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Businessman pleads guilty in St. Paul Croatian FCU scam

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CLEVELAND (11/8/12)--Businsessman A. Eddy Zai pleaded guilty to nine counts and agreed to forfeit $16.7 million for his participation in a fraud against St. Paul Croatian FCU, Eastlake, Ohio, law enforcement officials said Monday.

Zai, 44, of Pepper Pike, Ohio, pleaded guilty to one count of conspiracy to commit bank fraud and bank bribery, two counts of bank fraud, three counts of money laundering, one count of bribery and two counts of making false statements to financial institutions.

Zai conspired with others, including Anthony Raguz, the defunct credit union's former CEO, to submit false loan documents to St. Paul Croation FCU, defraud the credit union of about $16.7 million, and pay bribes and kickbacks to Raguz for using his position at the credit union to approve numerous loans to Zai and the entities and companies he controlled, according to the indictment.

"Mr. Zai thought he could take a shortcut to success," said Steven M. Dettelbach, U.S. Attorney for the Northern District of Ohio. "But by bribing a bank executive and defrauding investors, his shortcut trampled over the rights of others He will now have to begin the long path to repay society."

Raguz previously pleaded guilty to issuing more than 1,000 fraudulent loans, for more than $70 million, to about 300 accountholders.  He also pleaded guilty to accepting more than $500,000 in bribes, kickbacks and gifts from the borrowers. His sentencing is set for Nov. 20 (News Now Aug. 9).

Nineteen people have been charged in the scheme. The alleged ringleader in the fraud, Koljo Nikolovski of Eastlake and Skopje, Macedonia, was sentenced in May to 18 years in prison for his role in the fraud (News Now May 14).

St. Paul Croatian FCU was one of the largest credit union failures in history, costing the National Credit Union Share Insurance Fund about $170 million.

The credit union was placed into conservatorship by the National Credit Union Administration (NCUA) on April 23, 2010. One week later, the NCUA liquidated St. Paul Croation and discontinued its operations after determining the credit union was insolvent. At that time, the credit union served about 5,400 members and was believed to have assets of roughly $239 million.

Appeals Court denies CU request in real estate case v. NCUA

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MIAMI (11/8/12)--A federal appeals court Tuesday upheld the National Credit Union Administration's (NCUA) position after a Florida credit union filed a breach of contract lawsuit against NCUA, concerning mortgage loans. The ruling was made in the U.S. Court of Appeals for the 11th Circuit in Miami.

The National Credit Union Administration (NCUA) in March filed a notice to remove a $15 million breach of contract lawsuit filed by Power Financial CU to the U.S. District Court for the Southern District of Florida in Miami. The suit concerns an agreement to buy mortgage loans from a credit union now in conservatorship (News Now March 2).

Power Financial CU, Pembroke Pines, Fla., filed its complaint Feb. 14 in the 11th Circuit Court against Keys FCU, Key West, Fla. NCUA filed its notice of removal with the U.S. District Court on March 1, saying that the agency, as conservator of Keys FCU, is the real party to the case. Keys was placed into conservatorship on Sept. 24, 2009, according to court documents.

The case relates to a loan sale agreement that Power Financial and Keys Federal entered into on July 12, 2010, according to the original complaint filed in the 11th Circuit Court. The complaint said Power Financial agreed to purchase certain mortgage loans of Keys Federal and that the borrowers whose mortgage loans were to be purchased would automatically become members of Power Financial.

The central issue in the appeal is whether an agreement for Power Financial to purchase mortgages of non-members was unenforceable under Florida law, said the U.S. Court of Appeals for the 11th Circuit in Miami in its decision.

In making the ruling Tuesday, the federal appeals court stated: "After Power Financial sued to enforce the agreement, the district court granted summary judgment in favor of the Administration [NCUA] on the grounds that the agreement was unenforceable under Florida law. We affirm the summary judgment because the agreement was unenforceable and affirm the denial of a motion for enlargement of time for discovery because the denial of that motion was not an abuse of discretion."

On Aug. 27, 2010, Power Financial received a letter from Keys Federal that "expressly repudiated" the contract, explaining that the transaction was "no longer in the best interest" of Keys Federal.

It is "extremely difficult," said Power Financial's complaint, for it to purchase replacement mortgage loans because it "is limited by state regulation to specific preapproved geographic areas" related to its field of membership. "Mortgage loans available for purchase in the communities in which Power Financial has members are often not suitable for purchase because of the current real estate conditions in those communities," the document said.

The complaint noted that on Oct. 12, 2010 Power Financial received consent for the sale from the Florida Office of Financial Regulation, and on Oct. 19, 2010, Power notified Keys' attorneys of the approval, but never heard back on the matter.

ATM industry files brief against interchange settlement

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SIOUX FALLS, S.D. and NEW YORK (11/8/12)--The ATM Industry Association (ATMIA) announced Friday that it has filed an amicus ("friend of the court") brief in the U.S. District Court of Eastern New York, in conjunction with other opponents of the proposed class-action settlement between merchants and MasterCard/VISA. Although credit unions were not part of the litigation, they would be affected by temporary reduction in credit card interchange, surcharging and buying groups.

ATMIA contends that the language of the agreement is so broad and vague that it might be construed to include ATM deployers, even though the original claims were made by merchants engaged in the sale of goods or services.

The proposed settlement would presumably end many years of disputes between merchants and the two card brands over interchange fees and surcharging. Merchants would finally gain the right to impose surcharges on credit card purchases, as well as share in about $7.3 billion in payments and temporary interchange reductions as damages. MasterCard and VISA, in turn, receive a broad release of all related claims-both current and future.

ATMIA asserts that the proposed agreement is flawed as written. Most "ATM cards" have been replaced by debit cards, which can be used either for ATM transactions or purchases at the point of sale. MasterCard and VISA debit cards represent the vast majority of that market. As a result, the settlement class definition captures a majority of the cards used for ATM transactions and, thus, the deployers of those ATMs.

However, even if the ATM deployers were drawn into the settlement class, they would not be eligible to receive an award of damages, because an ATM deposit/withdrawal transaction is not a purchase, ATMIA said. Therefore, an ATM deployer could involuntarily become a party to this class action settlement, and at the same time, be barred from receiving any benefit.

ATMIA is requesting that the proposed settlement not receive preliminary approval from the court. Or, that the agreement language be revised to make clear that ATM deployers and operators are not included within the scope of this settlement.

ATMIA is a global non-profit trade association with over 3,700 members in 60 countries.  

The judge overseeing the $7.25 billion settlement in retailers' class antitrust lawsuit against Visa and MasterCard over credit card interchange fees said that opponents to the proposed settlement can plead their case in a hearing set for Friday [Nov. 9] (News Now Oct. 26).

"I have reviewed the settlement agreement and at first blush it appears to satisfy the threshold requirements for preliminary approval," said U.S. District Judge John Gleeson of the U.S. District Court for the Eastern District of New York in the order Oct. 31. He added he would hear their arguments against a preliminary approval Friday. "As in every case, those objections deserve, and will get, careful consideration by the court."

Credit unions were not a party to the litigation, but will be impacted by the injunctive relief settlement terms--temporary reduction in credit card interchange, surcharging and buying groups. The settlement's proposed reduced credit card interchange rate fees could cost credit unions with credit card programs up to $50 million total, said the Credit Union National Association (CUNA).

The settlement would require a reduced interchange rate fee (IRF) of 10 basis points for an eight-month period, likely beginning in mid-2013, and would apply to all card issuers, including credit unions.

If the total credit IRF reduction is $1.2 billion, credit unions with credit card programs would lose about $50 million in total revenues, or about 0.5 basis points on their total assets, CUNA said. The loss would be concentrated among a relatively small number of credit unions with very active credit card programs.

The proposed settlement also calls for Visa, MasterCard and the banks to create a $6.05 billion fund to repay retailers for past fees charged and says retailers would be permitted to assess "check out" fees or surcharges on credit card purchases, which has previously been prohibited by Visa and Mastercard rules.

CMG New survey explains CUs use of social media

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MIAMI (11/8/12)--New research findings from a credit union social media survey show that practice makes for improvement when it comes to employing social media in marketing strategies.

Patrick McElhenie, sales planner at  CUNA Mutual Group, provides CUNA Lending Council attendees a glimpse of social media research in the credit union space. (Photo provided by CUNA Mutual Group)

The survey was conducted with 160 members of the CUNA Lending Council and CUNA Marketing Council in August and were presented to attendees at the 2012 CUNA Lending Council Conference on Tuesday in Miami by Patrick McElhenie, sales planner at CUNA Mutual Group. The research was co-sponsored by CUNA & Affiliates and CUNA Mutual Group.

"Survey findings show credit unions using social media for more than three years are more adept at integrating it into their overall marketing strategy and are achieving better levels of member engagement," McElhenie told attendees of the 2012 CUNA Lending Council Conference.

Nearly all credit unions in the survey, 94%, are using Facebook as a form of social media marketing. Those who have been using social media for more than three years are significantly more likely to use Twitter and YouTube than those who have been using social media for less than three years.

"Advanced social media users are using Twitter, YouTube and podcasts at a much higher rate than beginners. These three social media platforms lend themselves to member engagement more than some of the others," said McElhenie.

Most credit unions surveyed by CUNA Mutual Group are primarily using social media to educate, build awareness and promote events. "Social media can supplement traditional marketing and help credit unions educate and promote, but its real strength is in the ability to engage members," said McElhenie.

The top barriers to using social media identified by credit unions in the survey were measuring return on investment (ROI) and a lack of time and resources to implement social media plans, which are similar across all industries and not unique to credit unions.

Currently, credit unions are using simple ROI metrics with 75% tracking the number of Facebook fans, 59% measuring the number of mentions or comments and 55% tracking the number of posts on Facebook. "The challenge is that while these are quantifiable metrics, they do not measure member engagement, changes in awareness, or increases in sales," McElhenie said.

Most credit unions responding to the survey have plans to develop or enhance their social media strategies for 2013. In addition to the 87% who will continue to use Facebook, credit union lending and marketing professionals also indicated their planned use of other social media platforms:

  • Mobile applications: 74%
  • Twitter: 66%
  • YouTube: 61%
  • Social media analytics: 48%;
  • LinkedIn: 39%;
  • Tumblr: 29%;
  • Google+: 24%; and
  • Pinterest: 1%.
As credit unions gain more experience with social media, their objectives expand beyond using it simply as a one-way marketing and communications tool. Beginners focus on education, awareness and promotion while more advanced users also focus on attracting new members, providing customer service, supporting sales and providing consumer reviews, McElhenie said.

Paraguay looks to Minn. CUs on regulatory oversight

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ST. PAUL, Minn.  (11/8/12)--As Paraguay begins the process of overhauling its legal framework for the country's cooperatives, its credit unions are looking to Minnesota as a compass for regulatory oversight, according to the Minnesota Credit Union Network (MnCUN).

Credit union representatives from Paraguay visited with regulators from the National Credit Union Administration and the Minnesota Department of Commerce on Oct. 31 at the Minnesota Credit Union Network office in St. Paul to learn more about regulatory oversight. (Photo provided by the Minnesota Credit Union Network)
To assist with regulatory reform, MnCUN welcomed five credit union representatives from Paraguay to Minnesota Oct. 27-Nov. 3 as part of an ongoing international exchange with that country's credit union association, Central de Cooperativas del Area Nacional Ltda. (CENCOPAN).

The goal of the visit was to provide insight into Minnesota credit union operations and the state and federal regulatory system, as credit union representatives in Paraguay begin efforts to reform the country's cooperative law. During their stay, the visitors immersed themselves in U.S. credit union culture and learned from regulatory leaders.

In a meeting at the MnCUN office in St. Paul, the group talked with Minnesota Department of Commerce Credit Union Chief Examiner Carl Schwartz and National Credit Union Administration Regional Examiner Justin Burleson. In their questions for the regulators, the Paraguayans focused on the exam process, how regulators identify and resolve problems, the CAMEL credit union rating system and how the U.S. regulatory system is structured and supported.

"In Paraguay the regulatory structure is different," said Enrique Ojeda, a CENCOPAN Board Member and Board Chair of COFAN, a $20-million credit union that primarily serves the police department. "Level A [the largest] credit unions receive most of the regulatory oversight; most of the funding from the government] goes to regulate them. The small credit unions receive less oversight."

Other challenges the group mentioned included a lack of a deposit insurance fund for credit unions in Paraguay, the faster pace of growth for credit unions in the country compared with its regulatory system, and the lack of full monetary support from the federal government to regulators. Schwartz and Burleson said they were impressed by the Paraguayans inquisitiveness and in-depth questions.

"At the Department of Commerce, we try to encourage credit unions to be proactive and work with them to resolve problems," Schwartz said. "Smaller credit unions, in particular, look to their regulator for advice on various issues."

As part of their visit, the international credit union representatives also visited several credit unions in the state, including Hiway FCU and St. Paul FCU in St. Paul, SouthPoint FCU in New Ulm, and US Federal in Burnsville. In those more personal interactions, the host credit unions presented information about their technology developments and the movement to mobile products, operational efficiencies, collections practices and regulation management.

"This week has been very productive," said Dejesus Agustín Brítez, a CENCOPAN board member and board chair of COOPERSAM, a $15 million asset credit union that serves military members and the VA hospital. "We have learned a lot of best practices that we will be going back with, and we will be looking at new ways CENCOPAN can help its credit unions."

This international visit was part of an ongoing exchange between CENCOPAN and MnCUN that was established in 2004 through the World Council of Credit Unions (WOCCU). Sparked by this partnership with MnCUN, the credit union association in Paraguay has led the charge to update the country's 18-year-old cooperative law. The law is now being reviewed and redesigned by WOCCU and Paraguay's regulator for cooperatives, Instituto Nacional de Cooperativismo (INCOOP).

"We want to ensure that this partnership continues to be beneficial, to CENCOPAN and Paraguayan credit unions, as well as to MnCUN and the credit unions we represent," said MnCUN president/CEO Mark Cummins. "I look forward to future exchanges in which we are able to coordinate focused visits to dig deeper into topics and help Paraguay's credit unions make headway in specific areas. Our goal is to structure our time together to be as beneficial as possible."

Redstone FCU opens check cashing center

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HUNTSVILLE, Ala. (11/8/12)--Redstone FCU, Huntsville, Ala., has opened a new subsidiary that it is marketing as a better priced alternative to traditional check cashing establishments.

Right Choice Money Services offers basic financial products, including check cashing, money orders, Western Union money transfers, bill pay, and reloadable prepaid cards in a safe, friendly and convenient environment. 

Right Choice Money Services is different from its competitors because it offers its customers a pathway to traditional savings and credit products through its partnership with Redstone, the credit union said.

The credit union said it identified a need in the market to serve those without traditional credit union or bank services.

"For the nearly 4 out of 10 Alabamians who do not use traditional banking organizations, Right Choice Money Services offers a welcome and competitive alternative," said Joseph H. Newberry, Redstone FCU president/CEO. "Right Choice is not only good for the consumer; it's good for the community. And Right Choice is the right thing to do."

A subsidiary of Redstone FCU, Right Choice operates under its own management committee, who share a vision of providing affordable, friendly and convenient financial services to those who may not have traditional bank or credit union checking accounts. 

Almost 193,000 Alabama households did not have a checking or savings account in 2011, according to the September 2012 release of the Federal Deposit Insurance Corporation (FDIC)'s 2011 National Survey of Unbanked and Underbanked Households.  The report also found that nearly 40% of all households in Alabama use alternative financial services, such as check cashers or payday lenders.

N.Y. N.J. CUs offer assistance to Hurricane Sandy victims

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HIGHTSTOWN, N.J. and ALBANY, N.Y. (11/8/12)--Although New Jersey and New York credit unions were dramatically affected by Hurricane Sandy, they are reaching out to their members to provide financial assistance.

For instance, Healthcare Employees FCU, Princeton, N.J., is offering an emergency loan with no payments due for the first 90 days. Members can obtain up to $3,000 at 3% for 30 months. Loans will be made available through Dec. 15, according to the New Jersey Credit Union League.

ABCO FCU, Rancocas, N.J., is offering a low-interest, disaster relief loan to its membership. For homeowners, up to $25,000 is available at 2.99% annual percentage rate (APR) for up to 48 months. For renters, up to $5,000 is available at 2.99% APR for up to 48 months. Members can use this loan for flood damage, tree removal, vehicle damage, fence repair, shrub replacement, generators and insurance deductibles.

Polish & Slavic FCU, Brooklyn, has set up charging stations in its branches for members who are still without power. A special area has been designated at its Clifton branch for neighborhood children who might need electricity to complete their homework assignments. The CU has also started collecting necessary non-perishable items, such as batteries, blankets, pillows, warm clothing, and outerwear, as well as personal hygiene products, such as toothpaste, toothbrushes, deodorant, and other personal hygiene items for the hurricane victims.

Bethpage FCU, Bethpage, N.Y, will waive late fees and insufficient fund fees for members affected by the storm.

Nassau Educators FCU, Westbury, N.Y., is also offering a Hurricane Relief Loan, with a fixed interest rate of 1% APR for the first year, and an optional 90-day deferral of your the payment. The credit union is also offering a 90-day first-payment deferral on auto loans and a 0% rate on credit card home improvement purchases.

Palisades FCU, Pearl River, N.Y., is offering a hurricane relief loan at 50% off  standard personal loans rates with terms up to 24 months for those impacted by the storm. Community members can borrow up to $5,000 to help aid with storm related issues.

Also, New Jersey Credit Union League president/CEO Paul Gentile spoke with CUbroadcast host Mike Lawson this week to provide a first-hand account of how Hurricane Sandy has  affected New Jersey credit unions and what disaster recovery efforts are underway (The Daily Exchange Nov. 7).

The video includes photos submitted damages caused by the hurricane. Gentile speaks about the devastation of the shore towns and surrounding areas and his personal experience with damages.