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CUs file lawsuit against Heartland Payment Systems

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TRENTON, N.J. (3/2/09)--Three credit unions have joined two banks in a class action lawsuit against Heartland Payment Systems, the Princeton, N.J., to recoup losses related to Heartland's recent data breach announced Jan. 20. The credit unions are: GECU, a $1.146 billion asset credit union in El Paso, Texas; MidFlorida FCU, a $1.283 billion asset credit union in Lakeland, Fla., and Matadors Community CU, a $123 million asset credit union in Chatsworth, Calif., according to documents filed in court. They join Amalgamated Bank of New York, N.Y., and Farmers State Bank, headquartered in Marcus, Iowa, in the complaint, which was filed Feb. 20 in the U.S. District Court, Trenton, N.J. by Chimicles & Tikellis LLP, Haverford Pa., the lead attorneys in the case. They are seeking to recoup money for the cost of reissuing cards to their members/customers and for their costs related to fraudulent activity stemming from the breach. The five financial institutions said in the complaint they suffered injuries from the Heartland breach. Each had to re-issue "a substantial number of credit and debit cards" to consumers whose accounts were affected by the breach. Each credit union and bank sent a letter to its members/customers informing them that their sensitive financial information was compromised and explaining the circumstances surrounding the breach at Heartland, according to the complaint. In addition, GECU incurred "substantial out-of-pocket expenses as a result of re-issuing these cards, and has received complaints from numerous members about the incident," said the document. Matadors Community CU also incurred expenses "caused by the actual misuse of sensitive financial information that was compromised" in the breach. In seeking the class action, the complaint noted that the class "consists of thousands of members dispersed across the U.S." The suit alleges that Heartland:
* Was negligent in exercising reasonable care in safeguarding and protecting the information from being compromised or stolen; that it had a duty to timely disclose the breach instead of shifting the disclosure obligation to the affect consumers of the financial institutions; and had a duty to have procedures in place to detect and prevent dissemination of sensitive information. * Breached contracts to which the financial institutions and their member/customers were third-party beneficiaries by not complying with Visa and MasterCard's operating regulations and bylaws, which set minimum standards for credit card transaction processors such as Heartland. * Breached an implied contract where the plaintiff financial institutions and their member/customers were required to provide Heartland with sensitive financial information so Heartland could provide services on their behalf. * Violated the New Jersey Consumer Fraud Act by making false and misleading statements and omissions concerning the measures it took to safeguard the sensitive information. * Engaged in negligence per se by failing to meet the minimum duty required to comply with card companies PCI standards, which requires having adequate controls in place for preventing, detecting and responding to system intrusions. * Made false communications of material fact concerning its security systems and the measures it was taking to protect the sensitive information.
Of the more than 560 financial institutions that have reported so far to Bank Information Security that they have been impacted by the Heartland breach, 178 are credit unions. Use the resource links for more information.

Bank wins 27 million judgment vs. mortgage CUSO CEO

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WAUWATOSA, Wis. (3/2/09)--A Wisconsin court has awarded a bank a $2.7 million judgment against a mortgage company run by the former CEO of Central States Mortgage, a credit union service organization (CUSO). U.S. Bank was awarded the judgment against Interim Funding LLC of Wauwatosa, Wis., a firm owned by Dick Jungen. Jungen is founder and a former CEO of Central States Mortgage, which is 70% owned by a consortium of credit unions (MSNMoney.com Feb. 26). The bank had sued Jungen and five other executives of Interim, including three former Central States Mortgage employees, in November. The suit alleged the bank provided a $3 million revolving loan to Interim Funding in 2005. The bank said the company defaulted on the note and owed $2.7 million plus interest. The company agreed to the judgment on Feb. 19 without a trial, but several of the defendants did not agree and have switched attorneys. Jungen was fired from Central States Mortgage in July 2008 after the CUSO learned he secretly controlled Interim Funding. Interim Funding acted as a wholesaler, according to a separate lawsuit filed on Feb. 2 by the CUSO against Jungen and other executives of Interim Funding. The suit alleges they scammed the CUSO out of $15 million (Business Journal of Milwaukee Feb. 13). In the U.S. Bank case, Interim Funding agreed to the judgment Feb. 19 in Milwaukee County Circuit Court. A hearing is scheduled for June 29 on U.S. Bank's motion for a summary judgment.

Final 2008 financials for U.S. Central are posted

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LENEXA, Kan. (3/2/09)--U.S. Central FCU has posted its final financials for 2008, confirming the losses it announced last month. The unaudited results were posted Thursday on U.S. Central's website. U.S. Central earlier announced it recorded an other-than-temporary impairment (OTTI) charge of $1.2 billion in December 2008. The new report says the losses resulted from significant deterioration in some consumer-based investment securities in late 2008, particularly non-agency residential mortgage-backed securities (RMBS). Assets with OTTI charges must be written down to the current fair value, with an offsetting charge to earnings, and these charges are often much larger than expected principal losses because securities must be written down to fair value, said a letter to members from Kathryn E. Brick, U.S. Central's senior vice president and chief financial officer. U.S. Central received a $1 billion capital infusion from the National Credit Union Administration after U.S. Central announced the expected OTTI charge. The infusion was funded in late January from the National Credit Union Share Insurance Fund and qualifies as core capital. Following the capital contribution, U.S. Central was in compliance with its regulatory capital ratio as of Jan. 31. U.S. Central experienced record performance in net interest income during 2009, largely due to historically wide Fed Funds/LIBOR spreads in the third and fourth quarter 2008. Net interest income totaled $238.2 million in 2008, up from $217.6 million in 2007. Members' share and certificate accounts averaged $23.9 billion in December and $33.2 billion for the year 2008. As of Dec. 31, accumulated other comprehensive income (AOCI) on the balance sheet reflected an unrealized loss of $6 billion, compared with $5.6 billion in November. Continued fears about the U.S. economy caused credit spreads on many of U.S. Central's investment securities to widen, causing a further decrease on their value. Total assets for 2008 were $32.7 billion, down from $44.7 billion in 2007. Retained earnings were down a negative $463 million, compared with $598 million in 2007. Total capital is $1.5 billion, compared with $2.3 billion in 2007. For more detail, use the resource link.

Boston Globe ECU to be absorbed by Metro CU

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BOSTON (3/2/09)--Metro CU--the fifth largest-asset Massachusetts credit union--is absorbing Boston Globe Employees CU. State regulators approved the merger in which the $732 million asset, Chelsea, Mass.-based Metro is taking in the 2,343 member, $21 million asset Boston Globe--which has lost money over the last three years (Boston Business Journal Feb. 27). Boston Globe Employees CU saw its delinquent loans nearly double in 2008, according to National Credit Union Administration data, the Journal said. The credit unions’ net loss went up to $316,438 and its delinquent loans rose to $825,656--3.97% of total assets in 2008--NCUA data indicated, according to the Journal. Metro has more than 100,000 members, serving more than 1,800 Massachusetts companies. In 2008, its net income was $2.3 million and its net worth $87.2 million, the Journal said.

Morongo tribe opens new CU in California

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CABAZON, Calif. (3/2/09)--The Morongo Band of Mission Indians has opened First Californian Credit Union on its reservation in Cabazon, Calif. The credit union is part of the American United Family of Credit Unions FCU, a $58.8 million asset credit union in Salt Lake City, Utah, says the credit union's website. First Californian was developed with the California Indian Consortium to provide financial and banking services and financial education to Morongo tribal members and their families, Morongo employees, and vendors. It will employee a branch manager and two loan processors (The Record Gazette Feb. 27). The new credit union will offer lending services such as vehicle loans, personal loans, mortgages, recreational vehicle and student loans. Savings services include money market, dedicated savings, individual retirement accounts, certificates of deposit or Christmas Club savings. It also will offer student saver bundles for college-bound students, direct deposit of disability or Social Security payments, and a credit analyzer to help members raise credit scores by managing their debt better. It also will offer online banking. The credit union will be regulated by the National Credit Union Administration, said tribal officials.

NCUA approves two mergers in D.C. area

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WASHINGTON (3/2/09)--The National Credit Union Administration (NCUA) approved two credit union mergers in the Washington, D.C., area. The agency approved the merger of NSF CU--which serves members of the National Science Foundation and Secret Service employees--with FDIC FCU, serving employees of the Federal Deposit Insurance Corp. and their families (Washington Business Journal Feb. 27). The two credit unions aim to obtain increased efficiencies by consolidating back-office operations, Theresa Mann, CEO of FDCI FCU, told the Journal. The combined credit union will have four branches, 34 employees and $100.6 million in assets. NCUA also approved the merger of K.C. Councils FCU, College Park, Md., into Money One FCU, Largo, Md. K.C. Councils serves members of Prince George’s County Knights of Columbus. Money One--founded to serve Safeway Stores Inc. workers--now serves 225 employee groups. The credit unions are merging to obtain economies of scale, Debbie Connors, CEO of Money One, told the Journal. Members of the two credit unions will vote on the pending deal today.

CUNA to IDow JonesI CUs best the banks in survey

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NEW YORK (3/2/09)--Two Credit Union National Association (CUNA) executives told Dow Jones Thursday that credit unions are doing better than banks during the current economic downturn. Overall, U.S. credit unions expect deposits to rise 10% in 2009, Mike Schenk, CUNA senior economist, told the news service. “When people are nervous, they want [their investments] short term and liquid,” he told Dow Jones. “We saw tremendous growth in money markets.” CUNA has conducted an annual survey of 1,000 registered voters since 1998, Richard Gose, CUNA senior vice president of political affairs, told the news service. This year’s survey, conducted in mid-January, revealed that 37% of respondents said “safety and soundness” describes a credit union, 36% said it describes a bank, and 19% said it describes both equally. In 2008, the same survey indicated 50% of respondents said the term described banks, 23% said credit unions and 22% both. This is the first year that credit unions did better than banks on the “safety and soundness” question, Gose added.

Belco will continue its community charter

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HARRISBURG, Pa. (3/2/09)--Belco Community CU announced Thursday it will continue to operate under a community charter in the aftermath of a recent Pennsylvania Supreme Court ruling in its favor. Belco can continue to offer open membership without fear of further court action, the credit union said in press release Thursday. The Pennsylvania Supreme Court on Dec. 18 reinstated Belco Community CU's seven-county community charter for central Pennsylvania, reaffirming the Pennsylvania Department of Banking's initial decision that was overruled in state court (News Now Dec. 19). In November 2006, the Pennsylvania Commonwealth Court ruled that the state's Department of Banking erred when it declined to grant bank parties a hearing regarding Belco's charter (News Now April 18). The recent news about the downturn of the economy and federal bailouts has caused concern in the minds of consumers, Belco added. “Credit unions are different from banks,” said Lonny Maurer, Belco president/CEO. “Credit unions are owned and operated by their members. Their sole interest is to provide financial products and services for the benefit of their members, rather than increasing stock prices for stockholders or lining the pockets of CEOs. We’ve been working on getting that message out, and based on our results from January, people are listening.” In January, Belco posted a record-breaking month for membership and deposit growth. The credit union attracted 74 new members and more than $14.5 million in deposits during one of the worst economic climates in U.S. history, Belco said. “I attribute this growth to the marketplace realizing we are different from banks and deciding they want the safety and security we can provide,” Maurer said. “Our members also are very happy with the quality of our products and services.” Last year, members gave the credit union a 97% satisfaction rating, Belco said.

CU System briefs (02/27/2009)

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* HARRISBURG, PA. (3/2/09)--John Kebles, left, CEO of Choice One Community FCU, Wilkes-Barre, received the Buck Levins Award from Credit Union National Association (CUNA) Chairman Kris Mecham, right, during the closing session Thursday of CUNA's Governmental Affairs Conference in Washington, D.C. The award recognizes his political involvement in the credit union movement (Life is a Highway Feb. 27). Earlier in the week, Kebles and his credit union were awarded the Credit Union Times Trailblazer Award for Outstanding Political Action. Kebles retired as the credit union's president/CEO in January but remains as CEO and adviser until June 30. Mecham is president/CEO of Deseret First FCU, Salt Lake City, Utah. (Photo provided by the Pennsylvania Credit Union Association) … * BILLINGS, Mont. (3/2/09)--A Seattle man was sentenced Wednesday to three years in prison after using a fake credit report to obtain loans in 2004 at two Billings, Mont.-based credit unions. Thomas J. Cosand, 42, who pleaded guilty to charges at Billings FCU, also was ordered to pay $37,860 in restitution to Billings FCU and Avanta FCU. Cosand convinced the credit union to use a copy of a credit report he brought with him, saying he was purchasing a house and his mortgage company didn't want him to pull another report. He obtained an auto loan in March 2004 and a personal loan the next month. After the second loan, the credit union pulled a credit report and discovered Cosand had civil judgments and collections efforts against him, and had two vehicles repossessed. Billings FCU has $75.9 million in assets; Avanta FCU, $137.2 million assets (Associated Press Newswires Feb. 26) … * SAN FRANCISCO (3/2/09)--OSU FCU, Corvallis, Ore., is assisting students in the Oregon State University Chapter of Students in Free Enterprise (SIFE) in teaching financial literacy courses to Corvallis high school students at Harding Center, an alternative education facility. SIFE participants will use the approved standardized curriculum and deliver the training under the supervision of Anissa Arthenayake, the $537 million asset credit union's director of community education, and Sandy Neubaum, associate director of the Austin Entrepreneurship Program. Arthenayake said supporting financial literacy education allows OSU FCU to invest in the community and help students acquire critical professional skills (US Fed News Feb. 25) …