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Six Credit Unions Liquidated by the NCUA in One Day

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Six Credit Unions Liquidated by the NCUA in One Day

A small hometown credit union can have advantages over a big impersonal bank, but sometimes small can be too small. Very small credit unions have been the institutions experiencing the most failures. The latest case occurred last week when the NCUA shut down six tiny credit unions on the same day in the Philadelphia area.

According to the NCUA’s press release "all six credit unions received management and recordkeeping services from Service Center for Credit Unions, Inc., in Bensalem." This Credit Union Journal article has a few more details about this company and its ties to these credit unions. According to the Journal article, the person who runs this company also ran all of these failed credit unions. As you might expect, the "FBI is probing allegations of possible financial improprieties." A former president of one of these credit unions reported to the Credit Union Journal that he was told by the FBI of "money missing from some of the CD accounts."

This Credit Union Times article has some more interesting details of these failed credit unions. First, two of the credit unions "were managing high-interest payday alternative loans." Second, "except for the CEO, all of the credit unions had no employees and posted no salary or benefits expenses on their financial reports."

All of these six failed credit unions were tiny. The smallest had only 44 members. The largest had only 795 members. Another interesting thing to note is that all but one of these credit unions were chartered many decades ago (I added the chartered date in the summary below). You hear the history of today’s big credit unions and how they started with a few employees of a company gathering together to start the credit union. That’s just one side of the story. Many credit unions never grew big. You have to wonder about the viability of these small credit unions, and how susceptible they are to corrupt management. This is why we provide the following warning in our health ratings section if the institution is small:

Institutions with a small asset base, a short operating history, or negative return on assets can represent an instability risk beyond what their financial ratios indicate. [Institution XYZ] has a very low asset base.

Even though these credit unions were small, no member should be worried about losing their insured deposits. According to the NCUA press release, "NCUA’s Asset Management and Assistance Center will issue correspondence in the near future to members holding verified share accounts at each credit union." Since the NCUA did not arrange for another credit union to take over these failed credit unions, the NCUA will likely be sending members checks for their insured deposits. It’s interesting to see the NCUA say "members holding verified share accounts". You have to wonder about the record keeping accuracy at these tiny credit unions. That may be the main risk for members of these credit unions.

In addition to these six credit unions that failed last week, another small credit union failed in late March. The name of that institution was Veterans Health Administration Credit Union, and it was based in Detroit. Unlike last week’s six failed credit unions, the NCUA arranged for another credit union to assume all members, assets, and loans and shares. So members don’t have wait for a check of their insured deposits in the mail.

There have been 10 federally insured credit unions that failed this year. Banks are looking much better with only one bank failure this year.

Below is the summary of the recent credit union failures:

10th Credit Union Liquidation of 2016 (April 5)

  • Liquidated CU: Cardozo Lodge Federal Credit Union of Bensalem
  • NCUA Press Release
  • Size: 83 members and assets of $226,485
  • Year Chartered: 1960
  • Acquiring CU: None

9th Credit Union Liquidation of 2016 (April 5)

  • Liquidated CU: Chester Upland School Employees Federal Credit Union
  • NCUA Press Release
  • Size: 593 members and assets of $827,269
  • Year Chartered: 1939
  • Acquiring CU: None

8th Credit Union Liquidation of 2016 (April 5)

  • Liquidated CU: Electrical Inspectors Federal Credit Union
  • NCUA Press Release
  • Size: 44 members and assets of $65,894
  • Year Chartered: 1976
  • Acquiring CU: None

7th Credit Union Liquidation of 2016 (April 5)

  • Liquidated CU: O P S EMP Federal Credit Union
  • NCUA Press Release
  • Size: 85 members and assets of $1,182,927
  • Year Chartered: 1968
  • Acquiring CU: None

6th Credit Union Liquidation of 2016 (April 5)

  • Liquidated CU: Servco Federal Credit Union
  • NCUA Press Release
  • Size: 795 members and assets of $2,193,229
  • Year Chartered: 1950
  • Acquiring CU: None

5th Credit Union Liquidation of 2016 (April 5)

  • Liquidated CU: Triangle Interests % Service Center Federal Credit
  • NCUA Press Release
  • Size: 99 members and assets of $290,098
  • Year Chartered: 1995
  • Acquiring CU: None

4th Credit Union Liquidation of 2016 (March 29)

  • Liquidated CU: Veterans Health Administration Credit Union
  • NCUA Press Release
  • Size: 1,297 members and assets of $2 million
  • Year Chartered: 1954
  • Acquiring CU: Public Service Credit Union

References:

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Comments
NERVOUS
NERVOUS (anonymous)   |     |   Comment #1
HOW CAN YOU BE CONFIDENT THAT YOUR CREDIT UNION HAS YOUR CD RECORDED --SO THE NCUA WILL HONOR THE INSURANCE?

--YES, YOU MAY HAVE PAPER STATEMENTS FROM THE CREDIT UNION

--YES, YOU MAY HAVE YOUR ORIGINAL CD PAPERWORK

BUT, WHAT IF THE CREDIT UNION HAS COMMITED FRAUD AND JUST "SHREDDED" THE PAPERWORK AND "STOLE" THE MONEY.

PERHAPS, IF YOU HAVE 1099INT PAPERS AND/OR PAID TAXES ON ASSUMED INTEREST EACH YEAR---THEN THE NCUA SHOULD HONOR THAT YOU OWN A CD IN A FAILED CREDIT UNION

WHAT ELSE DO YOU HAVE?!
Anonymous
Anonymous   |     |   Comment #4
How can you be sure your bank has your cd recorded?
Anonymous
Anonymous   |     |   Comment #2
A small credit union can not make money with 0-1% interest rates, how they will pay the managements, employees, insurances and so on. Unless a credit union has over $1 billions in assets that produce income, there is no way they can survive on long run.
Anonymous
Anonymous   |     |   Comment #3
Need to analyze the financials...e.g. how much income comes from the spread in interest income/expense...especially from a historical basis!  Or, is it the new matra...fees!
jimbeau
jimbeau   |     |   Comment #7
The interest rate spread is crucial.  The savings and loan industry collapsed under the weight of a rising interest rate environment.  I'm just hoping that as interest rates go up the credit unions won't get caught in the same squeeze.  It's hard to stay afloat when the interest earned on 30 year mortgages is less than what's paid-out on CD term deposits with shorter maturity dates. It just depends on how well the credit unions loan portfolio is diversified.   If they're getting enough interest from performing non-mortgage related loans, they can survive.  
Anonymous
Anonymous   |     |   Comment #8
No need to be concerned about a "rising interest rate environment" anytime soon.  I don't think some of us will be around to see any substantial increase in interest rates.
Anonymous
Anonymous   |     |   Comment #5
The FBI is investigating this.