Last night, Senator Mark Udall (D - CO) introduced legislation (S. 509) that would more than double the business lending authority for eligible credit unions.
Currently, the member business lending limit is 12.25 percent of assets. This bill would raise the aggregate limit to 27.5 percent of assets.
This marks the fifth consecutive Congress where legislation has been introduced to raise the member business lending limit for credit unions.
I feel like I am trapped in a time loop and like Phil Connors (Bill Murray) in the movie Groundhog Day, instead of waking up to Sonny and Cher on the radio, I am waking to a credit union business lending bill.
Wednesday, March 9, 2011
Tuesday, March 8, 2011
NCUA Liquidates Land of Enchantment FCU
The National Credit Union Administration placed Land of Enchantment Federal Credit Union of Santa Fe, New Mexico, into liquidation.
Guadalupe Credit Union of Santa Fe, New Mexico, purchased and assumed Land of Enchantment’s assets, liabilities and members.
At closure, Land of Enchantment Federal Credit Union had approximately $8.6 million in assets and served 1,593 members. The credit union was critically undercapitalized as of December 2010 with a net worth ratio of 1.40 percent and reported that 9.67 percent of its loans were at least 60 days delinquent. Land of Enchantment FCU had reported losses for the last three years of $38,100 for 2008, $763,552 for 2009, and $296,856 for 2010.
This is the fifth credit union to be liquidated in 2010.
Read the press release.
Guadalupe Credit Union of Santa Fe, New Mexico, purchased and assumed Land of Enchantment’s assets, liabilities and members.
At closure, Land of Enchantment Federal Credit Union had approximately $8.6 million in assets and served 1,593 members. The credit union was critically undercapitalized as of December 2010 with a net worth ratio of 1.40 percent and reported that 9.67 percent of its loans were at least 60 days delinquent. Land of Enchantment FCU had reported losses for the last three years of $38,100 for 2008, $763,552 for 2009, and $296,856 for 2010.
This is the fifth credit union to be liquidated in 2010.
Read the press release.
Monday, March 7, 2011
Should the Small Credit Union Threshold Be Raised?
Addressing the Credit Union National Association's Government Affairs Conference, NCUA Board Member Gigi Hyland last week stated that she believed the asset size threshold for a small credit union should be raised, as a way of reducing credit union regulatory burden.
Board Member Hyland stated: "I believe NCUA should seriously consider revising the definition of “small entity” to a larger number, perhaps from $10 million to $50 million.... I'll be pursuing these revisions with NCUA staff and my Board colleagues."
NCUA policy requires the agency to "prepare and make available for public comment an initial regulatory flexibility analysis for any regulation that will have a significant economic impact on a substantial number of small entities."
In 2003, NCUA raised the small entity asset size threshold from $1 million in assets to its current threshold of $10 million. This $10 million asset size threshold meant that approximately 52 percent of federally-insured credit unions were treated as a small entity -- a percentage much closer to the percentage captured by the asset standard when its policy was originally adopted, which defined a small entity as having $1 million or less in assets.
So, how would raising the threshold to $50 million impact the credit union industry?
According to September 2010 financial data, if you raise the threshold from $10 million to $50 million, the number of federally-insured credit unions that would be treated as a small credit union would increase from 2831 or 38.26 percent of the industry to 5,244 or almost 71 percent of federally-insured credit unions.
Therefore, an increase of the asset size threshold to $50 million would result in a larger percent of credit unions being defined as a small credit union compared to when the NCUA Board raised the threshold in 2003.
However, raising the asset size threshold from $10 million to $50 million would greatly outpace the increase in the consumer price index, which increased by slightly more than 21 percent between the January 2003 and January 2011. If you only adjust for inflation, the new small credit union asset size threshold would be $12.1 million.
Read the speech.
Board Member Hyland stated: "I believe NCUA should seriously consider revising the definition of “small entity” to a larger number, perhaps from $10 million to $50 million.... I'll be pursuing these revisions with NCUA staff and my Board colleagues."
NCUA policy requires the agency to "prepare and make available for public comment an initial regulatory flexibility analysis for any regulation that will have a significant economic impact on a substantial number of small entities."
In 2003, NCUA raised the small entity asset size threshold from $1 million in assets to its current threshold of $10 million. This $10 million asset size threshold meant that approximately 52 percent of federally-insured credit unions were treated as a small entity -- a percentage much closer to the percentage captured by the asset standard when its policy was originally adopted, which defined a small entity as having $1 million or less in assets.
So, how would raising the threshold to $50 million impact the credit union industry?
According to September 2010 financial data, if you raise the threshold from $10 million to $50 million, the number of federally-insured credit unions that would be treated as a small credit union would increase from 2831 or 38.26 percent of the industry to 5,244 or almost 71 percent of federally-insured credit unions.
Therefore, an increase of the asset size threshold to $50 million would result in a larger percent of credit unions being defined as a small credit union compared to when the NCUA Board raised the threshold in 2003.
However, raising the asset size threshold from $10 million to $50 million would greatly outpace the increase in the consumer price index, which increased by slightly more than 21 percent between the January 2003 and January 2011. If you only adjust for inflation, the new small credit union asset size threshold would be $12.1 million.
Read the speech.
Friday, March 4, 2011
Small Wisconsin CU Closed
The National Credit Union Administration (NCUA)was appointed liquidating agent of Wisconsin Heights Credit Union of Ogema, Wisconsin, by the Wisconsin Office of Credit Unions. NCUA immediately signed an agreement with CoVantage Credit Union of Antigo, Wisconsin, to assume the members, assets and liabilities of Wisconsin Heights Credit Union.
At closure, Wisconsin Heights Credit Union had $713,000 in assets and served 501 members. As of the end of 2010, the credit union had a net worth ratio of 2.64 percent and reported that 27.44 percent of its loans were at least 60 days delinquent.
Wisconsin Heights Credit Union is the fourth federally insured credit union liquidation in 2011. The last Wisconsin credit union to fail was First American Credit Union of Beloit, Wisconsin on August 31, 2010.
Read NCUA's press release.
At closure, Wisconsin Heights Credit Union had $713,000 in assets and served 501 members. As of the end of 2010, the credit union had a net worth ratio of 2.64 percent and reported that 27.44 percent of its loans were at least 60 days delinquent.
Wisconsin Heights Credit Union is the fourth federally insured credit union liquidation in 2011. The last Wisconsin credit union to fail was First American Credit Union of Beloit, Wisconsin on August 31, 2010.
Read NCUA's press release.
Credit Union Profits Increase by 208 Percent for 2010
NCUA reported that federally-insured credit unions reported a net income of $4.6 billion for 2010, up 208 percent from $1.6 billion for 2009. The industry’s return on average assets was 0.51 percent for 2010 compared to 0.18 percent for 2009.
Lower cost of funds and provisions for loan and lease losses more than offset the drop in interest income allowing credit unions to post the strong increase in earnings. Provisions for loan and lease losses fell by 26.9 percent to just below $7 billion and interest expense declined by 26.4 percent to $10.9 billion. Non-interest income (net of NCUSIF stabilization income) rose 14 percent to almost $12 billion.
Federally-insured credit unions reported a decline in outstanding loans by 1.3 percent to $564.8 billion. On the other hand, assets and shares grew by 3.4 percent and 4.5 percent, respectively.
NCUA reported that used car loans, credit card loans, and first mortgages were up for 2010, but new auto loans experienced a sharp decline falling by more than 16 percent to $62.9 billion at the end of 2010.
The net worth ratio for credit unions increased to 10.06 percent as credit unions increased their net worth by 5.2 percent to $92.1 billion.
The number of delinquent loans fell by 5.3 percent in 2010 to $9.85 billion. Delinquencies remained at historically high levels, ending 2010 at 1.74 percent; however, it is 10 basis points below the final 2009 number of 1.84 percent.
Loan categories with the highest delinquency rate were member business loans and participation loans at 3.92 percent and 3.83 percent, respectively.
Allowances for loan and lease losses rose during 2010 to $9.4 billion, up from $8.9 billion at the end of 2010. So, even though provisions for loan losses fell, it still exceed net charge-offs for the year.
Charge-offs fell and recoveries increased during 2010. As a result, net charge-offs were $6.4 billion at the end of 2010 down from $6.9 billion at the end of 2009.
NCUA reported that foreclosed and repossessed assets rose by almost 24 percent to $1.86 billion.
Additionally, The number of federally-insured credit unions contracted by 215 during 2010 to 7,339 and credit unions reported a slight increase (0.3 percent) in full time employees to 219,880.
Read the press release.
Lower cost of funds and provisions for loan and lease losses more than offset the drop in interest income allowing credit unions to post the strong increase in earnings. Provisions for loan and lease losses fell by 26.9 percent to just below $7 billion and interest expense declined by 26.4 percent to $10.9 billion. Non-interest income (net of NCUSIF stabilization income) rose 14 percent to almost $12 billion.
Federally-insured credit unions reported a decline in outstanding loans by 1.3 percent to $564.8 billion. On the other hand, assets and shares grew by 3.4 percent and 4.5 percent, respectively.
NCUA reported that used car loans, credit card loans, and first mortgages were up for 2010, but new auto loans experienced a sharp decline falling by more than 16 percent to $62.9 billion at the end of 2010.
The net worth ratio for credit unions increased to 10.06 percent as credit unions increased their net worth by 5.2 percent to $92.1 billion.
The number of delinquent loans fell by 5.3 percent in 2010 to $9.85 billion. Delinquencies remained at historically high levels, ending 2010 at 1.74 percent; however, it is 10 basis points below the final 2009 number of 1.84 percent.
Loan categories with the highest delinquency rate were member business loans and participation loans at 3.92 percent and 3.83 percent, respectively.
Allowances for loan and lease losses rose during 2010 to $9.4 billion, up from $8.9 billion at the end of 2010. So, even though provisions for loan losses fell, it still exceed net charge-offs for the year.
Charge-offs fell and recoveries increased during 2010. As a result, net charge-offs were $6.4 billion at the end of 2010 down from $6.9 billion at the end of 2009.
NCUA reported that foreclosed and repossessed assets rose by almost 24 percent to $1.86 billion.
Additionally, The number of federally-insured credit unions contracted by 215 during 2010 to 7,339 and credit unions reported a slight increase (0.3 percent) in full time employees to 219,880.
Read the press release.
Wednesday, March 2, 2011
Media Stereotypes Lead to Lack of Objectivity
The national media appears to have bought into a stereotype that credit unions are the best deal for consumers.
Here are some examples of the lack of objectivity from these consumer reporters. Farnoosh Torabi for moneyeatch.com wrote “I’ve always been a huge advocate of credit unions.” Tim Chen, a reporter for The Christian Science Monitor, wrote “given their reputation for great customer service and consumer-friendly policies, I highly recommend you ditch your national bank for a credit union.”
But stereotypes are standardized and simplified conceptions, which are based on some prior assumptions, and as a result may cause a person to make a poor financial decision.
If people only believe that they can only get favorable treatment or deals from credit unions, then they will miss opportunities offered by other financial institutions.
In fact, there are taxpaying banks that are offering better deals to consumers than credit unions.
For example, a friend recently bought a pre-owned car. When this friend went to finance the purchase, the best rate was from a bank, not credit unions – even with their tax advantage.
So while NCUA Board Member Michael Fryzel in a recent speech stated that credit unions leave money in the consumers’ pockets, NCUA also stated that credit unions with higher net worth ratios have paid for the higher net worth ratios with reduced services and less favorable rates [Federal Register (Volume 75, Number 248) December 28, 2010, p. 81384].
Moreover, it seems in the case of my friend, it was the bank that left more money in his wallet, not a credit union.
What this points out is that it pays to shop around. Just because a financial institution has the word “credit union” on its door does not mean that it is the best deal for consumers.
It is time that the national media removes their credit union blinders and stop being a credit union pom pom squad.
Here are some examples of the lack of objectivity from these consumer reporters. Farnoosh Torabi for moneyeatch.com wrote “I’ve always been a huge advocate of credit unions.” Tim Chen, a reporter for The Christian Science Monitor, wrote “given their reputation for great customer service and consumer-friendly policies, I highly recommend you ditch your national bank for a credit union.”
But stereotypes are standardized and simplified conceptions, which are based on some prior assumptions, and as a result may cause a person to make a poor financial decision.
If people only believe that they can only get favorable treatment or deals from credit unions, then they will miss opportunities offered by other financial institutions.
In fact, there are taxpaying banks that are offering better deals to consumers than credit unions.
For example, a friend recently bought a pre-owned car. When this friend went to finance the purchase, the best rate was from a bank, not credit unions – even with their tax advantage.
So while NCUA Board Member Michael Fryzel in a recent speech stated that credit unions leave money in the consumers’ pockets, NCUA also stated that credit unions with higher net worth ratios have paid for the higher net worth ratios with reduced services and less favorable rates [Federal Register (Volume 75, Number 248) December 28, 2010, p. 81384].
Moreover, it seems in the case of my friend, it was the bank that left more money in his wallet, not a credit union.
What this points out is that it pays to shop around. Just because a financial institution has the word “credit union” on its door does not mean that it is the best deal for consumers.
It is time that the national media removes their credit union blinders and stop being a credit union pom pom squad.
Tuesday, March 1, 2011
Tough Love Saved Credit Unions from Even Higher Premiums
In a speech before the Credit Union National Association's Government Affairs Conference, NCUA Chairman Debbie Matz said that NCUA's tough love saved credit unions from "hundreds of millions of dollars in additional insurance premiums."
She stated in her speech that in the last 18 months, several billion-dollar credit unions were on the verge of failure. If these CAMEL 4 credit unions had failed, credit unions faced an additional $1.5 billion in premiums.
She outlined specific steps that NCUA took to keep credit union failures from having a catastrophic impact on the National Credit Union Share Insurance Fund (NCUSIF).
1. NCUA crafted very prescriptive enforcement actions to commit certain problem credit unions to specific performance targets.
2. NCUA arranged marriages for credit unions that simply could not survive on their own.
3. NCUA "worked with several credit union boards to select new CEOs who had the skills and experience to address the specific problems that their credit unions faced."
4. NCUA conserved some credit unions withy the goal of returning the credit unions back to their members.
She noted that these actions were not popular; but concluded that if these actions had not be taken, the NCUSIF would have incurred significant losses.
She also mentioned that to help catch problems before they festered into larger problems, NCUA had shortened the exam cycle from 18-months to 12-months and had expanded its budget to employ more examiners.
To read the speech, click here.
She stated in her speech that in the last 18 months, several billion-dollar credit unions were on the verge of failure. If these CAMEL 4 credit unions had failed, credit unions faced an additional $1.5 billion in premiums.
She outlined specific steps that NCUA took to keep credit union failures from having a catastrophic impact on the National Credit Union Share Insurance Fund (NCUSIF).
1. NCUA crafted very prescriptive enforcement actions to commit certain problem credit unions to specific performance targets.
2. NCUA arranged marriages for credit unions that simply could not survive on their own.
3. NCUA "worked with several credit union boards to select new CEOs who had the skills and experience to address the specific problems that their credit unions faced."
4. NCUA conserved some credit unions withy the goal of returning the credit unions back to their members.
She noted that these actions were not popular; but concluded that if these actions had not be taken, the NCUSIF would have incurred significant losses.
She also mentioned that to help catch problems before they festered into larger problems, NCUA had shortened the exam cycle from 18-months to 12-months and had expanded its budget to employ more examiners.
To read the speech, click here.
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