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Visa puts Heartland on probation citing data breach

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NEW YORK (3/16/09)--Credit card processors Heartland Payment Systems and RBS WorldPay have been removed from Visa's list of service providers that are compliant with Payment Card Industry Data Security Standards (PCI DSS), Visa announced Friday. Both processors have had massive data breaches in recent months affecting hundreds of credit unions and banks and thousands of members. The decision is significant because merchants accepting Visa and MasterCard are required to use processors that are PCI compliant or risk paying fines themselves (SCMagazine March 13). Key players in the card industry had established a single standard to serve as a consistent framework of data security requirements. "Compliance with the PCI DSS has significantly reduced unauthorized access to cardholder data," Visa said Friday. "Recently Heartland Payment Systems and RBS WorldPay publicly disclosed unauthorized access to their systems resulting in the compromise of card account information from all major card brands, "Visa said. "Based on compromise event findings, Visa has removed Heartland and RBS WorldPay from its list of PCI DSS compliant service providers." However, Visa added that "Heartland and RBS WorldPay are actively working on revalidation of PCI DSS compliance using a Qualified Security Assessor. Visa will reconsider relisting both organizations following their submissions of their PCI DSS reports on compliance." Heartland, which disclosed Jan. 20 that a malicious software may have exposed tens of millions of records from its system to hackers, said in a statement it was "pleased to continue our long relationship with Visa. Heartland is cooperating fully with Visa and other card brands, and we are committed to having a safe and secure processing environment." It had been certified as PCI-Dss compliant in April 2008. Its assessment will be completed by May, Heartland said. (TheTechHerald March 13). RBS's data breach, announced in December, compromised 1.5 million cards. The breaches, as well as those of the Hannaford Bros. grocery chain and discount retailer TJX Cos., have all affected credit unions. But Hannaford and Heartland had said they were PCI DSS compliant at the time of the breaches. As a result, there has been debate about the effectiveness of the standards against highly sophisticated organized networks of cybercriminals. Meanwhile in another development, a data breach announced in late February that affected credit unions and banks was not a breach of a new payment processor, but was instead related to an earlier incident, Visa said last week. It did not identify the unnamed card processing company (Computerworld March 9). News of it surfaced when Visa and MasterCard began to quietly alert credit unions and banks that an unnamed credit card processing company experienced a compromise of its systems (News Now Feb. 24).

Massachusetts CUs assets grew in 2008

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MARLBOROUGH, Mass. (3/16/09)--Massachusetts' 223 credit unions grew during 2008 in assets, deposits, loans and membership, according data from year-end reports released by the National Credit Union Administration. Assets grew 7.94% to $26.5 billion from $24.6 billion at the beginning of 2008, according to the statistics cited by the Massachusetts Credit Union League (E-Weekly March 11). Asset growth for Massachusetts' credit unions was half a percentage point over the national growth rate of 7.23%. Savings in Massachusetts credit unions rose 5.21%, compared with nearly 7% for credit unions nationwide. Credit unions in the commonwealth attracted 13,000 new members in 2008, an increase of 0.53%. Loans outstanding grew by more than 6.37% , or $1.16 billion. Nationwide, loans at credit unions rose by 6.71%

Judge freezes Central States funds

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MILWAUKEE (3/16/09)--A Milwaukee County Circuit Court judge has frozen up to $3.37 million in loan money held in a credit union account on behalf of CSMC Inc., better known as Central States Mortgage Co., which suspended operations on March 9. Circuit Judge David Hansher issued a temporary restraining order late Thursday after Associated Bank sued the Wisconsin-based mortgage lender, alleging fraud for refusing to promptly pay down a loan, said the Milwaukee Journal Sentinel (March 12). Central States Mortgage Co. (CSM) had served 250 credit unions nationwide, originating and servicing mortgages. Twenty-three wrote off their investment in the company during fourth quarter, according to regulatory reports obtained by the Journal Sentinel. The Associated Bank lawsuit alleges that Central States borrowed funds from the bank to finance 13 mortgage loans and then sold 12 to investors but did not pay down the loan, as required. The bank alleged the mortgage company tapped its line of credit between Christmas and New Year's Eve, about two months after it was informed the credit line would close Jan. 5. Last month, a Wisconsin court awarded U.S. Bank a $2.7 million judgment against Interim Funding LLC of Wauwatosa, Wis., a firm owned by the founder and former CEO of CSM, Dick Jungen. The bank sued Jungen and five executives of Interim, including three former CSM employees, alleging the company defaulted on a $3 million revolving loan from the bank. CSM fired Jungen in July 2008 after the credit union service organization learned he secretly controlled Interim Funding. The CUSO sued in February, alleging he scammed the CUSO out of $15 million (News Now March 2). The case is pending (The Business Journal Milwaukee March 9). Central States' parent company, CSCM, also is a defendant in a lawsuit filed Feb. 24 by Equitable Bank of Wauwatosa involving a foreclosure on a condo project in West Allis, Wis. CSMC holds a $4.3 million mortgage with a development group that includes Jungen, said the newspaper.

Carolina DMV halts used-car sales at CU

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NORTH AUGUSTA, S. C. (3/16/09)--A community used-car lot held weekends at the parking lot of SRP FCU has been closed by the South Carolina Department of Motor Vehicles, which says the sales are affecting vehicle sales of used-car dealers. However, the case is different from one that occurred earlier in Wisconsin, where auto dealers closed a credit union's auto sales lot (News Now April 10 and Dec. 11, 2008). In this case, the North Augusta, S.C.-based SRP FCU isn't selling or financing the cars. It's just providing a spot for the community to barter. According to SRP FCU President Ed Templeton, every weekend for years, between 6 p.m. Friday and 8 a.m. Monday, people in the community took their used-cars, boats, motorcycles, travel trailers and more to the credit union's Silver Bluff Road branch parking lot. They slapped a For Sale sign on their vehicle with their contact information. "It started out with one or two, and over the years, it just grew. We have 75 parking spaces and every weekend, the lot will have 50-75 cars," and other vehicles, Templeton told News Now, noting that the credit union is closed during the weekend. Other branches occasionally get one or two vehicles, but this lot was "a mecca." Templeton said used-car dealers complained to the DMV that the sales were taking away their business. DMV sent an agent several weekends to the lot to gather tag numbers and vehicle identification numbers, and last weekend the lot was officially closed. "They told us we were violating the law. The code has benign language about 'affecting the sale of vehicles' in cases where we might lend money to a buyer. The code says we'd need a dealer's license, which we don't want and aren't qualified for under the regulations." Technically, the DMV is correct, according to the credit union's lawyers. The only recourse is to go to the state legislature to change the code to allow "tent sales." However, that won't happen. "We're not ready to take that on. There is so much going on right now, that we have to pick our battles," Templeton said. The credit union doesn't conduct the sale, and if a buyer of a car on the lot happens to come into the credit union Monday morning to get financing, the credit union has no way of knowing where the car is purchased, he said. "It's a disappointment to me, a disappointment to the community. We were the only place available where people could offer their cars. The one beacon was our parking lot." The credit union has signs up on the lot informing sellers and buyers the lot is under police jurisdiction and they could be towed for trespassing. "It's the epitome of stupid," he said, adding that "towing would be a last resort." People aren't happy about the change, said Templeton. Some members have fired off e-mails to the DMV and a new-car dealer suggested it would help if the credit union wants to change the law. "It's gratifying when people rally around you," he added. And then, there's the irony: The DMV agent's son complained when he found out he couldn't use the credit union's lot to sell his motorcycle.

Media across country report CUs are safe sound

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MADISON, Wis. (3/16/09)--Media nationwide are reporting on credit unions’ safety and soundness, and their willingness to lend when many financial institutions are cutting back. Some examples:
* Truliant FCU, Winston-Salem, N.C., said its “credit is flowing like nothing is wrong with the economy,” according to TV station WXII 12. The segment noted that car loans in January were up 30% from a year ago, and mortgages were up 39%. Using loans obtained at Truliant, an engaged couple refinanced a loan on one car and purchased a used car. With the money saved through favorable loan rates, the couple is paying down credit card debt and will finance a wedding and honeymoon. The wife of a preacher refinanced her church mortgage with a loan from the $1.195 billion-asset Truliant. With the savings realized, she is hiring more staff to help run the church. The credit union said it is a conservative lender that did not get involved in subprime lending or option adjustable-rate mortgages, or “put profits ahead of practicality” like many banks. To view the video, use the link (Weekly Update March 13). * In Michigan, total credit union loans grew 8.2% to $22.3 billion at year-end 2008, compared with a 4.05 % growth rate in 2007, and 5.17% in 2006. Auto loans by Michigan credit unions rose 10.72% to $5.35 billion in 2008--an increase driven in part by Invest in America, credit unions’ lending program with General Motors and Chrysler--after two years of small decreases. Credit union executives in the state said tight credit at banks and last fall’s financial meltdown resulted in consumers taking their business elsewhere. “We are seeing a transformative shift here,” said David Adams, president/CEO of the Michigan Credit Union League. “It’s a great business opportunity” (Mlive.com March 10). * First South CU, Bartlett, Tenn., earned $9.4 million is 2008, while many financial institutions were reporting losses. The credit union is earmarking $900,000 to cover possible bad loans. While two-thirds of the credit union’s loan portfolios consists of mortgages, First South will not issue mortgages to members it believes cannot repay them. The credit union has only one delinquent mortgage borrower, said Craig Esrael, CEO. The $333.2 million-asset First South started construction last month on its 14th branch (The Commercial Appeal March 5). * Credit unions are healthy and prepared to rescue the corporate credit union system, according to a story in the March 6 Central Penn Business Journal. The article provides background on the corporate credit union system, the proposed corporate stabilization plan, and how credit unions will be affected. Diana Roberts, CEO of Hershey (Pa.) FCU, said she supports the financial rescue and hopes credit unions can repair the system on their own. “It is our duty to do that,” she said. “We own the system and we’re going to come out looking a lot better if we do it ourselves” (Life is a Highway March 10).

Fitch adjusts rating for CUNA Mutual

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MADISON, Wis. (3/16/09)--Fitch Ratings lowered the insurer financial strength rating for CUNA Mutual Group. The rating was adjusted from ‘AA-’ (Very strong) to ‘A’ (Strong) with a Negative Outlook in its annual ratings review, citing current and future economic turmoil as the primary drivers for the ratings change. The change reflects CUNA Mutual’s above-average exposure to residential mortgage-backed securities and asset-backed securities, Fitch said. Fitch had previously put the life insurance sector on an industry-wide negative outlook. “CUNA Mutual is not immune to market events, but even in the current economic environment we remain financially strong,” said Jeff Holley, CUNA Mutual’s chief financial officer. “Our ability to pay claims has not been impeded and we remain well capitalized--even in these difficult economic times.” Fitch said the ratings "reflect the expectation that operating performance will be hindered by a further decline in assets under management.” Fitch wrote in its release, "Favorably, CUNA Mutual’s ratings consider its strong market position in the credit union marketplace, conservative reserving practices, and solid liquidity.” CUNA Mutual’s financial strength and capital position remain strong and the company’s business operations produced solid revenue growth and operating results in 2008. The company’s revenues grew by nearly 7% and operating gain exceeded $150 million last year, the company said. Fitch noted that CUNA Mutual reported a $148.9 million net loss in 2008, compared with $183.6 million of net income in 2007--which it said reflected deterioration in its investment portfolio along with lower earnings in its asset accumulation and commercial products. Many financial experts predict the economic recession will continue throughout 2009-- and Fitch has built this expectation into its ‘A’ rating of CUNA Mutual. The ‘A’ rating applies to the principal companies of CUNA Mutual Insurance Society and CUMIS Insurance Society Inc., a property and casualty subsidiary. The ‘A’ rating is the sixth highest rating of 19 categories of ratings Fitch issues. Fitch also placed CMG Mortgage Insurance Co., which is 50% owned by CUNA Mutual and 50% owned by PMI Mortgage Insurance Company, on Rating Watch Negative.

N.Y. CUs address corporate stabilization plan

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ALBANY, N.Y. (3/16/09)--More than 45 New York credit union representatives attended a special Manager/CEO Roundable Thursday to discuss the National Credit Union Administration's (NCUA) Corporate Stabilization Program and its impact.
National Credit Union Administration (NCUA) Region I Associate Director Anthony LaCreta updated the New York Manager/CEO Roundtable on NCUA's Corporate Stabilization Program Thursday.
The event was hosted and organized by the Credit Union Association of New York in Albany for credit unions with assets up to $50 million. Victor Vrigen, senior vice president of Members United Corporate FCU, shared information about the current corporate atmosphere, and Anthony LaCreta, NCUA Region I associate regional director of operations, provided an overview and update on the program. The group analyzed corporate credit union system alternatives in an effort to build a consensus for comments for NCUA's Advance Notice of Proposed Rulemaking (ANPR) on the plan. "Small to mid-size credit unions will be uniquely impacted by this program," said association President/CEO William J. Mellin. "Which is why this type of forum was an ideal medium through which they could discuss credit union issues in relation to the current financial crisis in conjunction with how we, as their association, can assist them."
A focused group gathered at the Credit Union Association of New York's headquarters Thursday to discuss the National Credit Union Administration's Corporate Stabilization Program. (Photos provided by the Credit Union Association of New York)
Association management staff provided information on related initiatives, Web resources, the ANPR, ANPR survey results, and a legislative briefing on the program. "Getting together with like-size credit unions in a venue like today's gives us the opportunity to talk, ask questions and reinforce our message so that we speak with one voice when commenting collectively and independently" on the program, said Barry Stilwell, CEO, Canandaigua (N.Y.) FCU. The Credit Union National Association (CUNA) and CUNA's Corporate Credit Union Task Force are working to lessen credit unions' insurance costs associated with the program and are continuing efforts to encourage NCUA to adopt one or more alternatives to the funding to mitigate the stabilization program's costs to credit unions.

CU System briefs (03/13/2009)

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* MADISON, Wis. (3/16/09)--Summit CU, based in Madison, Wis., is seeking four individuals or families to participate in an interactive competition, Project Money. The prize: $10,000 for the winner and $2,500 each for the runners up. Participants will meet with financial coaches during the seven-month challenge to develop customized tools and advice aimed at meeting their financial goals. The nearly $1.3 billion asset credit union will award points in three categories: Increase in savings (40%), debt reduction (40%), and participation in program events such as educational sessions, coaching meetings, and web blogs (20%). Other members can participate in the Play at Home option on Summit's website … * TALLAHASSEE, Fla. (3/16/09)--Florida Commerce CU has appointed Cecilia D. Homison as its new CEO. The appointment was effective March 1. Homison succeeds long-time CEO Ron Fye, who is retiring. Homison has been chief financial officer of Florida Commerce CU since 2000. She began her credit union career in 1988 at Heritage Trust FCU, Charleston, S.C., as assistant vice president/controller. Later she served as vice president finance, senior vice president finance/controller and chief operations officer. The Tallahassee-based credit union is the largest credit union in North Florida, with more than 36,000 members and $300 million in assets … * GREENSBORO, N.C. (3/16/09)--Greensboro (N.C.) Municipal CU's board of directors has named Jerry Wise to the position of CEO/president. Wise has more than 12 years' experience in the credit union movement, most recently as executive vice president of Fremont (Ohio) FCU. Prior to that he served as executive vice president at Firelands FCU, Bellevue, Ohio, according to the North Carolina Credit Union League (Weekly Update March 6). In those positions Wise was involved with all operations of the credit union and worked to improve the quality of services to members. Greensboro Municipal CU has more than $31.3 million in assets … * VAN NUYS, Calif. (3/16/09)--Los Angeles Police FCU (LAPFCU) been selected as one of California's best places to work, according to Employer's Group, a human resources and advocacy firm serving California employers (Market Wire March 10). The $694.8 million asset credit union earned second place out of five winners in the medium-size companies' category. The ranking was based on LAPFCU's scores against 490 companies in employer and employees surveys in nine categories: work-life balance, pay, benefits, training and advancement opportunities, diversity programs, turnover, perks, employee voice and workplace culture, and community involvement …