End Patent Troll Abuses

ABA, CUNA, and other trade groups sent a joint letter last week to congressional leaders stating that Congress should act to stop patent abuse by non-practicing entities, also known as “patent trolls."

These patent trolls hold patents but do not use or manufacture the patented technology or concept; instead, they solicit “licensing fees” from firms that use common but patented technology, threatening legal action if a fee is not paid.

The letter stated: "Managing frivolous patent suits unfortunately has become an expensive distraction for a large cross section of American businesses. Instead of focusing on innovation, job creation, and economic growth, we are forced to deal with legal games that have serious consequences."

Read the letter below (click on images to enlarge).

Texas Dow Employees CU Buys 7 Branches, Loans, and Deposits from Hancock Bank

Hancock Bank (Gulfport, Miss.) has agreed to sell seven retail branch locations in the greater Houston (Texas) market to Texas Dow Employees Credit Union (TDECU) in Lake Jackson, Texas. As part of the branch acquisition, TDECU expects to acquire approximately $34 million in loans and to assume approximately $30 million in deposits. The branch locations to be sold are:

3800 SW Fwy. Ste. 100, Houston, Texas
6348 Woodway, Houston, Texas
5102 Richmond Ave., Houston, Texas
24250 Cinco Ranch Blvd., Katy, Texas
9915 Broadway, Pearland, Texas
24706 SW Fwy., Rosenberg, Texas
2109 State Hwy 6, Sugar Land, Texas

The branch sales, which are subject to regulatory approvals and certain closing conditions, are expected to be completed by year-end 2013. Terms of the branch sales were not disclosed.

Read the press release.

CU Borrowing from Discount Window During Q2 2011

Nineteen credit unions borrowed from the Federal Reserve's discount window during the second quarter of 2011, according to data released by the Federal Reserve.

The most active credit union borrower was Central Minnesota Credit Union (Melrose, MN). The credit union went to the discount window 12 times and borrowed on average $1,337,500. The most the credit union every borrowed was $4 million and least amount borrowed was $300,000.

More Thoughts on Associational Common Bonds

I've written several times about credit unions using associations to open their fields of membership to anyone.

However, there are several trends that I find very bothersome.

First, you have some credit unions that are allowing a person, who is otherwise ineligible to belong to the credit union, to join an association at the same time they are joining the credit union. In the Washington, D.C. area, there are numerous credit unions that are permitting this to take place, such as Pentagon Federal Credit Union, State Department Federal Credit Union, and Andrews Federal Credit Union.

This simultaneous affiliation with an association and a credit union undermines the spirit of the law. Congress in 1998 found that there needed to be "a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or the maintenance of an otherwise well-understood sense of cohesion or identity."

It is hard to see how simultaneously joining an association to become a member of a credit union constitutes a meaningful affinity and bond among members.

At a minimum, shouldn't the person first belong to an association for some length of time -- maybe 6 months -- before the individual can apply for credit union membership? This would at least meet the requirement of commonality of routine interaction and interests.

Second, I am bothered by credit unions that are setting up their own associations, groups or foundations to qualify people for credit union membership.

For example, Allegacy FCU (Winston-Salem, NC) created The Center for Smart Financial Choices. For a life-time donation of $10 to The Center for Smart Financial Choices, you can become a member of Allegacy FCU.

Achieva Credit Union (Dunedin, FL) recently received regulatory approval to expand its field of membership to include dues paying members of the Achieva Foundation.

While the Achieva Foundation or The Center for Smart Financial Choices may engage in admirable activities, it is disturbing that these credit unions are using these associations to circumvent fields of membership limitations.

The rules governing associational common bonds should require at the minimum an arms length relationship between the association and the credit union.

Taupa Lithuanian CU Closed

The Ohio Division of Financial Institutions has liquidated the Taupa Lithuanian Credit Union of Cleveland, Ohio, and appointed the National Credit Union Administration (NCUA) as liquidating agent.

The Division of Financial Institutions made the decision to liquidate Taupa Lithuanian Credit Union and discontinue its operations after determining the credit union had no prospect for restoring viable operations.

Taupa Lithuanian Credit Union served 1,154 members and had assets of more than $23.6 million, according to the credit union’s most recent Call Report.

Read the press release.

Matz: NCUA to Update Risk-Based Capital Standards

Speaking at the Annual Conference of the National Association of Federal Credit Unions, NCUA Chairman Debbie Matz said the agency is in the process of updating its risk-based net worth (capital) requirements for credit unions with more than $50 million in assets.

Chairman Matz pointed out that the current one-size-fits-all net worth requirement of 7 percent is outdated and insufficient. She said that such a capital regime "does not belong in the ever growing, increasingly complex credit union industry."

Chairman Matz stated:

"A net worth ratio of 7 percent would remain the floor, as required by the Federal Credit Union Act. However, credit unions with assets over $50 million would be subject to improved risk-based capital requirements, to better correlate required capital levels to risk. The result would be higher capital levels for credit unions with high concentrations of risky assets."

However, Chairman Matz said that NCUA has no plans to implement Basel III for credit unions and that Basel III is not right for credit unions.

Read the speech.

Credit Unions Raise OD Fees, Bank OD Fees Unchanged

The Washington Post reported on a study released by Moebs Services that showed "credit unions have been raising overdraft fees on ATM withdrawals, checks and debit card purchases at a faster pace than banks to offset a decline in consumers overdrawing their accounts."

According to the article, the median overdraft charge at banks was $30 a transaction for the past four years. However, the median overdraft fee at credit unions has risen from $25 to $28 per transaction in the past two years.

But the article does not adjust for the difference in tax treatment between credit unions and banks, as credit unions are exempt from federal corporate income taxation. If you adjust for the difference in tax treatment, the credit union median tax adjusted overdraft fee is closer to $40 per transaction -- $10 higher than the median overdraft fee charged by banks.

To derive the median tax adjusted overdraft fee divide the current median overdraft fee by (1 minus the tax rate). For this analysis, the tax rate was assumed to equal 30 percent.

This would suggest that the tax exemption is not being passed through to the credit union member.