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Motion filed to dismiss suit vs. WesCorp

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LOS ANGELES (11/3/10)--Motions to dismiss the National Credit Union Administration's (NCUA) $6.8 billion lawsuit against directors and officials of Western Corporate FCU were filed Monday by a number of the defendants in the U.S. District Court for the Central District of California, Los Angeles. In the lawsuit, NCUA, as conservator for WesCorp, claims that the former directors and officers of WesCorp did not carry out the duties of their offices with the required level of care in making certain investments before the recession hit the corporate system. In asking the court to reject the suit, the defendants cited a wide variety of grounds that they said supported dismissal at this early stage of the case. The motion filed by the largest group, which consists of all the former directors named in the case plus one former officer, argued that even if everything stated in the complaint was assumed to be true, there would still be no legal violation because the directors and officers made reasonable business judgments in good faith on the basis of the information available at the time. The motion also raises questions about NCUA's own role in the investment decisions made by WesCorp and raises other legal points. Motions filed by other parties support the group motion and also point to the lack of specific allegations in the complaint about those parties or their alleged legal violations. More briefs will be exchanged before the court holds oral argument on these matters, anticipated for Dec. 20. WesCorp was placed into conservatorship March 19, 2009.

Federation Attack vs. CDCI program unfounded

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NEW YORK (11/3/10)--The National Federation of Community Development Credit Unions (NFCDCU) is rejecting a new paper's hypothesis that political influence determined the U.S. Treasury's Community Development Capital Initiative (CDCI) investments in credit unions. The federation represented most of the 111 credit unions that applied for secondary capital loans through the CDCI program and developed "critical information that was omitted from [Assistant Professor Linus] Wilson's analysis" and that "does not support his conclusions." Wilson's analysis asserted that 48 out of 189 eligible credit unions were selected to receive Troubled Asset Relief Program (TARP) CDCI funds. The federation maintains the numbers are incorrect. At least 72 credit unions received final approval for CDCI secondary capital loans and at least 24 of these declined to accept the investment, said the federation. Wilson said there were 189 eligible credit unions at the start of September and that only CDFI certified credit unions were eligible for the TARP's CDCI. This is incorrect on two fronts, said the federation:
* Credit unions were eligible only if they were both CDFI certified and had an official low income credit union (LICU) designation from the National Credit Union Administration (NCUA). Wilson's count included credit unions that are not LICUs and therefore aren't eligible for CDCI. * Wilson's analysis considered as "eligible" a number of credit unions that no longer exist and that have not been purged from the CDFI Fund certification list. The federation maintains that 135 credit unions eligible when the program began grew to 153 by the end of September. While this is short of the 189 considered eligible in Wilson's analysis, only 111 of the fully eligible credit unions actually applied for the CDCI loans, the federation said, citing NCUA figures.
"These two points alone destroy the foundation of Wilson's argument," said the federation in a news release. "Instead of political influence having driven the selection of 48 credit unions out of 189 eligible institutions, we see that at least 72 credit unions qualified and were approved for loans out of 111 eligible applicants." The federation also noted that Wilson said he does not know the identity of the credit unions that applied for TARP funds. That means he lacked a "control group that could be used to test his hypothesis, "particularly by the location of a credit union in a district represented by a member of the House Financial Services Committee (HFSC), the federation said. It tested the hypothesis against a control group and rejected Wilson's hypothesis. Having provided technical support to more than 100 credit unions during the process, including more than a dozen that did not receive funds, the federation looked at the percentages of credit unions located in districts represented by HFSC members and found:
* 7.1% of credit unions applying for CDCI investments were located in HFSC districts; * 6.9% of credit unions approved for the funds were located in these districts; and * 7.7% of credit unions rejected for CDCI investments were located in the districts.
"The location of a credit union in an HFSC member's district had absolutely no influence on the probability of being approved or rejected for a CDCI investment," said the federation. The federation said it isn't that the CDCI program invested too much in LICUs or in the wrong ones, but that the onerous application process, regulatory burden, fear of political attacks and other factors resulted in "relatively little being invested in the only group of financial institutions that are specifically committed to serving low-income individuals and communities." More than 100 credit unions were qualified to receive funding and an additional $100 million in capital could readily have been put to good use by LICUs, the federation said, adding that the CDCI program was a one-time event and the opportunity won't soon come again.

CU System briefs (11/02/2010)

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* MINNEAPOLIS (11/3/10)--A former credit union employee pleaded guilty to one count of mail fraud in U.S. District Court for a scheme that netted $388,000 worth of parts from a computer parts manufacturer. Phillip Adrian Webb, formerly manager of network services for Postal CU, admitted in a plea agreement that he wrongly notified Cisco Systems Inc. that Postal CU had received defective parts so Cisco would send replacements (Targeted News Service Nov. 1). Webb would then sell the replacement parts online and keep the proceeds, while purchasing low-cost secondhand parts to return to Cisco. From June 1, 2007, through Oct. 11, 2009, Webb returned 55 parts to Cisco, but only 13 of those parts actually contained flaws, while the rest were secondhand replacements … * LANCASTER, Pa. (11/3/10)--Mennonite Financial FCU has changed its name to Everence FCU. The “Everence” name will provide a common identity for both the $119 million asset credit union and Mennonite Mutual Aid (MMA), Goshen, Ind. A joint press release from MMA and the credit union stated that sharing the name “Everence” will bring together entities that share a common mission of helping people integrate their faith and finances, including Everence Financial Advisers. The credit union was founded in 1945 by the Mennonite Church and stated that it intends to maintain its close relationship with the church … * ONTARIO, Calif. (11/3/10)--Two marketing campaigns produced by the California and Nevada Credit Union Leagues won honors at the Association of Marketing and Communication Professionals’ 2010 MarCom Awards. The leagues’ Communications and Marketing Department received a Gold Award for its 2010 annual meeting and convention campaign, according to a press release from the leagues. An honorable mention was awarded to the leagues’ “1-2 Punch” campaign, which aimed to increase participation in the leagues’ payroll deduction program and its grassroots advocacy website, Connect for the Cause … * OKLAHOMA CITY, Okla. (11/3/10)--The WEOKIE Credit Union Foundation announced that it has awarded more than $327,000 to worthy causes since it was launched in 2006. The foundation promotes WEOKIE CU’s commitment to both social responsibility and educating the community to make sound financial choices. Foundation giving includes donations of more than $205,000 to other 501(c)(3) charities plus scholarships for more than $122,500 to high school seniors. Financial education is provided through the “MoneyTalks” financial education program for students in grades 2 through 12 …

Kansas City man charged in 7.2M fraud

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KANSAS CITY, Mo. (11/3/10)--A Kansas City man was charged in federal court Oct. 27 for his role in a $7.2 million securities fraud scheme that victimized thousands of U.S. investors nationwide. Isreal Owen Hawkins was charged in a two-count criminal complaint filed in the U.S. District Court in Kansas City, Mo., according to the U.S. Department of Justices’ Attorney’s office for the Western District of Missouri (US Fed News Oct. 28). “A federal criminal complaint alleges that Petro America was an empty facade of a business run by deception and false promises,” Beth Phillips, U.S. Attorney for the Western District of Missouri, said in press release. “Petro’s founder is charged with defrauding unwary investors by selling them worthless stock in order to support his lavish lifestyle.” Hawkins is the president/CEO of Petro America Corp. A related civil forfeiture was filed against Petro America Oct. 22. The criminal complaint charges Hawkins with securities fraud and with structuring financial transactions to evade federal reporting requirements. Hawkins founded Petro America, which bills itself as a holding company for crude oil and gold mines--among other claimed assets--in 2007, said US Fed News. According to the affidavit, Hawkins and an unidentified co-conspirator visited Mazuma CU in Kansas City, Kan., several times each week. Sometimes they made large deposits of multiple checks into the company’s bank account. On most visits, they withdrew $7,500 to $9,800--often on consecutive days. In this manner, Hawkins obtained at least $537,515 in cash from Petro’s account at Mazuma. The affidavit also alleges that Hawkins structured currency withdrawals out of Petro America accounts at Bank of America and U.S. Bank.

Multiple factors lead to decline in CU lending

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MADISON, Wis. (11/3/10)--For the sixth month this year, credit union lending declined slightly with many factors coming into play, according to a Credit Union National Association (CUNA) economist’s analysis of CUNA’s monthly review of credit unions for September. “Only two loan categories recorded rising balances: used-auto loans and fixed-rate first mortgages,” Steve Rick, CUNA senior economist, told News Now.
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Credit union loans outstanding decreased 0.1% during September, compared with an increase of 0.3% during August. Fixed-rate mortgages led loan growth, rising 1.2%, followed by used-auto loans, which went up 0.8%. Adjustable-rate mortgages declined 0.1%, followed by unsecured personal loans (0.2%) and home equity loans (0.3%). Credit card loans and new-auto loans dropped 0.6% and 1%, respectively. Credit union loans in September totaled $582.2 billion, compared with $589.8 billion in September 2009. “The Federal Reserve recently reported similar loan behavior for all consumer credit providers,” Rick said. “For the year ending August 2010, consumer credit loan balances declined 3.1%. In the month of August, consumer credit outstanding fell $3.3 billion. Falling revolving-credit balances outweighed slightly rising non-revolving credit. “Multiple factors are responsible for the decline: tighter lending standards, low consumer confidence leading to weaker consumer loan demand, households’ desire to deleverage their balance sheet, and banks charging off/writing down loans and credit card defaults,” he continued. “We expect credit union loan balances to fall more than 1.5% in 2010, and increase 4% in 2011,” Rick added.
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Credit union savings balances increased 0.3% in September, compared with a 0.7% decrease during August. Individual retirement accounts led savings growth, rising 1%, followed by money market accounts and regular shares, which both went up 0.7%. One-year certificates and share drafts each fell 0.5%. Credit union savings in September totaled $797.4 billion--or $42.6 billion more than the $754.8 billion saved in September 2009. “Savings balances rose 0.3% in September, traditionally a slow month for savings growth,” Rick said. “However, with consumers in no mood to spend, saving and deleveraging is the only game in town.” Regarding asset quality, credit unions’ 60-plus-day delinquencies remained at 1.8% during September. The loan-to-savings ratio remained at 73% for the month. The liquidity ratio--the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--remained at 18%. The movement’s overall capital-to-asset ratio stayed at 10% in September. The total dollar amount of capital is $93 billion.

MBLs are rocket fuel of CUs says Virginia article

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MADISON, Wis. (11/3/10)--More credit unions are seeking to fill the member business lending (MBL) void being created as banks cut back on lending, according to a Virginia business publication. “More retail credit unions--seeing an excellent, higher-margin niche in business loans--want to fill that lending vacuum, since most of their members have all but halted demand for the traditional consumer loans that have defined the industry since the first U.S. credit union was established by French-speaking Canadian immigrants to Manchester, N.H., in 1908,” said an article titled “‘Rocket fuel’ for credit unions” in virigniabusiness.com (Oct. 28). “They are paying down debts and salting away cash in case even tougher economic times are still ahead.” Demand for business loans in Virginia is strong as evidenced by MBL activity among the state’s credit unions, jumping 30% during a 12-month period ending last June 30, according to preliminary data from the Virginia Credit Union League, the publication said. “Business banking is the rocket fuel of the credit-union industry,” John Beiler, CEO of the Harrisonburg, Va.--based Park View FCU, told the publication. “I don’t advertise my business-lending program all that much; if I did [because of existing federal regulatory caps on business loans], I’d have to turn away about 99% of new customers.” The article also mentioned the University of Virginia Community CU in Charlottesville, Virginia CU in Richmond, and RF&P FCU in Richmond. After today’s elections, Congress will be back in session. The Credit Union National Association is continuing to work to get lawmakers to increase credit unions’ MBL cap to 27.5% of total assets from 12.25%. To read the article, use the link.

Northwest Community Unitus Community to share branch

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BEAVERTON, Ore. (11/3/10)--Northwest Community CU, Springfield, and Unitus Community CU, Portland, will share a Beaverton location as part of Oregon’s first “co-branded” branch shared by two credit unions. The previous Northwest Community branch in Beaverton was small and hard to find within a strip mall, according to Randy Breese, area manager of Northwest’s Beaverton and Oregon City branches. The previous branch location, which served 3,000 members, closed over the weekend. Northwest Community reopened on Monday by offering services at a full-service desk within a nearby Unitus Community branch building. The new location allows Northwest Community to offer Saturday banking to members in the greater Portland area for the first time. Staff and resources from the closed Northwest Community branch will be redeployed to an office in Oregon City, where they will become part of Northwest’s phone center network.

Chesterfield FCU offers short-term holiday loans

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CHESTERFIELD, Va. (11/3/10)--Chesterfield FCU will counter payday loans by repeating its Holiday Help Loan program for members during the 2010 holiday season. The small, short-term loans are available to members employed by the same employer or receiving retirement or disability benefits for at least two years. Loan amounts range from $300 to $1,000 for terms of four to nine months. A typical payday loan charges $114 in fees for a 14-day loan of $500, or the equivalent of 584% annual percentage rate (APR). Chesterfield’s APR for a $500 loan is 17.95% for a member with at least five years of consecutive employment. Monthly payments for this loan would be $87.82, with total interest charges of $26.54. The Holiday Help program will run from Nov. 15 to Dec. 31, with Chesterfield FCU setting aside $150,000 to fund the loans. Last year, 223 members took advantage of a Holiday Help Loan to save $16,500 in payday loan fees.