did not consistently communicate available metrics and when FinCEN did so, it did it on an ad-hoc basis.
Below is information specific to credit unions from the report.
According to the report, each federal credit union must receive a BSA examination each examination cycle — although the frequency and scope of these examinations may vary based on the credit union’s size and other risk factors. National Credit Union Administration (NCUA) officials noted that certain small credit unions with limited separation of duties may be examined more frequently.
According to the report, NCUA made 50 referrals for potential BSA violations to FinCEN between fiscal year 2015 and 2018 (see Table 3).
Appendix II has statistics on the number of BSA examinations and violations.
The most common BSA violations cited by the federal banking regulators were violations of requirements to report suspicious activities, 314(a) information-sharing requirements, rules for filing of reports, BSA training, and a system of internal controls.
NCUA accounted for the majority of 314(a) information-sharing violations, which include a financial institution failing to expeditiously search its records after receiving an information request from FinCEN based on credible evidence concerning money laundering.
Between fiscal year 2015 and the first half of fiscal year 2018, NCUA did 14,575 BSA examinations. During that time period, NCUA found 8,477 BSA violations, which resulted in 4,588 informal enforcement actions. NCUA counts each BSA violation in a Document of Resolution as an informal action.
However, NCUA did not issue any formal enforcement action against a credit union during that time period.
The report examined, among other objectives, how the Financial Crimes Enforcement Network (FinCEN) and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting.
However, GAO found that FinCEN did not consistently communicate available metrics and when FinCEN did so, it did it on an ad-hoc basis.
Below is information specific to credit unions from the report.
According to the report, each federal credit union must receive a BSA examination each examination cycle — although the frequency and scope of these examinations may vary based on the credit union’s size and other risk factors. National Credit Union Administration (NCUA) officials noted that certain small credit unions with limited separation of duties may be examined more frequently.
According to the report, NCUA made 50 referrals for potential BSA violations to FinCEN between fiscal year 2015 and 2018 (see Table 3).
Appendix II has statistics on the number of BSA examinations and violations.
The most common BSA violations cited by the federal banking regulators were violations of requirements to report suspicious activities, 314(a) information-sharing requirements, rules for filing of reports, BSA training, and a system of internal controls.
NCUA accounted for the majority of 314(a) information-sharing violations, which include a financial institution failing to expeditiously search its records after receiving an information request from FinCEN based on credible evidence concerning money laundering.
Between fiscal year 2015 and the first half of fiscal year 2018, NCUA did 14,575 BSA examinations. During that time period, NCUA found 8,477 BSA violations, which resulted in 4,588 informal enforcement actions. NCUA counts each BSA violation in a Document of Resolution as an informal action.
However, NCUA did not issue any formal enforcement action against a credit union during that time period.
Wednesday, October 31, 2018
Employees Raise Concerns About PenFed's AML Program
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).
"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, December 13, 2017
Metsger: Our Hands Were Tied
In a speech last week, National Credit Union Administration (NCUA) Board Member Rick Metsger indicated that the agency's hands were tied to address the excessive exposure of some credit unions to taxi medallion loans.
Metsger stated that NCUA was aware of and had warned about the risk of being too concentrated in taxi medallion loans, but according to the press release, "NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act that specifically exempted credit unions chartered for the purpose of making, or had a history of primarily making, member business loans, from the statutory member business lending cap. A Senate report on that legislation specifically noted taxi medallion lending was an example of loan activity that was exempt from the cap."
The Senate Report also mentioned specifically credit unions that financed fishing or shrimp boats, tractor trailers, church construction, or agriculture have an exception from the aggregate business loan cap. So, is NCUA's ability to curb risky lending by credit unions making these type of loans limited?
While the legislation exempted some credit unions from the business loan cap of 12.25 percent of assets, it did not mean that NCUA should abdicate its role of being a safety and soundness regulator.
NCUA did not have to allow these credit unions to put almost all of their assets in taxi medallion loans. NCUA still had the authority to limit these credit unions' exposure to taxi medallion loans, if this lending posed a safety and soundness risk.
For example, it could follow the lead of the Federal Deposit Insurance Corporation (FDIC). The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital.
As one commenter wrote to my December 8 blog post, NCUA could have issued a document of resolution (DOR) to each medallion lending credit union. This could have limited their concentration in taxi medallion loans and reduce the risk to the National Credit Union Share Insurance Fund.
Metsger stated that NCUA was aware of and had warned about the risk of being too concentrated in taxi medallion loans, but according to the press release, "NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act that specifically exempted credit unions chartered for the purpose of making, or had a history of primarily making, member business loans, from the statutory member business lending cap. A Senate report on that legislation specifically noted taxi medallion lending was an example of loan activity that was exempt from the cap."
The Senate Report also mentioned specifically credit unions that financed fishing or shrimp boats, tractor trailers, church construction, or agriculture have an exception from the aggregate business loan cap. So, is NCUA's ability to curb risky lending by credit unions making these type of loans limited?
While the legislation exempted some credit unions from the business loan cap of 12.25 percent of assets, it did not mean that NCUA should abdicate its role of being a safety and soundness regulator.
NCUA did not have to allow these credit unions to put almost all of their assets in taxi medallion loans. NCUA still had the authority to limit these credit unions' exposure to taxi medallion loans, if this lending posed a safety and soundness risk.
For example, it could follow the lead of the Federal Deposit Insurance Corporation (FDIC). The FDIC restricts the amount of taxicab medallion loans that Medallion Bank may finance to three times Tier 1 capital.
As one commenter wrote to my December 8 blog post, NCUA could have issued a document of resolution (DOR) to each medallion lending credit union. This could have limited their concentration in taxi medallion loans and reduce the risk to the National Credit Union Share Insurance Fund.
Tuesday, September 19, 2017
New Horizons CU Under Cease and Desist Order
The Alabama Credit Union Administration issued a cease and desist order against New Horizons Credit Union (Mobile, AL).
The cease and desist order found that the $221.5 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an February 23, 2017 Letter of Understanding and Agreement (LUA).
Specifically, the cease and desist order found:
The cease and desist order required the credit union to address corporate governance deficiencies. The credit union's board is expected to improve its oversight of the credit union's affairs.
The credit union is further required to form a director's committee. One of its duties is to identify at least 3 potential merger partners. Discussions with potential merger partners are to be reported to the credit union's board and the credit union's regulator in writing no later than October 1, 2017.
The credit union will implement a prompt corrective action plan to become well-capitalized.
The credit union must also address credit risk and compliance risk problems. For example, credit union management must immediately charge off all loans that meet or exceed the credit union's charge off policy. If loans 90 days or more past due are not charged off, management must document the reason why these loans are not charged off. the collateral repossessed, and the collateral is in the process of foreclosure and repossession.
The cease and desist order became effective on September 3, 2017.
Read the order.
The cease and desist order found that the $221.5 million credit union and one or more of its institution-affiliated parties have engaged in unsafe or unsound practices, violation of law, rule, and regulations, and have violated the conditions set forth in an February 23, 2017 Letter of Understanding and Agreement (LUA).
Specifically, the cease and desist order found:
- The credit union failed to comply with full and fair disclosure of its financial and operating conditions.
- The board of directors failed to adequately supervise and direct credit union's management.
- The credit union had inadequate management.
- The credit union failed to address a number of material deficiencies listed in the Document of Resolution Status Report in a March 2017 Examination Report and comply with terms and conditions specified in the LUA.
- The credit union operated with capital that was classified as adequately capitalized.
- The credit union had ineffective credit risk management practice and poor underwriting practices that resulted in poor asset quality and high net charge offs.
- The credit union did not timely charge off uncollectible loans.
- The credit union failed to follow Generally Accepted Accounting Principles to calculate its allowance for loan and lease losses.
The cease and desist order required the credit union to address corporate governance deficiencies. The credit union's board is expected to improve its oversight of the credit union's affairs.
The credit union is further required to form a director's committee. One of its duties is to identify at least 3 potential merger partners. Discussions with potential merger partners are to be reported to the credit union's board and the credit union's regulator in writing no later than October 1, 2017.
The credit union will implement a prompt corrective action plan to become well-capitalized.
The credit union must also address credit risk and compliance risk problems. For example, credit union management must immediately charge off all loans that meet or exceed the credit union's charge off policy. If loans 90 days or more past due are not charged off, management must document the reason why these loans are not charged off. the collateral repossessed, and the collateral is in the process of foreclosure and repossession.
The cease and desist order became effective on September 3, 2017.
Read the order.
Wednesday, October 16, 2013
Region V Director Overrode Examiners' Attempt to Limit Chetco's MBL Exposure
In case you missed it, there is an interesting excerpt from NCUA's Material Loss Review on Chetco FCU.
NCUA examiners were trying to place limits on the credit union's member business loan (MBL) portfolio; but the Region V Regional Director overrode its examiners granting Chetco's appeal to increase its MBL exposure.
At the time the Region V Regional Director granted Chetco's appeal, the credit union had a composite CAMEL rating of 3 indicating supervisory concerns.
This does make you question the judgement of the Region V Regional Director, especially when the available evidence showed that Chetco was a supervisory concern and MBL delinquencies were on the rise.
NCUA examiners were trying to place limits on the credit union's member business loan (MBL) portfolio; but the Region V Regional Director overrode its examiners granting Chetco's appeal to increase its MBL exposure.
“Examiners issued a DOR and placed restrictions on further MBL lending. In the DOR, examiners required Chetco management to reduce the MBL portfolio as a percentage of net worth to 500 percent by December 31, 2009. Management appealed the reduction of MBL’s, stating that Chetco had approximately $100 million in MBL loan applications in the pipeline prior to the NCUA issuing the DOR. In its appeal, Chetco management requested that the Region:
[e]liminate the quarterly Member Business Loan (MBL)/Net Worth ratio targets and increase the December 31, 2009 limits on the MBL/Net Worth ratio from 500 percent to 600 percent.
In a letter to Chetco management dated March 3, 2009, the Region V Regional Director granted the appeal.”
At the time the Region V Regional Director granted Chetco's appeal, the credit union had a composite CAMEL rating of 3 indicating supervisory concerns.
This does make you question the judgement of the Region V Regional Director, especially when the available evidence showed that Chetco was a supervisory concern and MBL delinquencies were on the rise.
Friday, January 25, 2013
Illinois CU Fined for Violating MBL Rules
Gas and Electric Credit Union of Rock Island was fined by the Illinois Department of Financial and Professional Regulation Division for Financial Institutions for violating the state's member business loan regulations.
The state regulator found that the credit union had improperly granted two business loans to a member of the credit union, in an aggregate amount of $120,125, without having a member business loan policy or experienced member business lending personnel as required by the state's rules.
The credit union was hit with a Document of Resolution requiring the credit union to divest the two business loans.
A special examination found that the credit union had failed to divest the loans as required by the remedial order and the credit union was assessed a fine of $5,000 for each violation.
Read the order.
The state regulator found that the credit union had improperly granted two business loans to a member of the credit union, in an aggregate amount of $120,125, without having a member business loan policy or experienced member business lending personnel as required by the state's rules.
The credit union was hit with a Document of Resolution requiring the credit union to divest the two business loans.
A special examination found that the credit union had failed to divest the loans as required by the remedial order and the credit union was assessed a fine of $5,000 for each violation.
Read the order.
Monday, October 10, 2011
NCUA Ineffective in Follow Up on Unresolved Exam Issues
An audit by NCUA's Office of the Inspector General (IG) found that NCUA needs to improve its follow-up process with regard to Document of Resolution (DOR).
The audit report concluded that "neither NCUA's Office of Examination and Insurance (E&I) nor the five regional offices effectively monitored or followed up on unresolved DOR items." This failure to follow up on these DORs represented "missed opportunities to mitigate losses" to the share insurance fund.
A DOR is issued by NCUA examination staff outlining "plans and agreements reached with credit union officials to reduce identified areas of unacceptable risk." The DOR will identify persons responsible and timeframes for correction.
The audit noted that in five of ten credit union failures reviewed by the IG, the same DOR issues were repeated over several examinations at the same credit union and these unaddressed DOR issues contributed to the failure of these credit unions.
The IG audit further notes that 4,653 federally insured credit unions had over 26,000 unresolved DOR items at the end of 2010. Fifty-seven percent of the credit unions had a composite CAMEL rating of 2 during their last exam.
Twenty-three percent of these credit unions had unresolved DOR items related to management issues. The report noted that 88 percent of the management-related DOR issues were associated with "Management Understanding/Response” and “Management Practices” risk factors.
The IG audit notes that a number of these unresolved DOR issues have been around for a long time. Fifty-even were over 10 years old; 776 were 5-10 years old; 2,305 were 3-5 years old; 3,098 were 2-3 years old, 9,055 were 1-2 years old, and 10,870 were less than one year old.
The IG stated that examiners failed to take timely corrective actions with regard to unresolved DORs. These actions could have included a CAMEL ratings downgrade or a stronger supervisory action.
Read the report.
The audit report concluded that "neither NCUA's Office of Examination and Insurance (E&I) nor the five regional offices effectively monitored or followed up on unresolved DOR items." This failure to follow up on these DORs represented "missed opportunities to mitigate losses" to the share insurance fund.
A DOR is issued by NCUA examination staff outlining "plans and agreements reached with credit union officials to reduce identified areas of unacceptable risk." The DOR will identify persons responsible and timeframes for correction.
The audit noted that in five of ten credit union failures reviewed by the IG, the same DOR issues were repeated over several examinations at the same credit union and these unaddressed DOR issues contributed to the failure of these credit unions.
The IG audit further notes that 4,653 federally insured credit unions had over 26,000 unresolved DOR items at the end of 2010. Fifty-seven percent of the credit unions had a composite CAMEL rating of 2 during their last exam.
Twenty-three percent of these credit unions had unresolved DOR items related to management issues. The report noted that 88 percent of the management-related DOR issues were associated with "Management Understanding/Response” and “Management Practices” risk factors.
The IG audit notes that a number of these unresolved DOR issues have been around for a long time. Fifty-even were over 10 years old; 776 were 5-10 years old; 2,305 were 3-5 years old; 3,098 were 2-3 years old, 9,055 were 1-2 years old, and 10,870 were less than one year old.
The IG stated that examiners failed to take timely corrective actions with regard to unresolved DORs. These actions could have included a CAMEL ratings downgrade or a stronger supervisory action.
Read the report.
Monday, July 26, 2010
Report Shows Sharp Rise in Administrative Actions at Credit Unions
I would like to acknowledge an excellent piece of investigative journalism that appears in the July 26th The Safety & Soundness Report by Aaron Steinberg (paid subscription).
According to this special report, at least 75 percent of all credit unions are under some type of administrative action letter -- Document of Resolution (DOR), Letter of Understanding and Agreement (LUA), and Cease and Desist Order (C&D).
The report states that "[o]f the 7,500+ CUs, both state and
federal, currently in operation:
• 5,711 are operating under DORs;
• 252 are operating under LUAs; and
• 21 are operating under C&Ds."
The report points out that the number of administrative action letters have grown rapidly, since the beginning of 2008. For example, there were 62 LUAs issued in 2008. LUA issuances climbed to 140 in 2009 and credit union regulators are on a pace to issue 226 LUAs in 2010 (based on January 1 thru June 1 information).
The data for this special report was obtained through a Freedom of Information Act request.
According to this special report, at least 75 percent of all credit unions are under some type of administrative action letter -- Document of Resolution (DOR), Letter of Understanding and Agreement (LUA), and Cease and Desist Order (C&D).
The report states that "[o]f the 7,500+ CUs, both state and
federal, currently in operation:
• 5,711 are operating under DORs;
• 252 are operating under LUAs; and
• 21 are operating under C&Ds."
The report points out that the number of administrative action letters have grown rapidly, since the beginning of 2008. For example, there were 62 LUAs issued in 2008. LUA issuances climbed to 140 in 2009 and credit union regulators are on a pace to issue 226 LUAs in 2010 (based on January 1 thru June 1 information).
The data for this special report was obtained through a Freedom of Information Act request.
Subscribe to:
Posts (Atom)
