Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive

CU System Archive

CU System

Hannaford breach judge dismisses all but one claim

 Permanent link
PORTLAND, Maine (5/14/09)--A federal judge has dismissed all but one of the 21 consolidated civil claims filed against Maine-based grocer Hannaford Bros., whose security breach compromised four million debit and credit cards and caused hundreds of financial institutions--including credit unions--to reissue the cards. The claims, which alleged the supermarket failed to protect and notify consumers during the breach, were consolidated before the U.S. District Court in Portland, Maine. They sought damages for the loss of time, effort and incidental personal expenses in dealing with compromised accounts (Portland Press Herald and Computerworld May 13). U.S. District Court Judge Brock Hornby, in a 39 page decision, ruled that only consumers who were not reimbursed by their financial institutions for fraudulent charges on their accounts will be allowed to proceed with the lawsuit. One plaintiff, Pamela Lamotte of Colchester, Vt., was the only Hannaford shopper named in the complaint who suffered fraudulent charges that were not reversed by her bank. In dismissing the claims, Hornby said that without any actual and substantial loss of money or property, consumers could not seek damages. Under Maine law, he wrote, "consumers whose payment data are stolen can recover against the merchant only if the merchant's negligence caused a direct loss to the consumer's account." Also, consumers who might have had fraudulent charges on their accounts that were later reversed could not sue. He noted that three of the claims against Hannaford were valid under Maine law. When someone uses a debit or credit card in a grocery transaction, Hannaford should use reasonable care in protecting the card data, he wrote. Similarly, the company's apparent delay in disclosing the data breach constituted an unfair trade practice under Maine law, Hornby wrote. "A jury could find that, if Hannaford had disclosed the security breach immediately upon learning of it from Visa, customers would not have purchased groceries at its store with plastic" until the problem was corrected, the judge said. LaMotte will be able to proceed on her claims for breach of implied contract, negligence, and an unfair or deceptive act or practice under Maine law,Hornby said. The data breaches occurred between Dec. 7, 2007 and March 10, 2008. The breach was publicly announced the following March 17. By then, about 1,800 incidents of fraud had occurred. Credit unions in New England, New York and Florida were among the financial institutions that reissued cards for members whose accounts were compromised (News Now April 17, 2008).

U.S. Central quarterly financial report posted

 Permanent link
LENEXA, Kan. (5/14/09)--U.S. Central FCU's first-quarter 2009 financial results Wednesday were as expected, with additional other-than-temporary impairment (OTTI) charges at year-end 2008 and first quarter 2009 exhausting all retained earnings and Paid-in-Capital (PIC). Membership Capital Shares (MCS) were depleted by roughly 23%. U.S. Central noted that its approach to OTTI was revised after the National Credit Union Administration (NCUA) placed it into conservatorship on March 20. "The revised approach to OTTI will change reported OTTI as of year-end 2008 from $1.2 billion to approximate $3.8 billion, based on Generally Accepted Accounting Principles (GAAP) in effect through 2008, whereby OTTI is recognized based on the mark-to-market value of the securities expected to experience credit losses," said the report. As of Jan. 1, roughly $2.7 billion of the OTTI charge, representing the non-credit portion of the loss, is added back to the retained earnings under new GAAP issued in April. For first-quarter, U.S. Central recorded an OTTI charge of $687 million, which represents the projected principal loss of $918 million discounted to reflect the net present value based on the respective effective yield or spread to LIBOR of each security on the date of purchase. On a cumulative basis through March, principal shortfalls of $2.3 billion with an associated net present value of $1.8 billion are projected from 229 securities. All 525 non-agency residential mortgage-backed and commercial mortgage-backed securities were evaluated by an independent consultant. The report could be revised further since the 2008 financial statement audit for the wholesale corporate credit union is not yet complete. To review the entire report, use the resource link.

CU government present witnesses in UBIT case

 Permanent link
GREEN BAY, Wis. (5/14/09)--In the third day of trial in its challenge of the Internal Revenue Service's unrelated-business income tax (UBIT) policy, Community First CU concluded its case Wednesday and the government presented its first witnesses. The trial began Monday in a U.S. District Court in Green Bay, Wis. The Appleton, Wis.-based credit union filed suit against the government in 2008 after the IRS determined that certain guaranteed asset protection (GAP) and insurance products offered to members fall outside the credit union's main mission and are subject to UBIT. The credit union is seeking a refund of $54,000 in taxes paid on credit life and credit disability insurance and GAP products. According to Eric Richard, general counsel for the Credit Union National Association (CUNA), who was present for the morning session, the credit union concluded its case with two witnesses. Yurri Sauerhammer, a member of Community First, described her experiences with the credit union's credit disability insurance product. Glenn Potts, an expert witness and professor of finance at University of Wisconsin-River Falls, gave his professional opinion about the role that the insurance products play in a credit union and their relationship to the purposes of a credit union. The morning also saw the government's first witness, Birny Birnbaum, a self-employed consulting economist, executive director for the Center for Economic Justice operated out of his home, and a former insurance regulator in Texas. Birnbaum gave an analysis of insurance products and he supported the idea that the insurance products do not support the purposes of a credit union. Gordon Karels, the government's second witness, testified Wednesday afternoon, according to Michael Edwards, counsel for special projects at CUNA. Karels is the Nebraska Bankers Association Professor of Finance and chairman of the Finance Department at University of Nebraska-Lincoln. He is also a board member and investor of a new thrift, Community Bank of Lincoln. Karels teaches a depository institution management class and a personal finance class, and is author of 40 papers, four of them about credit unions. He testified about credit insurance, Edwards said. A judicial order issued by Judge William Griesbach on Monday discourages those in the court room from reporting on the specific content of the testimony, since witnesses who haven't testified yet have been excluded from the courtroom. Community First filed the suit in January 2008 with the support of the Credit Union National Association, the American Association of Credit Union Leagues, CUNA Mutual Group and the National Association of State Credit Union Supervisors. Today the credit union's attorney, Michael M. Conway of Foley and Lardner law firm, will present two expert rebuttal witnesses on behalf of the credit union. They are Gary Fagg, the consulting actuary and owner of Credit Re located in Hurst, Texas, and Michael Medland, retired chartered professional life underwriter with various life insurance companies, including CUNA Mutual Group. Richard told News Now that there is a "good chance" the trial will end early.

Ohio foreclosure bill minus cramdown passes House panel

 Permanent link
COLUMBUS, Ohio (5/14/09)--After removing a "cramdown" provision that would have allowed judges to modify mortgage terms, the Ohio House Housing and Urban Revitalization Committee Tuesday voted out of committee a bill that would set a six-month moratorium on foreclosures in the state. The bill also would reduce foreclosure filing fees to $750 from $1,500. Credit unions and commercial banks with less than $2.5 billion in assets are exempt from foreclosure filing fees and the moratorium stipulated in the measure, said John Kozlowski, general counsel at the Ohio Credit Union League. "We didn't believe the moratorium was necessary," Kozlowski told News Now. "Credit unions work with members consistently on foreclosure issues. We've worked diligently with the General Assembly and with members of the committee." He noted the bill's sponsor, Rep. Mike Foley (D-Cleveland), "understands the role that credit unions play in the community." Foley told The Columbus Dispatch Tuesday that credit unions and small banks "are bending over backwards to work with borrowers--unlike the big guys, who could care less." "We are very appreciative of members of the General Assembly who recognize the role credit unions play in the community [in helping members] under current economic conditions," Kozlowski said. The filing fees will be paid to the Ohio Department of Commerce, which houses the state-chartered credit unions' regulator, the Division of Financial Institutions. The fees will go to provide money and programs for foreclosure prevention, education and counseling, Kozlowski said. "Credit unions have been involved around the state with foreclosures and HUD-authorized agencies pertaining to foreclosure issues," he said. The bill still would require the borrower to pay half their monthly mortgage payment during the moratorium. It also made provisions for notification to homeowners about the moratorium. And all mortgage lenders, including credit unions, will be required to conduct background checks. "The bill will allow credit unions to continue to operate within the community and to continue to work in close contact with members who may be under distress," Kozlowski told News Now. "Credit unions' aim is to help them stay in their homes. This is a priority for credit unions. We do NOT want to foreclose. We want to keep them in their houses," he emphasized. "The bill provides them opportunities to assist." The bill was to go to the House Rules Committee Wednesday and then to the House floor for a vote. After it moves out of the House, it will be taken up in the Senate.

Conference outlines investment services benchmarking trends

 Permanent link
LAS VEGAS (5/14/09)--A speaker at the National Association of Credit Union Service Organizations (NACUSO) conference outlined investment services benchmarking trends May 5 in Las Vegas. Pete Snyder, president, Snyder Consulting Solutions LLC, presented results from the “Callahan/SCS 2009 Retail Investment Services Benchmarking Study for Credit Unions,” which will be published later this month. The data provided by participating broker dealers suggest that the credit union retail investment service channel continues to steadily grow. Snyder cited institutional metrics that are key indicators of growth:
* The number of credit unions that provide their members with “face-to-face” retail investment services grew by 3.64% to 968 from 938 between 2005 and 2008. Given that the total number of credit unions continues to shrink as the result of merger activity, the report suggests that the minimal growth factor of 3.64% includes some reductions in programs as a result of merger activity, he said. * Representatives that serve credit union members grew to 3,051 by the end of 2008 from 1,902 in 2005. * Total gross dealer concessions generated in 2005 were $289 million and grew to $352 million by year-end 2008. * The average gross dealer concessions per credit union increased to $363,894 by year-end 2008 from $308,375 in 2005.

Randolph-Brooks FCU named SBA CU Lender of the Year

 Permanent link
SAN ANTONIO (5/14/09)--Randolph-Brooks FCU (RBFCU) was named the Small Business Administration’s (SBA) Lender of the Year. The credit union will be recognized for the award during National Small Business Week in Washington, D.C., next week (San Antonio Business Journal May 13). Kenan Pankau, RBFCU business services lending manager, will accept the award and attend a panel meeting at the White House to discuss the financial climate. RBFCU began offering SBA loans in 2006. The SBA’s lending programs help business owners who may be overlooked by larger business lenders, Pankau said. As of December, 204 credit unions had SBA loans outstanding, according to Credit Union National Association research. RBFCU, based in Universal City, Texas, has more than $3 billion in assets.

Mass. leagues Governmental Affairs Day held

 Permanent link
BOSTON (5/14/09)--The Massachusetts Credit Union League’s annual Governmental Affairs Day was held at the Massachusetts State House. The event marked a celebration of the 100th anniversary of the founding of the credit union movement in Massachusetts and the role Pierre Jay, Massachusetts’ first Commissioner of Banks, played in the process. Mary Ann B. Clancy, league senior vice president of legislative affairs and general counsel, welcomed the group. League President Daniel F. Egan Jr. updated the attendees on the status of U.S. Senate Bill 896, the Helping Families Save Their Homes Act, which incorporates the corporate stabilization plan (E-Weekly May 13). Banking Commissioner Steven Antonakes congratulated credit unions on 100 years of service and recognized the insight of his predecessor Pierre Jay. Antonakes also discussed challenges that financial institutions, consumers and regulators are facing. State Sen. Michael R. Knapik (R-2nd Hampden and Hampshire), who serves as the ranking Republican on the Senate Ways and Means Committee, provided an overview of the current budget deliberations in the state legislature and the challenges that the current revenue shortfall poses to state government, said the league. State Sen. Stephen J. Buoniconti (D-Hampden), who chairs the Joint Committee on Financial Services, urged credit unions to continue to be proactive in educating the legislature about their unique character and contributions to the quality of life in Massachusetts. He noted the legislature will be examining possible income sources during this session. Dr. Andrew Smith, director of the University of New Hampshire Survey Center, provided an overview of the political landscape in the wake of the 2008 elections both nationally and in Massachusetts. State Rep. Peter J. Koutoujian (D-10th Middlesex) praised the work done by the credit unions of Massachusetts for the consumers of Massachusetts. State Treasurer Timothy Cahill spoke about key public/private partnerships that credit unions are participating in, such as the state’s Savings Make Sense program. He lauded credit unions for their public spiritedness.

ASI FCU dedicates community facility in New Orleans

 Permanent link
NEW ORLEANS (5/14/09)--ASI FCU, New Orleans, has dedicated a new community facility--the Clifford N. Rosenthal Community Resource Center--to city residents to help revitalize the Upper Ninth Ward, which was devastated by Hurricane Katrina in 2005.
Clifford Rosenthal (far right), president of the National Federation of Community Development Credit Unions, cuts a ribbon May 5 at the grand opening of the Clifford N. Rosenthal Community Resource Center in the Upper Ninth Ward of New Orleans. (Photo provided by the National Federation of Community Development Credit Unions)
The center is named after the National Federation of Community Development Credit Unions president/CEO. It will offer free first-time homebuyer classes, one-on-one credit counseling, financial literacy education and other asset-building products from ASI FCU, which also will have a branch on site. “This new community resource center is a concentrated effort on the part of A Shared Initiative Inc. (ASII) to revitalize the Upper Ninth Ward, and no one in the credit union movement represents those ideals better than Rosenthal,” said ASI FCI President/CEO Mignhon Tourne. On May 5, the center celebrated its grand opening with more than 100 leaders of the credit union and community development movement attending. “The center not only represents an extension of the credit union’s mission to serve the underserved, but also an opportunity for our nonprofit to expand vital community services to promote homeownership to restore this once-vibrant community,” said Sarah Taylor, senior vice president of marketing and community development, ASII and ASI FCU. The federation helped ASI FCU survive several challenges in the aftermath of Hurricane Katrina. Several of its branches were destroyed and staff were displaced. When money from the Federal Emergency Management Agency arrived, ASI’s net worth ratios were at unsustainable levels. The federation stepped in and expanded its investment of secondary capital in ASI and lengthened its term to aid recovery. Secondary capital is subordinated debt that can be counted toward a credit union’s net worth. “It was the best investment we ever made,” Rosenthal said. “ASI FCU was simply too important to the community to allow it to fail, particularly at a time when the credit union’s services would be so critical to helping low-income New Orleans residents resettle their communities.” The federation also accepted donations into a fund that grew to $1 million. The donations allowed the federation to make grants of $150,000 to ASII and $250,000 for ASI FCU to promote mortgage lending. ASI FCU has $260 million in assets.

WesCorp March 2009 financials posted

 Permanent link
SAN DIMAS, Calif. (5/14/09)--Western Corporate FCU (WesCorp), based in San Dimas, Calif., posted its March 2009 financial statement with some special accounting adjustments. As of March 31, WesCorp posted a credit loss of $5.566 billion related to its securities portfolio. Of that, $390.5 million was from recognizing credit losses in the collateralized debt obligation positions. The remaining $5.175 billion came from the rest of the securities portfolio--mostly from Alt-A and particularly the Pay-Option Arm collateral portions. This amount represents an unaudited estimate of future credit losses and is considered to be other-than-temporary impairment (OTTI) in accordance with accounting guidelines, said WesCorp in its financial summary. Additional unrealized losses related to WesCorp’s securities portfolio were $6.034 billion, recorded as of March 31. WesCorp is operating with a Prior Undivided Earnings Deficit of $3.745 billion, which is guaranteed by the National Credit Union Share Insurance Fund. In an effort to release March financial information as soon as possible, WesCorp recorded its estimates of OTTI as of March 31, before it completed Dec. 31 audited financial statements. This required that all of the impact of OTTI be recorded through the income statement during March 31--even though the majority of OTTI expense is attributable to the period ending Dec. 31. As a result, March financial statements are not presented in accordance with generally accepted accounting principles because net losses are materially overstated in March for amounts that should be recorded as of December and adjustments to interest income on securities that are impaired as of Dec. 31. Once the Dec. 31 audited financials have been completed and issued, WesCorp said it will correct and restate January, February and March 2009 financial statements as appropriate. On March 20, the National Credit Union Administration (NCUA) board placed WesCorp into conservatorship and appointed itself as conservator. The NCUA board has given overall management authority to conduct day-to-day operations to the CEO and management of WesCorp, so that the corporate may continue to operate. For more information, use the link.

N.Y. foundation touts CUs fin-ed at literary forum

 Permanent link
ALBANY, N.Y. (5/14/09)--Diane LaVigna-Wixted, executive director of the New York Credit Union Foundation, was a featured speaker at the New York Financial Literacy Forum where she touted credit unions’ financial education initiatives. At the second annual forum, held last week at Hofstra University in Queens, policy leaders, education experts and corporate leaders shared their experiences and insights about the need for financial literacy education in schools. LaVigna-Wixted said the “teachable moment” is now. Even though the economy is unstable and schools are facing budget cuts, now is the perfect time for schools to adopt financial education programs supported and promoted by credit unions, such as the National Endowment for Financial Education’s free High School Financial Planning Program, the National Consumer League’s free LifeSmarts program, the brass|STUDENT PROGRAM, and programming offered through public broadcasting’s “Biz Kids$” television show, she said. Keynote speaker U.S. Rep. Carolyn McCarthy (D-Metropolitan) talked about her commitment to work with Congress to ensure that education bills are passed. A “crisis is a terrible thing to waste,” she said. U.S. Rep. Gregory Meeks (D-Metropolitan) spoke about his parents’ financial ignorance and how they were taken advantage of in financial matters. It was those childhood memories that made him a staunch proponent of financial education for children. New York Banking Committee Chair Brian X. Foley (D-Long Island) also spoke about the urgency of incorporating financial education in every school district statewide.