Disturbing Problems at Two Credit Unions And Lessons For Your Deposits
News reports have released interesting details of two problem credit unions. The most recent case involves Vensure Federal Credit Union in Mesa, Arizona. As I reported on April 15th, the NCUA placed Vensure FCU into conservatorship. The NCUA didn't say much in its April 15th press release. Since that time, more details have come out in the news. This Credit Union Journal article shows that most of the credit union's earnings came from processing online poker bets. According to the article:
Vensure is on pace to earn $4 million this year handling poker bets for its largest depositor Trinity Global Commerce, which processes bets for the two biggest online poker sites, PokerStars.com and FullTiltPoker.com. With no loans on its books, that amounts to 99% of its income.
This credit union appeared to be directly affected by the recent action of the Justice Department in their crack down of online poker websites and the financial institutions that supported their financial transactions.
Access to Deposits During Conservatorship
It should be noted that Vensure FCU is still in NCUA conservatorship. It has not yet been liquidated as of today. In my opinion the NCUA has not been clear about the impact of members' uninsured deposits when credit unions are placed into conservatorship. It has always appeared that members have full access to all of their deposits even those above the NCUA limits. However, I have not seen this clearly stated in NCUA reports.
The Vensure FCU news reports include an interesting example that members do have access to all of their deposits during conservatorship. The article reported that one board member of Vensure FCU was the credit union's largest depositor, and that person withdrew $600,000 from the credit union after it was placed into conservatorship. So this shows conservatorships don't affect members' deposits. However, this also shows that a conservatorship can create a run on deposits.
Liquidation and Loss of Uninsured Deposits
A conservatorship doesn't always mean the credit union will be liquidated. If the NCUA can get the credit union back into sound financial shape, a liquidation can be avoided. However, if there are serious issues, a liquidation often occurs, and it can occur quickly. An example of this happened last year at St. Paul Croatian Federal Credit Union that was based in Eastlake, Ohio. This credit union was placed into conservatorship on April 23, 2010, and after only one week, it was liquidated. As you might expect, this credit union had serious issues, and those issues are coming out in recent news. According to this Credit Union Journal article, Millions In Looted CU Funds Traced To The Balkans:
NCUA estimates the fraud will cost the National CU Share Insurance Fund as much as $170 million in losses, making it the biggest credit union fraud ever.
St. Paul Croatian FCU liquidation did affect several members who had over $250,000 in deposits. Some of the details were described in this Credit Union Journal article Legal Battle Breaks Out Over Uninsured CU Deposits
In a suit filed Friday in federal court in Cleveland an elderly couple claims NCUA’s payout of $860,000 in five carefully structured accounts at St. Paul Croatian FCU is not adequate under the new deposit insurance law and the agency still owes them $165,000.
The issue appears to be with how the couple structured the joint accounts. A quote at the bottom of the article provides an important warning for those trying to extend their deposit insurance coverage:
NCUA insists it is not responsible if members were poorly informed about their rights under deposit insurance coverage. “Furthermore,” said NCUA in one of the appeals, “statements made by credit union employees (are not binding).”
So if your credit union makes a mistake in how they structure the accounts, the liability comes back to you.
Deposit Insurance References
With deposits at both credit unions and banks, it's up to you to ensure that your deposits are under the NCUA and FDIC limits. You can insure more than $250,000 at one institution, but you have to be careful.
A good reference for bank accounts is this FDIC Comprehensive Seminar on Deposit Insurance Coverage For Bankers. This is dated March 23, 2011 so it includes the deposit insurance changes that have occurred in the last few years. If you are using beneficiaries to insure more than $250K, pages 31 to 68 are very informative. I learned some new information on account titling on page 33. The FDIC has expanded its definition of the account title. According to this page,
For purposes of this requirement, “title” includes the electronic deposit account records of the institution. (For example, the FDIC would recognize an account as a revocable trust account even if the title of the account signature card does not designate the account as a revocable trust account as long as the institution’s electronic deposit account records identify (through a code or otherwise) the account as a revocable trust account)
Another useful reference is the FDIC's Electronic Deposit Insurance Estimator (EDIE). This can help you ensure all of your deposits are covered.
I haven't been able to find any NCUA reference as detailed as the above FDIC document. The best that I can find at the NCUA is only for consumers. It's titled NCUA Share Insurance and You - Maximize Your Insurance Coverage. The NCUA keeps its deposit insurance very similar to the FDIC, but there are some small differences. For example, the NCUA doesn't appear to have the same account title requirements to prove a POD account. As you can see on page 10, the NCUA doesn't appear to be as strict as the FDIC:
A POD account shows the intent of the account’s owner that upon his or her death the funds will pass to one or more named beneficiaries. Typically, this intent is shown in the titling of the account by using words such as: in trust for or payable on death to.
At the end of the document, the NCUA provides a contact where you can get more details:
NCUA's Consumer Assistance Center between 8 a.m. and 6 p.m. (EDT) at 1-800-755-1030, press 1 for share insurance questions.
Like the FDIC, the NCUA has a tool to help you ensure all of your deposits are covered. It's called the The Electronic Share Insurance Calculator (E-Calculator).