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CU System

Community First CU wins UBIT case

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GREEN BAY, Wis. (5/15/09)--Community First CU has won its challenge against the federal government over the Internal Revenue Service's (IRS) interpretation of the unrelated-business income tax (UBIT) as it relates to three insurance products. Eight jurors delivered the verdict at 5:45 p.m. CT Thursday in favor of the credit union on all three products, according to Michael Edwards, counsel for special projects with the Credit Union National Association (CUNA), who was present in the courtroom. "The jury deliberated less than two hours, which is pretty short," Edwards told News Now. U.S. District Judge William Griesbach entered the judgment in favor of the credit union for $54,604, the full amount the credit union was seeking, plus costs, which could go into a five-figure amount. The amount represents taxes paid on credit life and credit disability insurance and guaranteed asset protection (GAP) products. "This is a great outcome for state-chartered credit unions," said CUNA General Counsel Eric Richard, who attended the trial earlier this week. "We hope it will lead the IRS to reconsider its entire position on UBIT for credit unions, but we are prepared for the next case in Denver." The verdict means that the jury was not persuaded by the government's two key expert witnesses--Birny Birnbaum, a self-employed consulting economist, and Gordon Karels, chairman of the finance department at the University of Nebraska-Lincoln, said Edwards. Birnbaum and Karels are the only government witnesses in a similar UBIT case involving insurance products filed by Bellco CU of Greenwood, Colo., last May. That complaint seeks a refund of $199,000, based on UBIT taxes paid for 2000, 2001 and 2003. Community First's trial began Monday in Green Bay, Wis. The Appleton, Wis.-based credit union filed suit against the government in 2008 after the IRS determined that certain GAP and insurance products offered to members fall outside the credit union's main mission and are subject to UBIT. Earlier in the day Thursday, Judge Griesbach had reversed an earlier preliminary ruling issued last week, in which he said credit disability and credit life insurance could be treated as a single issue under "credit insurance related" issues. Instead, he ruled Thursday that the two products would be treated as separate issues, said Edwards. The judge cited two reasons for the split: 1) factual differences between the two products and 2) different premiums on the products as they relate to rate of loss for the insurance company. In its closing argument, the credit union argued that all the insurance products are related to all of the credit union's purposes under Wisconsin law; that the insurance and GAP products are a source of credit with fair and reasonable rates and are directly connected to the loans made; and that the credit union educated members about the products to improve their financial conditions. In its closing argument, the government argued that the products were "a rip-off" because they were "overpriced" relative to theoretical alternatives (that do not exist on the market). The government also argued that "mystery dollars" were going to CUNA Mutual Insurance Society (CUMIS), the insurer and that several witnesses had ties to CUMIS and were therefore "biased." 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. The Wisconsin Credit Union League also supported the effort, and league President/CEO Brett Thompson testified on behalf of the credit union earlier in the week.

Board officers at AVCU announced

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BURLINGTON, Vt. (5/15/09)--More than 170 people last week attended the 62nd annual meeting of the Association of Vermont Credit Unions (AVCU), which elected its board and officers. Re-elected to three-year terms on the board of directors were Sean Gammon, Members Advantage Community CU, and Susan Poczobut, Granite Hills CU, both credit unions in Barre. Board Chairman John Benoit, NorthCountry FCU, South Burlington, announced he would step down as chairman after holding the position for eight years. He will remain on the board. Officers for the 2009 AVCU Board are:
* Chairman Jim Adorisio, Champlain Valley CU, Essex Junction; * Vice-Chairman, Gammon; * Treasurer, Poczobut; and * Secretary, Susan Best, ORLEX Government Employees CU, Newport.
Other directors are Matt Levandowski, Heritage Family FCU, Rutland, and Jeff Morse, River Valley CU, Brattleboro.

League CUs in Idaho surviving recession

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BOISE, Idaho (5/15/09)--Idaho credit unions have weathered the current U.S. economic recession well, according to Alan Cameron, president/CEO of the Idaho Credit Union League. The state’s first credit union charter was filed in 1934 and now nearly a third of Idaho’s residents (514,000) are members of credit unions with 62 credit unions available from which to choose (Idaho Business Review May 11). “There are places in this state where credit unions are the only financial institution available,” he told the publication. The strength of the credit unions system lies in its conservative nature, Cameron added. “I think that’s a point that needs to be stressed,’ he said. “The incentive of the organization is to find the best possible way to serve the members, building the [credit union] into a strong financial institution. “You do have to charge for your services, you do have to charge interest, but what the focus comes down to is what’s best for the member,” Cameron continued. When asked if credit unions were suffering as much as banks, Cameron drew a line of separation. “We haven't had any [credit unions] close this year,” he told the Review. “I don't want to downplay that, there have been challenges this year. We did have two credit unions that merged this year. They merged in both instances because their fields of membership basically went away or were no longer viable. Those are factors outside our control. In order to protect the members’ money, and provide a continuation of service to the members, often times a [merger] is necessary. It's typical in what we see. “We’ve never had a failure of a credit union in Idaho,” he added.

MSCUA board awards announced

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JACKSON, Miss. (5/15/09)--More than 500 managers, volunteers, staff and guests from Mississippi credit unions attended the Mississippi Credit Union Association’s (MSCUA) 72nd Annual Meeting in Biloxi, Miss., last week. During the meeting, four MSCUA board directors were re-elected for a three-year term:
* Guylean Cooper, Valley Gas Employees CU, Jackson; * Doug Adams, MUNA FCU, Meridian; * Ray Scott, University of Southern Mississippi FCU, Hattiesburg; and * Laurin Avara, Navigator CU, Pascagoula.
The MSCUA board officers are:
* Chairman, Lt. Col. Dean Todd (ret. USAF), Keesler FCU, Biloxi; * Vice-Chairman, Dion Williams, Central Sunbelt FCU, Laurel; * Treasurer, Ray Scott, University of Southern Mississippi FCU; and * Executive Committee Member, Jimmy Smith, Singing River FCU, Moss Point.
During the event, two individuals were presented the state’s highest honor, induction into the Mississippi Credit Union Hall of Fame. They were:
* Francis J. Frederic Jr., Navigator CU; and * Pete Fairley, Singing River FCU.
Also, Jackson Area (Miss.) FCU received an award for being the top 2008 Credit Unions for Kids fundraiser.

IWSJI Economy hits Arizona Centrals loan demand

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NEW YORK and PHOENIX (5/15/09)--The weight of the economy on loan demand is addressed in The Wall Street Journal in an article that cites Arizona Central CU as an institution with money to lend but fewer loan applications because of the way consumers are responding to the recession. The article notes loan demand fell sharply during the end of 2008 and is still weakening in first quarter 2009. It reported 60% of U.S. banks say demand is down. The Phoenix-based credit union with nearly $400 million in assets saw loan applications plunge last fall when the credit crisis intensified, said the Journal (May 14). In September, 3,000 loans applications totaled $13.9 million--a fairly normal month, said Patty Aker, chief lending officer. Loans dropped to 2,300 applications the following month, then 1,000 applications in November and 900 in December, said the article. In February, loan applications totaled 895 for more than $4 million. Aker told the Journal that the credit union had money to lend but people were so nervous about the economy. Many had lost jobs and others were afraid that if they bought a car, GM might not be around to honor its warranty, she said. Arizona Central said vehicle loans make up more than two-thirds of its $285 million loan portfolio. Other types of consumer loans account for the rest. About 10% are small business loans.

Texas data breach bill set for House floor debate

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AUSTIN, Texas (5/15/09)--The Texas Credit Union League (TCUL) said it helped get a data security breach bill, House Bill 345, out from the state House Calendars Committee, where opponents had tagged the bill in an effort to kill it. TCUL said it accomplished this with the help of House Speaker Joe Straus and targeted credit union grassroots contacts (Lonestar Leaguer May 14). The bill stipulates that merchants have a duty to safeguard the sensitive personal information they collect from plastic cards, the league said. Opponents’ efforts continue. As with the 2007 legislative session, time is the biggest enemy, TCUL said. The bill was set for a second reading this week on the General State calendar, but there are over 100 bills in the queue before it, the league added. If the bill does not get a second reading this week, it is dead, Buddy Gill, TCUL chief advocacy officer, told News Now. “However, there may be some other options after that,” Gill added. The Texas Senate has yet to hear the bill. Media attention on the issue also is increasing. Texas weekly newspapers statewide carried an item by TCUL discussing the problem and the need for legislation. Radio activity also increased, said the league. More than 700 e-mails have been sent to 150 House members in the past few weeks, supporting the measure. TCUL said it may issue a request for grassroots phone calls to House offices in support of H.B. 345 this week once the timing becomes clear on the House floor vote. In March, the Texas House Business & Industry Committee held a hearing on data security breaches and has since worked with stakeholders to negotiate a bill. Texas banking trades joined with the league in publicly supporting the legislation at the March hearing, TCUL said (News Now March 18). In March, Gary Davis, CEO of Chocolate Bayou FCU, Alvin, testified for the league on behalf of a bill, noting the hundreds of thousands of cards compromised at Texas credit unions in a Heartland Payment Systems breach last year.

E-Scan Brace for recession aftershocks

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MADISON, Wis. (5/15/09)--While there are some indications the recession has hit bottom, credit unions should prepare for a few aftershocks in what could be a slow road to recovery, advises the Credit Union National Association’s (CUNA) 2009-2010 Credit Union Environmental Scan (E-Scan). The recession topped this year’s list of Top 10 E-Scan Insights, which identifies the key trends and challenges affecting credit unions in the coming years. Credit unions use the E-Scan as a source of issues and trends affecting the financial services industry and to prepare for strategic planning sessions, budgeting, product development and new initiatives. The top insights, as identified by E-Scan analysts:
* Recession--Evidence is building that indicates the economy, while a long way from recovery, might have hit bottom. Credit unions are well-positioned to take advantage of opportunities in the credit and deposit markets, if they’re willing to be bold in a time of risk aversion. * Unemployment--The U.S. unemployment rate is the highest it has been in 25 years as employers continue to cut jobs. It could hit 9.5% by year-end and 10.5% in 2010. CUNA economists expect unemployment to continue to increase at about 300,000 jobs per month through the end of 2009. * Housing--Rising foreclosure numbers and the supply of unsold homes puts even more downward pressure on home prices. Analysts say the housing market will continue its slide through 2009, despite reports of higher home sales in some areas and slight improvements in home construction. * Bankruptcy--The weak economy and its repercussions--rising unemployment, lower pay, fewer people with health insurance and the mortgage crisis--all play a role in rising bankruptcies. Analysts expect bankruptcy filings to reach nearly 1.5 million by the end of the year--a 36% increase over the 1.1 million filings in 2008--and surpassing the average number of annual filings (1.4 million) that took place before new bankruptcy laws were enacted in October 2005. * Lending--Although credit union loan growth will fall to 6% in 2009, credit unions should look for excellent lending opportunities in business, auto, student and mortgage lending in 2010. This is because many banks will be reluctant to lend in these areas due to their capital constraints, higher risk aversion, cash hoarding and tighter underwriting standards. Loan growth will rebound in 2010 to an 8% annual growth rate, the strongest pace since 2005. * Membership growth--For the first time in more than 20 years, credit unions saw an increase in the percentage of members in their prime borrowing years (age 25 to 44), to 42% of all members in 2008 from 38% in 2006. At the same time, younger members between the ages of 18 and 24 declined to 4% in 2008 from 6% in 2006. This represents a large, attractive market for credit union growth. * Corporate credit uinions--The National Credit Union Administration (NCUA) will continue to work through its corporate stabilization plan and its corporate restructuring initiative. While the costs and accounting procedures of the plan have yet to be finalized, it’s clear the plan will reduce credit union earnings. * Legislation--NCUA’s corporate stabilization plan will dominate credit union legislative and regulatory efforts this year and possibly beyond. CUNA will continue to monitor other important issues, such as lifting the business lending cap, mortgage cramdowns and interchange fee income. * Earnings--Credit union return on assets is expected to be only 0.4% in 2009 and 0.5% in 2010 as deteriorating credit quality and slower loan growth reduce earnings. Improving loan credit quality in 2010 will reduce provisions for loan losses and boost credit union earnings. * Consumers--Consumers are saving more and spending less as the national savings rate, below 1% from 2005 to 2008, is now back above 4%. After losing a large portion of their personal wealth, consumers will need help and personal finance education from credit unions to manage their finances and live within their means.
The E-Scan also covers key issue areas: trust, demographics, economics, marketing, lending, financial literacy, payment systems, human resources, and legislation and regulation. For more information, use the link.

Sixty gang members nabbed in 500000 scam vs. CU

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SAN DIEGO (5/15/09)--More than 60 members and associates of the San Diego Lincoln Park Street Gang were arrested Tuesday and charged with stealing $500,000 from a credit union by recruiting young credit union members to give up their account information so the account could receive counterfeit check deposits. The gang then withdrew thousands of dollars from an ATM at a casino and the accomplice account holders, who received a portion of the payout, would file a police report for an unauthorized withdrawal, said California Attorney General Edmund G. Brown Jr. and San Diego District Attorney Bonnie Dumanis in a press release. In a multi-agency operation termed "Bank Gig," a Tuesday morning pre-dawn sweep by more than 100 law enforcement officers took the suspects into custody. They are being held on 347 felony charges related to conspiracy, grand theft, money laundering, recruiting to commit a felony for a gang, unlawful sale of access card information , burglary and gang enhancement. After obtaining personal account information and personal identification numbers from members of Navy FCU, gang members would deposit counterfeit checks into the members' accounts, then withdraw thousands from an ATM machine at Barona Casino near San Diego. "The size, scope and sophistication of this operation show us that criminal street gangs in San Diego are expanding their criminal enterprise into white collar crime," said Dumanis. The investigation began when the credit union in 2005 reported to the U.S. Secret Service a significant increase in fraud reports from young members reporting their account information and PINs had been stolen.

CU System briefs (05/14/2009)

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* WARMINSTER, Pa. (5/15/09)--To celebrate its 75th anniversary, Freedom CU offered 7.5% Annual Percentage Yield on new certificates of deposit (CD) or individual retirement accounts (IRA). The special-rate CDs and IRAs, which were offered to new members, had a one-year term and were for$1,000 maximum. Overall, 441 new members signed up for the special CD or IRA, which could be opened with a phone call, on the Internet or at any credit union branch. Based in Warminster, Pa., Freedom CU has $380 million in assets … * DENVER (5/15/09)--A man suspected of robbery and a bomb threat at White Crown FCU, in downtown Denver, was arrested less than two hours later in a bar about a half- mile away. John Lee McMillen, 52, is alleged to have robbed the credit union Tuesday morning before leaving behind a backpack that he said contained a bomb. An undisclosed amount of cash was taken during the heist. Police said they did not know if a weapon was used during the robbery. A robot was sent into the credit union by Denver Police and Federal Bureau of Investigation agents to shoot water on the backpack. No explosive was found, police said (The Denver Post May 13) … * NEWBURGH, Ind. (5/15/09)--During 2008, Heritage FCU partnered with more than 110 local organizations to help with their service missions. It donated funding and/or in-kind gifts totaling more than $75,900 to organizations such as Ronald McDonald House and nearby campus groups at University of Evansville and University of Southern Indiana. Heritage's employees also volunteered their time and talents for 48 organizations last year, donating more than 1,380 hours through organizations such as Habitat for Humanity, Easter Seals--where the credit union won an award/traveling trophy for raising the most funds--and Evansville area public broadcasting stations. President/CEO Ruth Gaon noted the credit union's employees "truly understand that volunteerism is alive and well in America, especially at Heritage FCU." … * POUGHKEEPSIE, N.Y. (5/15/09)--Hudson Valley FCU, based in Poughkeepsie, has teamed up with the Poughkeepsie Journal as part of the Newspaper in Education program, the newspaper reported (May 9). They created an educational supplement, "Dollars & Sense," which offers money management tips such as setting goals and making budgets. The section is delivered to middle and high school students in Dutchess and Ulster counties. Credit union employees also conducted "Show Me the Money" presentations at four local schools. The program fosters students' awareness about developments in their community and the world. It also provides newspapers as a classroom resource, curriculum guides, lesson plans and other special supplements …