Regulator commends CUs' efforts in Calif. budget crisis

ALEXANDRIA, Va. (7/9/09)--While California's banks are denting their image from playing hardball on registered warrants--IOUs stemming from the state's budget crisis--credit unions received commendation from their federal regulator for their flexibility in working with the IOUs.

"Credit unions are making a business decision to accept these warrants to assist their members affected by the financial situation confronting the state of California," said National Credit Union Administration Chairman Michael E. Fryzel. "I commend the credit union community in California for their willingness to prudently work with affected members, exemplifying what credit unions do best," he added.

California lawmakers are wrestling a $26.3 billion state budget deficit. The state was expected to send out more than $3.3 billion in IOUs for the month to private contractors, state vendors, people getting tax refunds and local governments for social service.

But banks are pressuring the legislature to end the impasse by saying they will not accept the IOUs after Friday. That tactic is earning them criticism from consumer advocates, and some say banks may lose customers to institutions willing to accept the IOUs longer--like credit unions.

Credit unions have not set a deadline for accepting the IOUs, whose official redemption date is Oct. 2. According to California Credit Union League spokesman Henry Kertman, nearly 60 credit unions already have confirmed they would accept the IOUs. Only two indicated they might stop accepting them on Friday (Associated Press July 8).

Credit unions are bucking the banks over the IOU issue to help their members, not to gain a share of the business now controlled by banks, said league economist Daniel Penrod (Union-Tribune July 8).

Mission FCU is accepting IOU deposits of up to $5,000 from those who were members as of July 1, said Chief Financial Officer Ron Araujo. If the state warrants are larger than that amount, deposits must be approved by branch managers, he told the newspaper.

At San Diego Metropolitan CU, which serves primarily city employees, a two-day hold will be placed on warrants from members who have belonged to the credit union for less than 30 days, said Linda Rossi, senior vice president of operations and marketing of the credit union.

Riverside, Calif.-based Altura CU announced Tuesday it is accepting the IOUs without setting a deadline for them. "We realize that many of our members do not have the luxury of waiting months to access their money," said Ricki McManuis, senior vice president of corporate communications at Altura. "People need to be able to cash those warrants because they can't write IOUs to pay their own bills." The credit union will hold the warrants and redeem them when they mature.

State Controller John Chiang's website advised Californians to contact their financial institution, and if the institution won't accept the warrants to "open an account at another financial institution that will accept registered warrants, or you will have to hold the warrant until it matures on Oct. 2."

Banks are being criticized for taking multibillion dollar bailouts from the federal government while declining to lend a hand to the state's budget stalemate. Those warning they won't accept the IOUs beyond Friday include JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., as well as some regional banks, said Associated Press.

Consumer advocates and government officials said banks should be more sympathetic, especially since they've benefited directly from taxpayer dollars.

The IOUs carry an interest rate of 3.75%.