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Policyholders sue corporates bond insurer Ambac

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MADISON, Wis. (9/2/10)--Ambac Financial Group Inc., a bond insurer for mortgage-backed securities (MBS) whose losses have contributed to losses at several corporate credit unions, has been sued by a group of hedge funds trying to block transfers of funds from its bond-insurance unit to the holding company. The funds filed the motion to enjoin Monday in a Circuit Court of Dane County, Madison, Wis. Plaintiffs include King Street Capital, Aurelius Capital Management, Fir Tree, Monarch Alternative Capital and Stonehill Capital Management. The suit claims they own more than $1 billion of residential MBSs and other debt insured by Ambac Assurance Corp. (AAC). They are trying to ensure that Ambac, the holding company, doesn't siphon off money and assets from AAC. AAC holds insurance policies on billions of dollars of bonds held by the corporates, who have recorded impairment charges related to Ambac-insured securities. Several monoline insurers, including Ambac, FGIC, MBIA, and Syncora Guarantee, have experienced problems that resulted in other-than-temporary impairment (OTTI) charges on the bonds. The motion filed seeks to clarify that the funds had a right to sue to stop Ambac Financial from receiving cash dividends and other transfers from Ambac Assurance while policyholders have claims on Ambac-insured securities haven't been paid in full (The Wall Street Journal and Enhanced Online News Aug. 30). The funds also alleged in court papers that about $230 million in past dividend payments from AAC to its parent in 2008 and 2009 were "fraudulent" transfers because they took place at a time when the bond insurer's financial condition was rapidly deteriorating. They are seeking to recover that money for all policyholders. Earlier this year, Wisconsin's Office of the Commissioner of Insurance, which regulates AAC, took over Ambac's insured portfolio of more than $50 billion in toxic mortgage securities and other structured-finance debt. The regulator separated that debt from Ambac's financial guarantees on municipal bonds, most of which are still performing (MarketWatch Aug. 31). At the time, the regulator expected these policyholders to recover a fraction of what they were owed in cash. AAC also was expected to give them interest-bearing surplus notes. Earlier this month, the parent company said in financials filed it was preparing to file for bankruptcy to restructure its outstanding debt.

Shared branching cooperation helped CUs survive Fourth of series

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MADISON, Wis. (9/2/10)--As Hurricane Earl churns in the Atlantic, credit union leagues in Louisiana and Mississippi analyzed another hurricane's impact on the region's credit unions--Hurricane Katrina, which hit the coast Aug. 29, 2005. Two factors played key roles in credit unions' survival: shared branching and credit unions' cooperative nature. When Katrina hit, "the following days were filled with unexpected challenges for Louisiana credit unions and their members," said Anne Cochran, president of the Louisiana Credit Union League (LCUL). "However, the 'people helping people' philosophy in which the movement is based provided the financial and emotional support needed to survive this disaster of epic proportion," she told News Now.
Click to view larger image A typical scene throughout New Orleans, six weeks after Hurricane Katrina struck, was the pile of debris by the roadside, seen from inside of Greater New Orleans FCU's lobby in Metairie, La. (Photo provided by Greater New Orleans FCU)
The league knows first-hand about others' generosity. The building housing its headquarters in Harahan, La., was flooded, and like many in New Orleans, it evacuated to Baton Rouge. "Thanks to Bayou FCU’s generosity, league staff assembled in Baton Rouge at a local branch facility. This became a focal point for local, statewide and national credit union communication," Cochran said. "Because there was a central point for league staff to assemble and work efficiently, the league was able to provide assistance to 120 credit unions by locating resources needed to operate after the hurricane hit. "There was an outpouring of compassion and support from the entire national and international credit union system," she said. "Because of the financial support, credit union employees were able to return to work faster, allowing branches to open faster in order to service their members." Shared branching was also a key factor. "The crisis bolstered the value of shared branching. Several credit unions came on to Shared Branching through the financial support from other credit unions around the country. LCUL was able to connect 21 credit unions to shared branching within 24-to-48 hours." How did that compare with banks in the area undergoing the same challenges? "Compared to banks throughout the state, Louisiana credit unions fared better," she said. "They were open for service faster due to the Shared Branching system already in existence. This was instrumental in getting cash into evacuated members' hands quickly. Credit unions share a unique support system that you don’t see at a bank. Shared branching proved to be the most valuable resource for both credit unions and their members," she said. Since the hurricane, credit union mergers have totaled 17 in Louisiana. "We are still feeling the effects of Hurricane Katrina, but we were able to take away valuable lessons from the event," said Cochran. The league's and Shared Branching corporation's disaster recovery plans have been revamped and are tested annually. Also the league "now provides credit unions with in-depth disaster preparedness resources on our website as well as an annual packet mailed to CEOs. As far as credit unions are concerned, they, too, take a much closer look at their disaster recovery plans. Now, Shared Branching is a vital part of that plan,” she said. In Mississippi, "we didn't lose any credit unions. We've had some mergers but they weren't because of Katrina," Charles Elliott, president of the Mississippi Credit Union Association (MCUA) told News Now. In 2005, "we had 70 credit unions affected, with about 13 credit unions directly affected," he said. Two-thirds of the credit unions in the state went without electricity, many for four or more days. But along the coast the effects were dire. A month after Katrina that more than 125 credit union employees in the state lost their homes completely or had homes that were uninhabitable (News Now Sept. 19, 2005). They were among the more than 171,000 dwellings in the six Gulf Coast counties that were destroyed or damaged. Pascagoula-based Navigator CU lost its main facility, its data processing system and its telephone communications system. That facility has been totally gutted and rebuilt, Elliott said. "All the data processing now has hot sites, and operations are backed up." That is echoed by Keesler FCU, based in Biloxi, Miss. In an article about disaster recovery in Bank Systems & Technology (July 28), Larry Mayo, vice president of information technologies at the $1.9 million asset credit union, said the 17-branch credit union saw one of its branches completely washed away and all branches took on water in some form in Katrina's wake. Luckily the credit union's data center wasn't flooded, he said, but the credit union had no communications. Since then his board has provided funds to build a better disaster recovery plan, he said. The credit union has a redundant data center 350 miles away and set up IBM storage area networks with encrypted replication between the main data center in Biloxi and the new location, as well as a third-level disaster recovery site. If a disaster impacts the credit union's data center, primary systems will be up and running again within half an hour, the article said. During Katrina, some financial institutions based their disaster recovery plan on backup tape restoration. But for many companies almost one-fourth of the tapes were unusable when they arrived at the disaster recovery center. Tapes, said Mayo, aren't the most reliable resource, and as cloud computing evolves, credit unions will have more alternatives. Still, Mayo keeps a backup tape as a last resort. Shared Branching saved the day in Mississippi, too. "Before Katrina, we didn't have any Gulf Coast credit unions participating in Shared Branching. Navigator FCU and Keesler FCU were not members then, but when the hurricane hit, Shared Branching expedited its process for them and got them into the system very quickly," Elliott said. "Now, most of the big credit unions are on CUSC CO-OP, our shared branching system here." "We learned a lot going through the process. Everyone knows the role they will play in the future. We responded to the best of our abilities. Some things worked better than others," Elliott said. "Counseling was a huge issue [for credit union employees]. Credit unions didn't get involved in this until December (2005)." MSCUA provided counseling, and more than 500 credit union employees participated (News Now Jan. 24, 2006). "The system also learned a lot about grants, raising funds under challenging conditions," he said. Summing things up, Elliott said, "we can handle what we went through before--unless it's a 500-year hurricane--a category 6." He, like every other person interviewed for this series expressed appreciation for the movement's cooperative efforts during the crisis. "We owe a world of thanks to everyone that helped us at that time. They truly made a difference. We will remember that forever," Elliott said.

CU System briefs (09/01/2010)

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* SAN ANTONIO (9/2/10)--San Antonio FCU (SACU) has acquired Mountainside Financial (MSF)--the largest broker for manufactured-home lending in the U.S. (San Antonio Business Journal Aug. 31). SACU added Mountainside to its CU Factory Built Lending Division, and the company will be known as Mountainside Financial, a Division of SACU. The division provides loans to homeowners seeking private land on which to place their manufactured homes. With the new acquisition, the $8 billion asset SACU can support retailers and brokers with capital for new- and used-home purchases, refinancing and other needs for the manufactured-home owner ... * BOSTON (9/2/10)--Edward Saunders Jr., former senior vice president and legislative counsel at three New England credit union leagues, died Saturday in Boston at the age of 60. An attorney, he was executive director of the Massachusetts Catholic Conference, a position he held since July 2005. For 16 years, Saunders served as senior vice president and legislative counsel for the Massachusetts, New Hampshire and Rhode Island credit union leagues, and as general counsel and clerk of the Massachusetts Credit Union League (Boston Herald Aug. 32) ...

Despite cashless society ATMs here to stay

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MADISON, Wis. (9/2/10)--Despite predictions of a “cashless society,” credit unions shouldn’t neglect their ATM channels, according to data from Ovum, a New York-based unit of Datamonitor group ( July 20). Although debit and mobile is growing, the overall number of payments is rising as well, and the number of people increasing, said the company. Today, there are more than two million ATMs in service worldwide ( Fox Nebraska Aug. 30). There are roughly 300,000 to 400,000 ATMs in the U.S., Jim Block, Diebold director of advanced development and technology, told News Now. Diebold Inc. is an ATM manufacturer and CUNA Strategic Service provider, based in North Canton, Ohio. Block described the history of ATM growth. As for when ATMs really became accepted in the U.S., the standard often used is how long it took to reach a 50% penetration level to adopt any given technology, Block said. “With ATMs, it took about 16 years, so they really caught on in the mid-to-late 1980s as far as being a well-accepted component in society,” he said. When ATMs first arrived on the scene, they were offline machines run by a mini-computers in each ATM. “So every day, someone had to get the activity of the day off the computer to balance the transactions,” Block said. In the 1970s, ATMs were micro-processing-based. Real change came in the mid-1980s, Block said. “In the 1980s, new functionality came, which allowed the ATMs to print more elaborate statements and read the cards differently because of distributed micro-processing throughout the system--what we called a modular delivery system,” he said. And then functionality took off in early 1990s, when ATMs began scanning and accepting checks, he added. What does the future hold for ATMs? “Functionality will continue to adapt to whatever various societies expect,” Block said. “Cash dispensing will remain constant, but in the future--I’d say within single-digit years--we may call them something besides ATMs. They may dispense gift cards and become more of a convenience self-service device in the future. “They will be configured in various ways that do things beyond what a teller [or ATM] does,” Block concluded.

Lawmakers meet CUs in several states

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MADISON, Wis. (9/2/10)--Lawmakers home during the August recess met in-district with credit unions and leagues in several states to hear credit unions' perspective on issues such as lifting credit unions' member business lending (MBL) cap and overdraft protection.
Click to view larger image Kathy Chartier, board chair of Credit Union League of Connecticut and CEO of Members CU, discusses the business lending cap with U.S. Rep. Jim Himes (D-Conn.) at her credit union in Stamford, Conn. (Photo provided by the Credit Union League of Connecticut)
U.S. Rep. Jim Hines (D-Conn.), a member of the House Financial Services Committee, met Tuesday with Kathy Chartier, board chair of the Credit Union League of Connecticut and CEO of Members CU, Stamford, Conn., to discuss the current status of MBL and other issues moving through Congress. Also attending was league President/CEO Tony Emerson, league Assistant Vice President Nick Moalli, and representatives from nearby credit unions. "We need to see laws in place that allow smaller institutions like credit unions to compete with the larger ones," said Himes. He reiterated his support for raising the MBL cap for credit unions to 27.5% of assets from 12.25% and talked "about his desire to make sure the interchange provisions in the recently ratified financial reform law are enacted as promised," said Emerson.
Click to view larger image U.S. Sen. Kit Bond (R-Mo.), left, talks with Jerry Goldstein of Alliance CU about member business lending during an in-district meeting at the Missouri Credit Union Association's St. Louis office. (Photo provided by the Missouri Credit Union Association)
In Missouri, U.S. Sen. Kit Bond (R-Mo.) gathered information from credit union representatives on Aug. 20 to take back to Capitol Hill, said the Missouri Credit Union Association (MCUA) (The Missouri difference Aug. 26). Twenty attendees from 10 credit unions took part in the meeting at MCUA's St. Louis office. "I voted against the Wall Street Reform bill because it whiffed on Wall Street and punished Main Street," Bond told the group. "We can try to fix [the debit interchange provision] going forward." He asked credit union leaders for facts and statistics about their MBL practices. "Keeping loans within the community is a vital part of operation--no question," he told the group. "To hear that small businesses are willing to go out and try is inspiring." He also addressed an H.R. 3604 provision that limits the amount of time a consumer can use overdraft protection on accounts. Credit unions oppose the bill, and Bond agreed. "Don't force people out of the financial system," he said. "It just sends them to payday lenders and doesn't protect anyone." Missouri credit unions also met with U.S. Rep. Russ Carnahan (D-Mo.) staffer Jim McHugh in St. Louis on Aug. 25 to explain what they are doing to help small businesses and to reinforce the need to lift the MBL cap. Carnahan is "very supportive of helping small business," said McHugh. As for debit interchange, Carnahan is willing to assist with the Federal Reserve's process to help ensure inclusion of fraud costs and that the exemption of financial institutions with $10 billion or less in assets is effective, said McHugh.
U.S. Rep. Betty Sutton (D-Ohio) shared her deep credit union roots during a meeting with Akron, Ohio, crdit union leaders, according to the Ohio Credit Union League's newsletter, eLumination (Aug. 25). She voiced continued support for credit unions. (Photo provided by the Ohio Credit Union League).
In an Aug. 18 meeting with U.S. Rep. Betty Sutton (D-Ohio) at TeleCommunity CU, Akron, Ohio, area credit unions and the Ohio Credit Union League thanked Sutton for her strong support of credit unions on issues ranging from MBL to the federal tax exemption during her two terms, said the league (eLumination Aug. 25). Sutton shared her roots in the credit union movement with the group and voiced willingness to support credit union issues in the future. Credit unions had two meetings in North Carolina with congressmen, according to the North Carolina Credit Union League (The Weekly Update Aug.27). U.S. Rep. Larry Kissell (D-N.C.) visited Charlotte Fire Department CU Aug. 24, and Champion CU's Waynesville branch welcomed U.S. Rep Heath Shuler (D-N.C.) to its branch on Aug. 25. On Aug. 16, more than 30 Michigan credit union leaders from the Upper Peninsula (U.P.) Chapter of Credit Unions met candidates running for the State House, Senate and for Congress. Participants included State Rep. incumbents Judy Nerat and Steve Lindberg; Senate candidates Howard Walker, Mike Lahti and Tom Casperson; House candidates Scott Dianda and Ed McBroom; and congressional candidate Gary McDowell. McDowell communicated his support of credit unions and of federal legislation that would improve their ability to better serve members. Tom Baldini participated on behalf of U.S. Rep. Bart Stupak (D-Mich.), thanking credit unions for their support.

Top 10 INews NowI stories for August

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MADISON, Wis. (9/2/10)--Regulatory reform dominated the list of the top 10 News Now stories for August; however, the month’s No. 1 story dealt with the Federal Open Market Committee’s decision to maintain the target rate for federal funds and reinvest in mortgage-backed securities. That story, which included perspective from Bill Hampel, the Credit Union National Association’s chief economist, said credit unions could draw two conclusions from the Fed’s decision. First, it will be well into next year before the federal funds rate is increased from its current range of 0 to 25 basis points, and second, should the economy show any more signs of weakening in the coming few months, the Fed is very likely to resume its purchases of longer term debt securities, known as “quantitative easing,” which would further lower longer term interest rates, Hampel noted. Here’s the top 10 list for August: 10. NCUA takes action on two CUs in conservatorship ALEXANDRIA, Va. (8/2/10)--The National Credit Union Administration last week was appointed liquidating agent of Fort Collins, Colo.-based Norbel CU, which was then purchased by Security Service FCU. And on Friday, the agency placed Family First FCU, Orem, Utah, into conservatorship. 9. NCUA provides CUs with opt-in guidance ALEXANDRIA, Va. (8/4/10)--National Credit Union Administration Chairman Debbie Matz on Tuesday strongly encouraged credit unions “to notify members of their opportunity to ‘opt in’ to overdraft protection before the Aug. 15 deadline.” 8. CUs at top of heap in new Kellogg Trust Index CHICAGO (8/6/10)--Credit unions are at the top of the heap--again--in the latest consumer poll on trustworthiness. This time 62% of American consumers surveyed said they trust credit unions. 7. CUNA: Dodd-Frank rule burden lighter than some fear WASHINGTON (8/25/10)--While the recently enacted financial regulatory reform package contains numerous changes to current financial laws, the Credit Union National Association’s Senior Vice President/Deputy General Counsel Mary Dunn said that many fewer of them than most fear, perhaps about 35 of the new anticipated regulations, may impact credit unions, with a number of the changes likely to only alter existing regulations. 6. CU attempts to block liquidation order WASHINGTON and ALEXANDRIA, Va. (8/10/10)--A hearing today in a U.S. District Court for the District of Columbia will determine whether a Texas-based virtual credit union that was placed into liquidation last week will get an injunction to prevent the National Credit Union Administration from carrying out the liquidation. 5. Teller shot escaping burglar, injuries minor BATTLE CREEK, Mich. (8/10/10)--An American 1 CU teller was shot in the arm, and another employee was carjacked at gunpoint Saturday by a robber who broke into the building overnight and waited for employees to show up for work. 4. CUNA responds to Durbin comment on CU credit cards WASHINGTON (8/5/10)--Credit Union National Association President/CEO Bill Cheney has urged Sen. Richard Durbin (D-Ill.) to “take a more complete look at the facts regarding how credit unions and banks offer credit cards differently” after Durbin recently criticized credit unions for increasing annual fees on credit card accounts. 3. Fed is reviewing checkhold rules WASHINGTON (8/11/10)--In reviewing the new financial reform law, comprised of more than 2,000 pages of text, Mike McLain has noted that among the big changes are nestled some seemingly small ones of which credit unions should be aware. 2. CUNA rep: GAAP changes would cost CUs thousands WASHINGTON (8/3/10)--Speaking during a recent Credit Union National Association (CUNA) audio conference on proposed changes to the Financial Accounting Standards Board’s Generally Accepted Accounting Principles, Mid Minnesota FCU’s Pam Finch said that the proposed changes could result in up to $40,000 in additional annual costs for her credit union. 1. CUs can draw two conclusions from Fed action, says Hampel WASHINGTON (8/11/10)--Credit unions can draw two conclusions from Tuesday’s action by the Federal Open Market Committee, the Federal Reserve policymakers, said Bill Hampel, Credit Union National Association chief economist, after the Fed announced it would maintain the target rate for federal funds and reinvest in mortgage-backed securities.

CUs in Project 100 to give back

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LIVONIA, Mich. (9/2/10)--For 100 days, 100 people will have the opportunity to “pay it forward” to their communities with $100 bills--for the second time. CO-OP Services CU, Livonia, Mich., recently announced its second consecutive Project 100, launched by the $375-million-asset credit union last year to encourage giving in Southeast Michigan, an area hit hard by economic troubles, according to Project 100’s website. The credit union will give $100 to 100 random people and ask the receivers to use the money to help their communities. Greg Wohler, president of Edge Creative Group, came up with the idea for the project. Edge Creative is the credit union's agency. E & A CU, Port Huron, Mich., also is participating in Project 100. Some recipients used the money last year to help others who were unemployed. Kate S., from Livonia, said she received the money after being out of work for most of the year. “Just days after winning, [I] was laid off from the part-time job that I had for only six weeks,” she said. “Project 100 came at a great time, just before the holidays. As a way to give back to the community, my daughter is going to have a Charity Christmas party that will benefit three or four different charities. I’m very proud of her and hope that I have instilled in my children the importance of giving to others.” Denise F., from Romulus, helped a homeless family after receiving $100. “I had helped a family that my son and his girlfriend had found living in a park,” she said. “They had nowhere to go and no food. We contacted some churches and one of them brought food and clothing. The woman found a circumstance where she could help an elderly gentleman in the area, and her children and she are staying with him now. The [gentleman] went to live at his mother’s. He was not the children’s father, but wouldn’t leave them until they were in a safe place. The family was with me for a weekend. “In this time of economic hardship, there is no doubt that many people could use an extra $100. My own circumstances are very tight,” she added. “To say the least, I am very grateful to have been given the money. It allowed me to repay others who have helped me.” Project 100 also was featured on National Public Radio. Wohler spoke to the station last week. “It’s an amazing feeling to see people and see how they react. And we’ve had people break down in tears,” Wohler told NPR. “We had one woman last summer who told us that day they were going to shut her gas off, and she was going use this money to make sure that it’s not shut off and pay some of the bill.” The Michigan Credit Union League also featured the project in a podcast last year. For more information, use the links.

AVCU Cabot create Vermont Cooperative Summit

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SOUTH BURLINGTON, Vt. (9/2/10)--The Association of Vermont Credit Unions (AVCU), Cabot Creamery and five other state and national cooperatives will conduct a summit meeting of cooperatives in South Burlington on Oct. 14. The Vermont Cooperative Summit 2010, the second statewide gathering of cooperative leaders, has a theme--Building on the Power of Cooperatives. Cooperatives statewide and from the region will hear new ideas, share lessons and learn economies to be leveraged, AVCU said. A gubernatorial debate on cooperatives between Republican Brian Dubie and Democrat Peter Shumlin will be a highlight during the summit. The one-hour debate should draw significant media attention to the cooperatives gathered for the event, AVCU said. Also featured will be:
* Vermont economist Art Woolf, highlighting the history and impact of cooperatives on Vermont; * AVCU lead lobbyist Adam Necrason, providing an overview of the 2010 elections and what they mean for cooperatives; and * Eight breakout sessions, covering topics such as merchant processing for cooperatives, legal issues, marketing, and investments and borrowings for cooperatives.

Texas league announces facilities assistance program

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FARMERS BRANCH, Texas (9/2/10)--The Texas Credit Union League (TCUL) has introduced a Facilities Assistance Program to provide credit unions a forum to discreetly obtain or dispose of a credit union facility. The online confidential service will be offered free to all member credit unions, and will consist of three primary steps (LoneStar Leaguer Sept. 1):
* Credit unions that want to obtain or dispose of a branch or administrative facility can register interest on the TCUL website. Each credit union must execute a “confidentiality agreement,” agreeing to keep all correspondence and exchange of information private, and complete a “confidential facilities fact sheet.” * When properties are offered for sale or lease, TCUL will match the offerings with credit unions registering interest in acquiring facilities in the general vicinity. TCUL will notify credit unions interested in acquiring a property that a facility is available in their area. Credit unions will be provided with basic information about the property for sale or lease. The exact location and the name of the credit union offering the property for sale will not be disclosed. * After a potential buyer notifies TCUL it is interested in obtaining more information, the league will notify the seller and provide contact information for the potential acquirer. After notifying a potential seller, TCUL will disengage from the process, and the seller will contact the potential buyer directly.

New Mexico hosts REAL Solutions conference

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ALBUQUERQUE, N.M. (9/2/10)--New Mexico recently hosted a conference to discuss REAL Solutions, the signature program of the National Credit Union Foundation (NCUF), said the Credit Union Association of New Mexico.
Click to view larger image Americans for Indian Opportunity (AIO) President LaDonna Harris, left, and AIO ambassador Benita BigFoot talk about the cultural, traditional and historical differences that make Native Americans a unique challenge for credit unions that want to provide services to underserved communities. (Photo provided by the Credit Union Association of New Mexico)
Lois Kitsch, national program manager for REAL Solutions, led the conference, which was attended by credit union professionals nationwide. Several representatives of state leagues and associations discussed the development and implementation of their REAL Solutions efforts and the challenges and successes of the program and its mission of serving people of modest means and the underserved. Individual credit unions told the group about their own REAL Solutions programs. The group also participated in “Living In the Shoes of Your Members,” a poverty simulation activity. Each attendee was a member of a low-income “family” and had to pay for rent, travel, food, utilities and unexpected expenses for a “month.” Attendees also heard about the challenges of serving American Indians. They include a cultural disparity about wealth and ownership and modern-day problems, such as payday lenders, which hinder Native American efforts to make the most of their wealth from natural resources and casinos, said LaDonna Harris, president of Americans for Indian Opportunity. However, the Native American community holds unique potential for credit unions to provide products, services and financial literacy, she added.