Melrose Credit Union Placed into Conservatorship Under the NCUA

The New York State Department of Financial Services (DFS) today took possession of Melrose Credit Union this afternoon and appointed the National Credit Union Administration (NCUA) as conservator. It’s important to note that this isn’t a closure of Melrose Credit Union. The NCUA explains what the conservatorship means in its press release and in this FAQs document. Below is an excerpt from the FAQs:

A conservatorship means NCUA has assumed control of Melrose Credit Union to ensure its financial stability and safe-and-sound operation. In a conservatorship, NCUA works to address issues related to a credit union’s operations and financial condition while maintaining member services.

The NCUA also states that members can continue to conduct business at the credit union. Melrose Credit Union will remain open during the conservatorship. The long-term future of Melrose is uncertain as explained in the FAQs:

NCUA has assumed control of Melrose Credit Union to resolve operating issues with the goal of protecting member assets and seeking a resolution to identified problems. NCUA has made no decisions about the long-term future of the credit union; however, continued service to members is a priority.

I have never seen the NCUA make clear about the impact to uninsured deposits when a credit union is placed into a conservatorship, and that is continuing with the Melrose conservatorship. The NCUA just has this basic line that deposits remained insured:

Yes, member accounts at Melrose Credit Union remain safe and fully insured up to the maximums established in federal law.

Based on what I’ve seen with past conservatorships, members keep access to all of their deposits, even deposits over the insured limits. However, one possible outcome of a conservatorship is liquidation of the credit union, and when a liquidation occurs, members may lose uninsured deposits. Thus, Melrose members should immediately ensure that all of their deposits are under the NCUA coverage limits.

Another possible outcome of a conservatorship is that the NCUA arranges for the credit union to be merged into a larger and stronger credit union. That may be difficult for Melrose since it has almost $2 billion in assets. Only nine credit unions based in New York State are larger.

The third possible outcome is for the NCUA to make changes to Melrose so that it becomes financially healthy again. That may be difficult due to its large exposure to the New York taxi industry which is under pressure from Uber and other app-based ridesharing services. This 2015 New York Post article has more coverage on how the troubled New York City taxi industry was affecting Melrose and other credit unions.