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CU attempts to block liquidation order
WASHINGTON and ALEXANDRIA, Va. (8/10/10)--A hearing today in a U.S. District Court for the District of Columbia will determine whether a Texas-based virtual credit union that was placed into liquidation last week will get an injunction to prevent the National Credit Union Administration (NCUA) from carrying out the liquidation. Contrary to rumors yesterday, the judge had not issued a temporary restraining order (TRO) Monday on behalf of Kappa Alpha Psi FCU (KAPFCU) against NCUA. "The court did not issue a TRO. That is inaccurate," John McKechnie, director of public and congressional affairs at NCUA, told News Now Monday evening. Today's hearing before U.S. District Judge Emmet G. Sullivan will determine whether the Henderson, Texas-based credit union succeeds in blocking the liquidation. NCUA liquidated the $836,638 asset credit union on Aug. 3. Three days later, the credit union filed its action in the U.S. District Court, seeking the injunction, according to court documents. The community development credit union is affiliated with the African-American fraternity, Kappa Alpha Psi and was established on Nov. 4, 2004 to serve fraternity members and affiliated organizations. On Dec. 31, said the credit union, its net worth ratio was 0.58% . NCUA requires a newer credit union to be "adequately capitalized" (at 6%) within 10 years of its charter, according to the complaint documents filed. The credit union said it saw a "significant drop" in its net worth ratio between 2007 and 2009 that "was attributable to 'full accrual' accounting and NCUA Corporate Stabilization assessments," referring to NCUA's plan for the corporate credit union system. NCUA told News Now that isn't what led to the liquidation action. "Kappa Alpha Psi FCU was never able to generate consistent operational profits; build its net worth position; maintain its records in a sound manner; grant quality loans; or adequately collect on delinquent loans," said McKechnie. "Those factors led to the involuntary liquidation action that the NCUA Board took" on Aug. 3. "Newly founded credit unions have 10 years to reach an adequate capital level, which is a 6% net worth ratio; however, Kappa Alpha Psi FCU has never been able to show it can reach that level of capitalization," he told News Now. "Pertinent regulations state that if a credit union does not have reasonable prospects for becoming adequately capitalized, the credit union is subject to a variety of possible administrative remedies, including involuntary liquidation," he added. At the time of liquidation, the credit union "was operating under a Published Letter of Understanding and Agreement. NCUA has spent considerable time and resources in an attempt to help the credit union to achieve adequate capitalization; unfortunately, the effort was not successful," McKechnie said, noting that "involuntary liquidation was deemed the most appropriate course of action."


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