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UBIT trial begins judge orders witnesses excluded

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GREEN BAY, Wis. (5/12/09)--The trial in the lawsuit brought by a Wisconsin credit union challenging the Internal Revenue Service's interpretation of the unrelated business income tax (UBIT) got underway Monday in a U.S. District Court in Green Bay, Wis., with the judge issuing a ruling to exclude witnesses who haven't yet testified from the courtroom . The first morning of the trial in Community First CU v. United States of America resulted in the selection of an eight-person jury comprising five women and three men, according to Credit Union National Association (CUNA) General Counsel Eric Richard, who was present at the trial. U.S. District Court Judge William Griesbach issued an order excluding witnesses who haven't testified yet from the courtroom. "The order 'discourages' those in the court room from reporting on the content of today's testimony," Richard told News Now. Opening statements were made by the attorneys, Mike Conway of Foley & Lardner, representing the credit union, Appleton, Wis.-based Community First CU, and Allyson Baker, representing the government, said Richard. Also Monday, the court heard testimony from the plaintiff's first two witnesses, Maurice Dresang, founder and retired CEO of the credit union, and Cathie Tierney, the credit union's current CEO. CUNA Vice President of Economics and Statistics Mike Schenk is scheduled to testify today, via videotape, on behalf of the credit union. Community First CU filed suit in January 2008 against the government after the IRS determined that certain guaranteed auto protection (GAP) and insurance products offered to members fall outside the credit union's mission and are subject to UBIT. The credit union is seeking a refund of $54,000 it paid in taxes on credit life and credit disability insurance and GAP products (News Now May 11). The credit union's lawsuit maintains that the revenue from the sale of the products is "substantially related" to the purposes and functions of the tax-exempt, state-chartered credit union (News Now April 30). The trial is expected to end Friday.

HELOC fraudster convicted for duping CUs banks

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NEWARK, N.J. (5/12/09)--A New York man pleaded guilty Friday to selling Social Security numbers to an identity theft ring that targeted large home equity lines of credit (HELOCs) and siphoned off at least $2.5 million from dozens of credit unions and banks in New Jersey. Yomi Jagunna, 44, pleaded guilty in a U.S. District Court in Newark of setting up a sham collection agency to gain access to a commercial database and selling 39 Social Security numbers for $30 each to the group. Prosecutors said they had evidence he mined more than 100,000 Social Security numbers, a statement disputed by the defense attorney (Star-Ledger via nj.com May 9). Jagunna is among eight people charged in New Jersey between August and November 20089 in connection with the alleged ring. They are part of a larger, nationwide ring. So far, 17 people have been charged nationally. The group targeted victims with large HELOCs, and often transferred more than $100,000 and as high as $800,000 in transfers from the HELOCs. Members of the theft ring fooled financial institution employees into transferring funds to accounts in at least seven countries. Authorities are still trying to recover the funds. In the scheme, the ring thwarted credit unions' and banks' attempts to verify the transfers with telephone calls. Some allegedly posed as the victims and persuaded phone company employees to reroute the victims' calls. Then, when the credit union called to verify the transfers, thieves' cell phones would ring and they would "verify" the transfers. In early 2008, CUNA Mutual Group warned credit unions about the sophisticated fraud scheme. At the time, 18 credit unions had reported losses or fraud attempts totaling more than $6.5 million, and the losses were expected to increase (News Now Jan. 16, 2008).

CU alerts members of staffers viral meningitis

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LIBERTY LAKE, Wash. (5/12/09)--Spokane Teachers CU (STCU) members who recently used the Liberty Lake and Cheney branches have been notified that an employee who worked at both branches was hospitalized with viral meningitis. The credit union issued the alert Friday to make members aware of the situation, even though the risk of spreading the disease is considered low (The Spokesman-Review May 9). Anyone who feels ill and is experiencing a fever, headache or stiff neck should talk to a physician, the newspaper said. STCU management also has disinfected work areas and is offering hand sanitizers to credit union staff and members, the paper added. The credit union’s actions occurred during the nation’s heightened awareness of pandemic illnesses brought about by the H1N1 (swine) flu. Knowing whether meningitis is caused by a virus or bacterium is important because the severity of illness and the treatment differ. Viral meningitis is generally less severe and resolves without specific treatment, while bacterial meningitis can be quite severe and may result in brain damage, hearing loss, or learning disability (www.cdc.gov).

Aggregators help accelerate CUs auto market share

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MADISON, Wis. (5/12/09)--Loan aggregators that provide a single portal to access several credit unions are helping pick up the slack in the automotive lending arena after many lenders ceased auto lending in the last year amidst the credit crunch. When Long Island, N.Y., auto dealer Keith Donnelly needed to find auto lenders, he turned to GrooveCar, Inc.--a 10-year old loan aggregator. Donnelly guided his consumer loan contracts to 27 credit unions (Automotive News May 4). In the past eight months, 70% of his retail financing has gone through credit unions, Donnelly told the publication. “It’s worked out fantastic,” he added. “The money has been there for us. There are plenty of funds to finance our customers.” Credit unions’ share of automotive consumer lending leapt to 28.5% in the fourth quarter. For the past two years, it was under 23%, Automotive News said. Convenience for auto dealers is the key to aggregators, the publication said. In the past, credit unions competed with dealers to provide consumer loans. But now, aggregators provide one-stop shopping for dealerships that desire to do business with several credit unions. Dealers pay a fee to be a part of this type of network.

N.J. Supreme Court rules for CU in stolen ID case

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TRENTON, N.J. (5/12/09)--The New Jersey Supreme Court last week reinstated a trial judge's dismissal of a malicious prosecution suit against a credit union by a man who spent 13 days in jail after his identity was stolen by someone who defrauded the credit union. The state's highest court ruled May 5 that a bank--or in this case, Affinity FCU, a $1.855 billion asset credit union based in Basking Ridge, N.J.--has no duty before pressing charges against an apparent defrauder to investigate whether the target is a victim of identity theft (New Jersey Law Journal May 11). The Appellate Divisions had ruled that Affinity FCU owed Howard Brunson, even though he wasn't a member, a duty to conduct a "reasonable investigation" into the possibility that he might not be the person who defrauded the credit union. The Supreme Court justices, however, unanimously found no basis for inferring such a duty. The appellate ruling had relied on an Alabama case that said banks can be held liable for false arrest of someone whose identity is stolen to open an account and that banks have a duty to conduct a reasonable investigation before pursuing criminal charges. But New Jersey Justice Roberto Rivera-Sota said the Alabama ruling was "expansive" and had "been met with near universal disapproval." He said federal courts and courts in Delaware, Georgia, Texas and Washington state have declined to adopt it. The case began after someone opened at account at the credit union with Brunson's name, Social Security number, an identification card with his birthdate, and a Paterson, N.J., address. The fraudster then deposited $9,506 in phony payroll checks. The charges against Brunson were dropped when the identity theft was discovered two weeks after he was jailed. Brunson was not present during the lawsuit. He is serving a prison term for an unrelated crime.

New SECU branch is site of first rural CU in South

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RALEIGH, N.C. (5/12/09)--State Employees CU (SECU) is purchasing land for a new branch building at the site of the first rural credit union in the South. The credit union, Lowe’s Grove Rural CU, opened Jan. 20, 1916 in Durham, N.C. A highway historical marker currently denotes the site where the credit union was located. SECU and the Lowe’s Grove Historical Marker Committee worked together to facilitate the land purchase, said Gus Godwin, committee chair and SECU member. “SECU has been looking to purchase land in the Lowe’s Grove area for quite some time,” added Shirley Bell, SECU board chair. Branch construction is scheduled to begin this summer. Durham banker John Sprunt Hill initiated the opening of Lowe’s Grove CU after studying the credit cooperative concept in Europe while part of a commission appointed by President Woodrow Wilson. He said a credit union would be of great value to the agricultural community in North Carolina. SECU has $16 billion in assets.

CU in conservatorship to sell new headquarters

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APPLE VALLEY, Calif. (5/12/09)--High Desert FCU, which was placed into conservatorship by the National Credit Union Administration (NCUA) in October, is selling its new headquarters building. The Apple Valley, Calif.-building was completed in September, but the credit union never moved in. The property--a 24,000 square foot, two-story building--is listed for $5.2 million. The listing price is about $800,000 less than it cost to construct the building (McClatchy-Tribune Regional News May 10). Although the new building was supposed to house the credit union’s corporate headquarters, High Desert FCU CEO Ken Chapman told the newspaper it would be in the credit union’s best interest--due to the economy--to sell the property.

Michigan CD laws signed by governor

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PLYMOUTH, Mich. (5/12/09)--Michigan Gov. Jennifer Granholm signed two pieces of legislation May 5 pertaining to the Certificate of Deposit Account Registry Service (CDARS). The new laws were backed by the Michigan Credit Union League (MCUL) and permit public schools and corporations to invest in CDARS. CDARS is a network in which financial institutions can offer more than $250,000 insurance coverage on deposits by investing them throughout a registry, thus allocating the risk among several institutions (Michigan Monitor May 11). The two bills--S.B. 195, sponsored by State Sen. Tony Stamas (R-Midland), and H.B. 4397, sponsored by State Rep. Jeff Mayes (D-Bay City)--became public acts for 2009. CDARS permits only Federal Deposit Insurance Corp. (FDIC)-backed institutions to participate in the program. While credit unions cannot participate, MCUL worked to ensure the legislation would not prohibit credit unions from accepting the deposits if they become participants in the CDARS network or if a credit union registry is created. “These new laws don’t have an immediate impact on credit unions, but we’ve looked ahead to when CDARS or a comparable program could open to credit unions--it could be a valuable move down the road,” said MCUL Executive Vice President Patrick LaPine.

Maryland governor signs financial literacy laws

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ANNAPOLIS, Md. (5/12/09)--Maryland Gov. Martin O’Malley Thursday signed several credit union-supported legislative measures involving financial literacy. S.B. 500 would require Prince George’s County Board of Education to develop and implement a pilot program in three county high schools that includes a semester-long course in financial literacy. The bill was sponsored by State Sen. Anthony Muse (D-26). The bill also requires that a progress report be submitted to the Prince George’s County Senate and House delegations in the General Assembly, said the Maryland and District of Columbia Credit Union Association (MDDCCUA). Two other bills--S.B. 140 and H.B. 120--increase the membership of a Task Force to Study How to Improve Financial Literacy in the State and provide more staff. The bills also extend the task force’s reporting date to Dec. 1 and its termination date to June 30, 2010 (FOCUS Newsletter May 11). Witnessing the signing of the bills were Muse and three credit union representatives-- Chris Conway, Education Systems FCU, Greenbelt, Md., and MDDCCUA board member; Kalimah Matthews, Signal Financial FCU, Kensington, Md.; and Brian Tate, MDDCCUA vice president of legislative affairs. MDDCCUA said it would continue to support the financial literacy cause, and provide updates on the progress of the task force.

AACUC creates Eastern Region chapter

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BALTIMORE (5/12/09)--The African American Credit Union Coalition (AACUC) has created an Eastern Region Chapter, according to the Maryland and District of Columbia Credit Union Association. The chapter comprises Maryland, Virginia, Delaware, West Virginia, Pennsylvania, New York, New Jersey, Rhode Island, Connecticut, Massachusetts, Vermont, New Hampshire, Maine and Washington, D.C. (FOCUS Newsletter May 11). The first networking meeting is scheduled for June 13 in Baltimore. Heading the chapter are:
* President Thelma Matthews, MECU, Baltimore; * Vice President Michael Richardson, Mid-Atlantic FCU, Germantown, Md.; * Secretary Joann Clark, DC FCU, Washington, D.C.; * Treasurer Mark Brantley, Municipal CU of New York, New York City; and * Parliamentarian Adrian Johnson, MECU.
The chapter hopes to build an alliance of credit union professionals in the region and provide financial literacy and outreach in communities.

Member pops question at annual meeting CEO says yes

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PORT HURON, Mich. (5/12/09)--It was all business at E&A CU's annual meeting May 4, but the conclusion brought a surprise and some happy drama to the Port Huron, Mich.-based credit union's meeting.
Port Huron, Mich.-based E & A CU member Norm Krol gives President/CEO Jan Rose an engagement ring after a successful marriage proposal at the credit union's annual meeting on May 4. (Photo provided by the Michigan Credit Union League)
Board Chairman Tom Wik and President/CEO Jan Rose had opened the meeting with statements about the condition of the $170 million asset credit union. Board elections saw Kathleen Bennett, Deborah Turnbull and Donna Kalmeta re-elected to the board, according to the Michigan Credit Union League (Michigan Monitor May 11). As the meeting came to a close, member Norm Krol asked Rose how she felt about mergers. "We evaluate merger and partnership opportunities on an individual basis and reflect on the merits of each situation," answered Rose. Krol then asked if Rose would agree to a merger on a personal level--with him--and he proposed marriage. Rose agreed, and "the meeting ended with thunderous applause."

Pa. court to hear community charter case June 10

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HARRISBURG, Pa. (5/12/09)--The Pennsylvania Commonwealth Court will hear arguments about community charters for Freedom CU and TruMark Financial CU on June 10, says the Pennsylvania Credit Union Association (PCUA). The argument was remanded back to the court by the Pennsylvania Supreme Court, the state's highest court. It told the lower court to take a closer look at procedures used by the Pennsylvania Department of Banking when it adjudicated challenges from certain banks and bank trade groups in 2004 (Life is a Highway May 11). According to Rick Wargo, PCUA executive vice president/general counsel, the issues in before the court are largely procedural. "To some extent, the hearings concerning Freedom and TruMark Financial raised novel issues of Pennsylvania administrative law. We are prepared to support the Department of Banking with regard to the way it conducted its proceedings in 2004." The court will hear arguments from bank trade groups; the state banking department, which oversees state-chartered credit unions; the credit unions and PCUA. Freedom CU is a $360.4 million asset credit union in Warminster. TruMark Financial is a $1.080 billion asset credit union in Trevose. They each were granted a community charter for five counties from the state banking department. In 2004, bankers challenged the decision (News Now Sept. 29, 2008).

Times announced for new hot topic ACUC sessions

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MADISON, Wis. (5/12/09)--The Credit Union National Association (CUNA) has announced specific times for new “hot topic” sessions for the America’s Credit Union Conference and Expo, scheduled for June 21-24 in Boston. One session offered is “Corporate Credit Unions & Critical Issues: A Q&A with CUNA President/CEO Dan Mica,” which will be held June 23, from 9 a.m. to 10 a.m. during the conference’s general session. “This is one of the most difficult years most professionals will ever have to face in a lifetime of credit union involvement,” said Mica. “The issues seem to change almost daily, and the information needed to be proactive is in a constant state of change, which is why we felt it was important to add these sessions to help prepare credit unions for the balance of this year and next.” Corporate credit union stabilization will be addressed in several of the sessions. Other new breakout sessions featured are:
* “Net-Worth Management in the New CU Environment”: Many credit unions are feeling net worth pressures. What does it mean in terms of restoring net worth? What are the issues in developing a net-worth restoration plan? These questions and more will be addressed. * “Lending Best Practices During Tough Economic Times”: Attendees will hear from a panel of lending experts discussing: The benefits and how to’s of participating in the Obama administration’s Making Home Affordable Refinance and Modification Program; How CUs are negotiating loan modifications; How are CUs finding good collections people in a competitive environment? * “Key Examination Issues for Credit Unions”: Attendees will hear the latest updates regarding credit union examinations. The session will include a discussion on how examiners will address the issues related to the Corporate Stabilization plan. * “Legislative and Regulatory Update”: Legislative/Regulatory/Troubled Asset Relief Program (TARP) Update--What are the latest developments on key policy issues for the Credit Union System? Issues addressed include spreading out credit unions’ costs associated with the corporate credit union system, bankruptcy, regulatory restructuring interchange fee income, and what TARP has done for banks and how it impacts credit unions.
For more information on times of specific sessions or to register for the America's Credit Union Conference and Expo, use the resource links.