Two Credit Unions Switch to Private Deposit Insurance

Two credit unions recently switched from federal deposit insurance to private deposit insurance. The private deposit insurance is provided by the American Share Insurance (ASI). The vast majority of credit unions have federal deposit insurance through the National Credit Union Administration (NCUA). According to the ASI website, CommonWealth Credit Union in Illinois "now has all its deposits and shares insured by ASI, effective January 31, 2012." The other credit union that switched is School Employees Lorain County Credit Union in Ohio. According to the ASI website all deposits and shares of the credit union are privately insured by ASI effective December 31, 2011.

One thing that I find troubling is that CommonWealth Credit Union is still showing the NCUA logo on its website as of today (9:15am ET on 2/6/2012). Also, I don't see any mention of this conversion on its website.

School Employees Lorain County Credit Union has converted its website to show the ASI logo and disclaimer instead of the NCUA logo. The ASI disclaimer states "members' accounts are not insured or guaranteed by any government or government-sponsored agency."

The issue with CommonWealth Credit Union shows why it's a good idea to check a credit union's NCUA status before joining at NCUA's Find a Credit Union page. If you search for these two credit unions, the page will return "No credit unions found that match your criteria". To review the ASI status and financial info of credit unions with only ASI deposit insurance, use this ASI search page.

Fortunately, we don't have to worry about the vast majority of credit unions losing federal deposit insurance. First, federal credit unions are required to have NCUA deposit insurance. These credit unions have "federal" in their names. Only state-chartered credit unions can choose ASI deposit insurance to replace federal insurance. In addition, not all states allow their state-chartered credit unions to switch. ASI-only credit unions are only allowed in the following nine states:

• Alabama
• California
• Idaho
• Illinois
• Indiana
• Maryland
• Nevada
• Ohio
• Texas

If you belong to a state-chartered credit union in one of the above states, you shouldn't have to worry about being surprised by a switch. The credit union is required to hold a vote of its members before they can switch. I described this process at a Texas credit union in this 2009 blog post. The credit union was able to get a vote in favor of the switch, however, as I described in this 2010 blog post, the credit union management changed its mind. If your credit union does switch and if you have CDs at that credit union, the credit union is required to let you make a penalty-free early withdrawal of all insured deposits in the CDs. I have more details in this blog post.

I won't go into the question about the safety of ASI deposit insurance. I provided both sides of this issue in my 2009 blog post. One thing nice about NCUA and FDIC is that the insurance is backed by the full faith and credit of the United States government. Here's what the NCUA states:

The National Credit Union Administration (NCUA) is the independent agency that administers the National Credit Union Share Insurance Fund (NCUSIF). Like the FDIC's Deposit Insurance Fund, the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government.

This allowed me to sleep better during the 2008 financial crisis.