Number of Outstanding Enforcement Orders Fell in 2019

The National Credit Union Administration is reporting that outstanding enforcement orders against federally-insured credit unions fell in 2019.

Outstanding enforcement orders were 278 at the end of 2018. In comparison, outstanding enforcement orders at the end of 2019 were 227.

An enforcement order includes Preliminary Warning Letters (PWLs), Letters of Understanding and Agreement (LUAs), Cease and Desist Orders (CDOs), and Conservatorships.

The following table shows the number of outstanding enforcement orders by type for state chartered credit unions and federal credit unions from 2014 through 2019.

Enforcement Actions Issued in 2019 by NCUA

The National Credit Union Administration stated that the number of preliminary warning letters (PWLs) and unpublished Letters of Understanding and Agreement (LUAs) fell in 2019 compared to 2018, but the number of Cease and Desist Orders (CDOs) increased in 2019.

The following chart shows the number of PWLS, LUAs, and CDOs from 2013 to 2019.

The information on the number of PWLS, LUAs, and CDOs was obtained from a Freedom of Information Act request to the agency.

The two credit unions that were issued Orders to Cease and Desist were Defense Logistics Federal Credit Union (Dover, NJ) and Phi Beta Sigma Federal Credit Union (Washington, D.C.).

CFPB Policy Statement Clarifies Abusive Practices

The Consumer Financial Protection Bureau (CFPB) on January 24 issued a policy statement outlining how it intends to cite and challenge “abusive” conduct in supervision or enforcement actions. The statement provides some long-awaited guidance on how the bureau views abusive conduct versus conduct which is unfair or deceptive. The policy statement is effective immediately.

When determining whether conduct meets the “abusive” standard in its supervision and enforcement activities, the CFPB said it will consider whether the harm to consumers outweighs the benefit to consumers. The bureau will also generally avoid “dual pleading” both abusiveness and unfairness or deception violations that stem from the same or nearly all of the same facts. Finally, the CFPB said it generally does not intend to seek monetary relief for abusive violations in instances where there is good-faith effort to comply with the abusiveness standard, except to address consumer injuries caused by the conduct.

“We’ve developed a policy that provides a solid framework to prevent consumer harm while promoting the clarity needed to foster consumer beneficial products as well as compliance in the marketplace, now and in the future,” said CFPB Director Kathy Kraninger. The CFPB did not rule out a future rulemaking to further define the abusiveness standard.

Read more.

NCUA Should Seek Feedback on CAMEL Ratings

The National Credit Union Administration (NCUA) should seek feedback from credit unions and other stakeholders concerning the current use of CAMEL ratings by the agency.

The Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System are currently seeking feedback on how the agencies use their CAMELS ratings in enforcement action and application processes.

The two banking agencies stated that this effort is consistent with the agencies' commitment to increase transparency, improve efficiency, support innovation, and provide opportunities for public feedback.

For example, the two banking regulators are looking for input on the extent that they appropriately communicate and support each rating after an on-site examination or at the end of an examination cycle, including communicating the effect of each rating or finding on the composite rating.

The bank regulators are also interested in how the CAMELS rating system vary from one examination, or examination cycle, to the next.

Bank regulators want to know whether the CAMELS rating system is sufficiently flexible to reflect differences between financial institutions such as size, business models, risks, and internal and external operating environments.

Another area that bank regulators want input on is steps, if any, the agencies should take to promote the consistent use of CAMELS ratings in applications and enforcement matters.

These are just some of the topics that the bank regulators are seeking feedback on.

NCUA would benefit from receiving this feedback from stakeholders on its use of CAMEL ratings.

Read the Federal Register notice.

Illinois CU Fined for Failure to Take Timely Remedial Actions

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.

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.

New Haven County CU Enters into Consent Order, Former CEO Pleads Guilty to Bank Fraud

New Haven County Credit Union (North Haven, CT) has entered into a consent order on August 5, 2019 with the Connecticut Department of Banking regarding unsafe and unsound banking practices.

The consent order addressed numerous deficiencies at the $20 million credit union that need to be addressed.

The consent order paints a picture of weak board oversight of the credit union. The consent order mandated the active participation of the credit union board of directors in credit union affairs. This included at least a monthly meeting of the board and a minimum attendance requirement for board members of at least 75 percent of the meetings.

In addition, the consent order required that the credit union will retain qualified board members, as well as management and staff.

The credit union is required to put into place internal controls and ensure financial records are complete and accurate.

The credit union is expected to file timely and accurate Call Reports, including ensuring that delinquent loans are properly reported and Allowance for Loan and Lease Losses are adequately funded.

The consent order requires the credit union to develop a strategic plan covering at lease three years. The credit union board is also expected to develop written budget consistent with safe and sound banking practices.

The credit union will ensure that employees and Board members are provided with Bank Secrecy Act training and that there is a comprehensive review of the credit union's BSA program.

The consent order requires the credit union to establish a comprehensive Information Security Program.

In a related story, the former credit union Chief Executive Officer (CEO), James Farrell, pleaded guilty to bank fraud. Farrell was the CEO of the New Haven County Credit Union from approximately 1992 to June 2015 and was then retained by the credit union's board of directors to provide assistance to the new CEO until March 2016.

Between July 2011 and March 2016, Farrell defrauded the credit union by transferring funds from NHCCU’s general ledger account to the account held by The Rib House, a restaurant located in East Haven, Connecticut. Farrell provided financial and bookkeeping services to The Rib House from 2010 to 2016.

Read the order.

Read the Justice Department press release.

Six CUs Agree to Fined for Late Filing Q4 2018 Call Reports

The National Credit Union administration is reporting that 6 federally insured credit unions have agreed to pay civil monetary penalties for filing late Call Reports in the fourth quarter of 2018.

The total amount of penalties paid was $5,073.

Penalties for credit unions filing late Call Reports ranged from $156 to $2,665.

The size of the civil monetary penalties is based on three factors: the credit union’s asset size, its Call Report filing history, and the length of the filing delay. The Federal Credit Union Act requires any funds received through civil monetary penalties be sent to the U.S. Treasury.

Three of the six credit unions had assets of less than $10 million, and three had assets between $10 million and $50 million. Four of the six credit unions had been late in at least one prior quarter.

Student CU Connect CUSO Settles with CFPB over ITT Private Student Loan Program

The Consumer Financial Protection Bureau (CFPB) on June 14 announced a settlement with Student CU Connect CUSO, LLC (CUSO), a company set up to hold and manage private loans for students at ITT Technical Institute.

Student CU Connect CUSO is headquartered in Overland Park, Kansas.

In a complaint, the CFPB alleged that the CUSO provided substantial assistance to ITT Educational Services, Inc. in engaging in unfair acts and practices.

Under the terms of the proposed stipulated judgment, CUSO must stop collecting on all outstanding CUSO loans, discharge all outstanding CUSO loans, and ask all consumer reporting agencies to which CUSO furnished information to delete tradelines relating to CUSO loans. The order also requires CUSO to provide notice to all consumers with outstanding CUSO loans that their debt has been discharged and is no longer owed and that CUSO is seeking to have the relevant tradelines deleted. The total amount of loan forgiveness is currently estimated to be $168 million.

Forty-four states plus the District of Columbia have also settled with CUSO today on the same terms.

Read the complaint.

Read the settlement.

Bank Groups Write CFPB to Not Cede Supervisory Authority of Large CUs to NCUA

The American Bankers Association and the Consumer Bankers Association on May 3 wrote to the Consumer Financial Protection Bureau (CFPB) director expressing strong opposition to a recent request for the bureau to cede its supervisory authority for the nation’s largest credit unions to the National Credit Union Association (NCUA).

The letter was in response to a years-long campaign waged by credit unions, their trade associations, and, remarkably, their federal prudential regulator, seeking special treatment from the CFPB for the credit union industry.

The associations pointed out that the Dodd-Frank Act clearly communicates Congress’ intention that the credit unions be held to the same supervisory standards as other large depository institutions. Granting the request for special treatment to credit unions with at least $10 billion in assets would be in direct conflict with congressional intent and would contribute to an unlevel regulatory playing field between banks and credit unions, they said.

“While we believe that the bureau should take every opportunity to reduce the regulatory burden for all financial institutions and eliminate duplicative supervision, we strongly disagree with the premise that the consumer financial services offered by credit unions inherently differ from those offered by other financial institutions competing in the marketplace,” the groups wrote. “Policymakers have reason to seriously question the appropriateness of the special treatment being sought by credit unions and their federal prudential regulatory authority, the National Credit Union Administration.”

Read the letter.

Fewer Enforcement Orders Issued by NCUA in 2018

Fewer enforcement orders were issued by the National Credit Union Administration (NCUA) during 2018.

The number of Preliminary Warning Letters (PWLs) issued during 2018 fell by 10 to 46.

Letters of Understanding and Agreement (LUAs) issued in 2018 declined to 96 from 105 in 2017. All LUAs issued in 2018 were unpublished.

There were zero Cease and Desist Orders (CDOs) issued in 2018, down from 2 in 2017.

The information was obtained from NCUA by a Freedom of Information Act request.

The following chart shows the number of orders issued by NCUA from 2013 to 2018.

Fewer Outstanding Enforcement Actions at the End of 2018

The number of outstanding enforcement actions for federally insured credit unions decreased from 296 at the end of 2017 to 278 at the end of 2018, according to the 2018 Annual Report of the National Credit Union Administration (NCUA).

Enforcement actions include Preliminary Warning Letters (PWLs), Letters of Understanding and Agreement (LUAs), Cease-and-Desist Orders (CDOs), and Conservatorships.

The following table shows the number of outstanding enforcement actions by type for both state chartered and federal credit unions between 2014 and 2018 (click on image to enlarge).

Regulator Cites CU for Illegally Operating in California, NCUA Is Missing in Action

The California Department of Business Oversight issued a cease and desist order on November 29 against Indian Federal Credit Union (Santa Clara, CA) and Atri Macharla.

The state regulator found that Indian Federal Credit Union was operating in the state without first obtaining a certificate allowing it to operate as a credit union in violation of state law.

The cease and desist order requires Indian Federal Credit Union to stop operating or advertising as a credit union until the credit union has obtained a certificate from the commissioner.

Moreover, Indian Federal Credit Union advertises itself as a federal credit union. But there is no evidence of Indian Federal Credit Union on the National Credit Union Administration's website.

The National Credit Union Administration (NCUA) is the charterer and regulator of federal credit unions.

Also, federal credit unions are required to be insured by the National Credit Union Share Insurance Fund. However, the credit union's website makes no mention to deposit insurance.

So, why hasn't NCUA acted to block this credit union from operating?

Shouldn't NCUA be concerned about a credit union calling itself a federal credit union?

It is possible that NCUA is not aware of this institution calling itself a federal credit union.

But after this commentary, NCUA has no excuse for not acting.

Read the enforcement order.

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.

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:

• 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.

Read the order.

Regulators Affirm No Enforcement Actions Based Upon Guidance

In an important joint statement issued today, the financial regulatory agencies clarified the role of supervisory guidance in bank supervision, noting that it “does not have the force and effect of law.” Regulators from the Federal Reserve, Federal Deposit Insurance Corporation, Office of Comptroller of the Currency, Consumer Financial Protection Bureau and the National Credit Union Administration affirmed that supervisory guidance is intended to outline expectations and general views regarding appropriate practices for a given subject area, and that they would not pursue enforcement actions based on it.

The agencies highlighted additional ongoing efforts to clarify policies and practices related to supervisory guidance. Specifically, they said they would: limit the use of numerical thresholds or bright-lines when outlining expectations in supervisory guidance; not criticize institutions for “violations” of supervisory guidance; strive to reduce the issuance of multiple guidance documents; and continue working to clarify the role of supervisory guidance in communications with exam teams and supervised institutions. They also noted that seeking public comment on guidance does not signal that the guidance is intended to have the force and effect of a regulation or law.

Read the joint statement.

myCUmortgage Consent Order

The Massachusetts Division of Banks alleged that myCUmortgage (Beavercreek, OH), a credit union service organization (CUSO), had engaged in unlicensed mortgage lending activity prior to obtaining the appropriate license from the state.

According to the July 18 consent order, myCUmortgage

• will pay an administrative penalty of $60,000;
• shall establish, implement and maintain policies and procedures to ensure that the Company refrains from engaging in any business activity that requires approval or licensure from the Division unless and until it obtains the appropriate license or approval from the Commissioner of Banks;
• must establish, implement, and maintain policies and procedures to ensure that all applicable personnel receive adequate instruction and ongoing, periodic training to ensure proper implementation and execution of the revised policies and procedures implemented pursuant to this Consent Order; and
• will implement all corrective actions identified in the October 12, 2017 Report of Examination.

The order states that if myCUmortgage fails to comply with the terms of the consent order, the CUSO could see the suspension and/or revocation of its license, or other formal regulatory approval.

Read the consent order.

Utah to Fine Broker-Dealers over Credit Union Violations

Utah Division of Securities will fine fine three large independent broker-dealers, Cetera Advisor Networks, LPL Financial and CUSO Financial Services, a combined $2.25 million for violating industry rules stemming from how broker-dealers do business with credit unions, according to Investment News.

The three petitions found that the broker-dealers "failed to comply with the regulatory requirements governing networking arrangements between broker-dealers and credit unions, approved the use of misleading sales and advertising materials and other information provided to customers and the public, failed to follow and enforce [their] policies and procedures and failed to reasonably supervise the businesses run through the credit unions."

Utah is looking to fine Cetera Advisor Networks $1 million, LPL Financial $750,000 and CUSO Financial Services $500,000.

The news story has a link to the petition against Cetera Advisor Networks.

Outstanding Enforcement Actions, 2010 - 2017

In the National Credit Union Administration's 2017 Annual Report, the agency reported outstanding enforcement actions against federally insured credit unions fell from 306 in 2016 to 296 in 296.

Enforcement actions include Preliminary Warning Letters, Letters of Understanding and Agreement (both published and unpublished), Cease and Desist Orders, and Conservatorships.

The following table provides information on the number of outstanding enforcement actions by type of action for both state chartered credit unions (SCCU) and federal credit unions (FCU) between 2010 and 2017.

Fewer Regulatory Actions Issued by NCUA in 2017

The National Credit Union Administration (NCUA) issued fewer Preliminary Warning Letters (PWLs) and Letters of Understanding and Agreement (LUAs) in 2017.

According to information obtained by a Freedom of Information Act, the agency issued 56 PWLs in 2017 -- down from 69 in 2016.

There were 10 fewer LUAs issued in 2017 compared to 2016 with 105 issued in 2017. All of the LUAs were unpublished.

In addition, there was not a change in the number of cease and desist orders (CDOs) issued at 2.

The following chart shows the number of PWLs, LUAs, and CDOs issued by NCUA between 2013 and 2017.