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NCUA argues against paying WesCorp exec legal fees

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LOS ANGELES (11/16/11)--The National Credit Union Administration (NCUA) Monday filed in a federal court in Los Angeles motions to dismiss counterclaims and affirmative defenses of several former officers of the now-defunct Western Corporate FCU. The officers are trying to get NCUA to pay their legal fees--some in advance--in its suit against them stemming from WesCorp's $6.8 billion investment portfolio losses and ultimate collapse.

The former WesCorp officials in the case are: Robert A. Siravo, CEO; Thomas E. Swedberg, head of human resources; Timothy T. Sidley, chief risk officer;  Robert J. Burrell, chief investment officer; and Todd M. Lane, chief financial officer. Each filed amended counterclaims against NCUA, who is the liquidating agent for WesCorp, in the U.S. District Court for the Central District of California, Western Division in Los Angeles.

They allege that as former officers of WesCorp, they are entitled to indemnification; payment of defense costs, including advances of funds to pay the defense costs; and costs incurred to secure indemnity.

NCUA in court documents it filed Monday said the court lacks subject matter jurisdiction to order legal defense payments or to issue declaratory relief during the pendency of a lawsuit and that a federal credit union has discretion on whether to advance costs while a matter is pending.

The agency's motion also noted that "the regulations authorizing indemnification by financial institutions such as WesCorp apply only to solvent institutions. As a matter of law, corporate officers sued by the receiver or liquidator of a failed financial institution may not obtain indemnification from the estate of the failed institution, even if the officers ultimately defeat the claims against them."

NCUA also argued that the officers cannot obtain indemnification for actions brought by the NCUA "based upon their allegedly wrongful conduct." "First, the NCUA has brought this action in its capacity as the liquidating agency for a failed credit union, WesCorp. Second, the NCUA is suing the officer defendants for their wrongful conduct that directly led to the collapse of WesCorp. Allowing indemnification for the NCUA's lawsuit would lead to the 'absurd result' that the NCUA could succeed in its suit against the officer defendants, and then recover from itself."

The agency also noted that the Labor Code does not authorize an employee to seek indemnity from an employer; instead, the claims brought by the officers are governed by a specific statutory provision in the California Corporate Code.

Also, said NCUA, the claims for indemnification are "not ripe" because they have not prevailed on NCUA's claims against them.

In a separate motion, NCUA also attacked as "legally insufficient"  three affirmative defenses brought by the officers in their amended answers to its lawsuit.

The agency moved to strike the assertion that "the  pre-failure actions by NCUA as regulator excuses the otherwise culpable conduct of the officer defendants," adding that  "these defenses fail because 'courts have uniformly held that claims or defenses based on pre-receivership actions of regulators are legally insufficient.'"

In a second affirmative defense, the WesCorp officers asserted a "business judgment rule bars liability," but NCUA said "the court has already held that the business judgment rule does not protect the officer defendants."

It also moved to strike "bare-bones assertions that a statute of limitations bars the NCUA's claims" because the claims did not identify a specific statute and therefore "do not provide the basic notice required."

Finally, NCUA moved to dismiss amended counterclaims by some of the officials due to lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted.

The case is scheduled to be heard on Jan. 9 at 8:30 a.m. PT before U.S. District Court Judge George H. Wu.

WOCCUs Branch blogs on ICNBCI also promotes IYC activities

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MADISON, Wis. (11/16/11)--Brian Branch, president/CEO of the World Council of Credit Unions (WOCCU), wrote an article explaining why credit unions are thriving worldwide, which was posted on the CNBC executive blog.

"As consumers seek trustworthy financial institutions, credit unions worldwide have seen an uptick in growth and membership--especially during the recent years of economic crisis and recession," Branch wrote. "Over the last few years, credit unions flourished as consumers took their savings and business needs to the safety of these depository institutions. From 2007 to 2010, membership around the globe increased to 188 million, up 11 million from just a few years before."

Innovation has allowed credit unions to expand into new areas of business in remote rural areas, Branch added. Widespread access to wireless communications and declining technology costs have allowed credit unions to deliver services without investing in the traditional brick-and-mortar infrastructure.

Shared branching has linked together many credit unions in Latin America, he wrote. And the use of mobile devices has empowered credit union members in Kenya, Mexico, Ecuador and Haiti, where credit unions have partnered with telephone companies so members can move money from their accounts using their cell phones.

To read the article, use the link.

Branch also recorded a video greeting used at the Singapore National Cooperative Federation's formal launch of its International Year of the Cooperative (IYC) activities last week. The United Nations has designated 2012 as International Year of the Cooperative. Use the link to see WOCCU's Special IYC blog.

Home-loan transfers could be the next BTD--ACUMA

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ANAHEIM, Calif. (11/16/11)--With hundreds of thousands of consumers nationwide already having  transferred their financial accounts to credit unions from banks as a result of the Bank Transfer Day movement, some believe consumers now will pay more attention to credit unions as viable mortgage lenders.

"We know millions of Americans are pleased with the service and rates offered at many of our nation's leading credit union home lenders," said Bob McKay, chairman of the American Credit Union Mortgage Association (ACUMA) (PRNewswire–USNewswire Nov. 11).

The revised Home Affordable Refinance Program Refinance Program (HARP) overhaul recently announced by President Barack Obama--and known as HARP 2--pertains to existing loans currently held by Fannie Mae and Freddie Mac, and could add to opportunities for credit unions, said ACUMA.

Although details of HARP 2 will not be released for a few weeks, rumored changes include expanding HARP to home-loan borrowers who are more than 25% underwater.  Also, there could possibly be some type of government waiver of underwriting violations on loans made to high-risk borrowers--which would attract private lenders who are worried about involvement with HARP-sponsored loans.

"Credit unions have stayed the course, conducted their business affairs truly in the best interest of their members, even when the temptation of huge profits were being reported by many other lenders," McKay said. "The reward for maintaining our high level of professionalism and trust may now expand our ability to serve many more homeowners for refinance and purchase money loans in the future."

Scam campaigns cause CUs to take proactive steps

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MADISON, Wis. (11/16/11)--Several scam campaigns nationwide have prompted credit unions to take proactive steps to combat fraud.

Some examples are:

  • Kaiperm Northwest CU, Portland Ore., has instituted a security program that prohibits transactions in "high-risk areas" that include Britain, Spain and Hong Kong. The $55 million asset credit union also said it may restrict debit card transactions with merchants "proven to be high risk", such as Apple's iTunes and Michael's craft stores. It urges members to notify the credit union when they plan a vacation or go shopping at a high-risk area. Kaiperm said it maintains a list of retailers on its website that have been problematic and are likely to have debit transactions blocked. The website also keeps a list of countries known for scams ( Nov. 12).
  • Several Wisconsin credit unions have notified members of a new vishing scam in Southeastern Wisconsin, in which bogus automated messages are left on consumers' voice-mail systems, including cell phones. The messages, which appear to originate from Google Voice, pretend to be from the credit union's security department and tell members their debit card has be restricted for shopping. Callers are prompted to press "1" to be transferred to the fake security department and asked to give out their account information ( Nov. 11).
  • Two Great Falls, Mont., credit unions--the $85 million asset Great Falls Teachers CU and the $173 million asset Montana FCU--have warned members about a smishing scam directed to their cell phones that tells them their credit or debit cards have been compromised. Recipients receive a text message on their cell phones. The message reads "WELLS FARGO NOTICE: Your Card 4868* has been DEACTIVAT$ED." Recipients are given a phone number to call and told to press "1," then provide their account information. The credit union advised members to hang up and call the credit union or card company (Great Falls Tribune Oct. 21).
  • Members of Georgia United CU, Duluth, Ga., including a half dozen Rockdale County sheriff's deputies, have been hit by debit card fraud in which clones of their cards are used in Los Angeles to make purchases and drain the victims' checking accounts. The common denominator in the scam: the cards are used at Los Angeles 7-Eleven ATMs, according to Sgt. Jodie Shupe at the Rockdale County Sheriff's Department. Georgia United CU has been commended by the sheriff's department for making sure all members' accounts were made whole for their losses ( Nov. 11).

Consumers prefer online card applications over mobile

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NEW YORK (11/16/11)--While an increasing percentage of consumers access their credit card accounts online, there's still a way to go to get them to access their accounts via mobile applications, according to research by Auriemma Consulting Group.

Nearly half of U.S. adults surveyed who use credit cards said they would apply for a credit card online, while 26% indicated they would mail in the application. Another 13% would call a toll-free number, and 12% would go to a branch at a financial institution to apply for the card, said Auriemma (American Banker and Bank Technology News Nov. 14).

Of those surveyed, 75% said they access their credit card accounts online. That compares with 64% in a similar study in March 2009 and 60% in April 2006.

Roughly 13% said they access their account information with a smartphone or tablet, and less than 6% accessed it through text messaging, said Auriemma. However, of those who used a mobile application, 90% said they had checked their card account balance and 70% had either viewed their payment history or made payments through the mobile device.

The study indicated that consumers who are younger and affluent (with more than $50,000 in annual income) are more comfortable with online and mobile access to their credit card accounts, said Auriemma. 

Auriemma, based in New York and London,  said its results are based on a September poll of 509 U.S. card users online.

AARP Chase froze accounts family switched to CU

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MADISON, Wis. (11/16/11)--An article in the November issue of the AARP Bulletin tells the story of a Monroe, Wash. family that switched its accounts to a credit union after megabank Chase froze their accounts.

One Saturday in August, on their daughter, Lindsay's 10th birthday, Meagan and Mike Farrell received a letter from Chase informing them that their accounts would be closed in 10 days. With an excellent credit history and no record of bouncing checks, the Farrells thought the letter was part of a mix up.

But after talking with at least eight bank employees, the family learned that no one could provide an explanation.

When the Farrells visited a local Chase branch on the following Monday, their checking and savings accounts had been frozen, causing several checks to bounce.

Chase eventually acknowledged a communication error on its part and reopened the Farrells' accounts, but only after the media and federal regulators became involved.

By that time, the Farrells had moved their accounts to a local credit union.

Meagan Farrell said that if such an incident could happen at Chase, it could also happen at another bank.

Paper Four areas of focus for community FIs in 2012

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DES MOINES, Iowa (11/16/11)--Four areas community financial institutions (FIs) will focus on in the year ahead is the subject of a new released white paper from The Members Group (TMG).

"On the surface, things may appear calm, but underneath currents are swirling and business fundamentals and structures are being transformed rapidly," writes Shazia Manus, TMG CEO, in the white paper "The Road Ahead: Four Very Important Competetencies for Community FIs in 2012." "CEOs and their executive teams, boards and staff must begin the strategic-visioning process by asking a tough question: Does our business model still work?"

The answer will lie in the answer to these questions:

  • Why is the credit union still in business?
  • Who is the strategic focus of the business?
  • What does the business offer that the target market finds valuable?
  • Is the business uniquely structured to deliver that value better than its competitors?
Manus goes on to explore each of the four areas of focus:

  1. Profitability;
  2. Efficiency,
  3. Product/service mix; and
  4. Deeper customer relationships.
Manus also shares what tactics CEOs will use to help their organizations compete better.

Deeper customer relationships will stem from a larger commitment to cross-selling, said the paper.

Several new CU mergers announced

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MADISON, Wis. (11/16/11)--Mergers continue to reshape the competitive landscape for credit unions.

Among the latest mergers in the works:

  • Community 1st CU, Ottumwa, Iowa, with $359 million in assets, and Mental Health Institute (MHI) CU, with $2.2 million assets, Mount Pleasant, Iowa, have announced their merger. MHI CU will temporarily continue to operate at its location inside the Mental Health Institute. Plans are under way for a location off site to open membership to residents of Mount Pleasant and surrounding communities.
  • Apple FCU, Fairfax, Va., completed its merger with Synergy One FCU, Manassas, Va., on Nov. 1. Apple is the continuing institution, adding $180 million to its $1.3 billion in assets, 45 new employees and $116 million in loans.
  • Peninsula Methodist FCU, Crisfield, Md., with $300,000 in assets, has merged into Dover (Del.) FCU, which has more than $300 million in assets.
  • The Kansas Department of Credit Unions and the National Credit Union Administration have given preliminary approval for a merger of $385 million asset Credit Union of America, and $70 million asset First Choice, both of Wichita, Kan. The merger must still be approved by the memberships of both credit unions.

Members OK Mid-AtlanticVACCORP merger

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MIDDLETOWN, Pa., and LYNCHBURG, Va. (11/16/11)--The memberships of Mid-Atlantic Corporate FCU and VACORP FCU have approved the merger between the two organizations, it was announced Tuesday.

The formal merger date is expected to be Feb. 4, with Mid-Atlantic Corporate as the continuing charter.

The merger had been approved by the National Credit Union Administration (NCUA) on Oct. 27, after which ballots were sent to the members of the Middletown, Pa.-based Mid-Atlantic and the Lynchburg, Va.-based VACORP. The announcement, made at a meeting of VACORP members in Richmond, Va., after tallying ballots from both corporates' members, said the vote was "overwhelmingly" in favor of combining.

Mid-Atlantic's total assets on the date of the merger are projected at $4 billion, with $130 million in Perpetual Contributed Capital (PCC) and $10 million in Nonperpetual Capital Accounts (NCA).

Capital ratios are forecast at:

  • Retained earnings ratio of 0.55%;
  • Leverage ratio of 4.73%;
  • Tier 1 risk-weighted capital ratio of 23.80%; and
  • Total risk-weighted capital ratio of 25.21%.
The combined corporate will have more than 800 members.  By year end 2012, Mid-Atlantic Corporate forecasts that retained earnings ratio will be at 0.68% and the leverage ratio at 5.04%.

"This merger will give us the opportunity to grow the usage of our products and services, helping to keep costs down for all members," said Jay Murray, president/CEO of Mid-Atlantic Corporate. "This exemplifies the power of credit unions working together for a common good and demonstrates the value of the cooperative corporate model that credit unions built."

VACORP President/CEO Don Chapman noted that the combined entity would enjoy increased economies of scale. "Further, VACORP members will benefit from a broader array of products and services, and it will ensure continuity of high quality service--a key priority to us."

As with Mid-Atlantic Corporate's current members, the VACORP member credit unions joining Mid-Atlantic Corporate are required to make a capital commitment as a condition of membership.

Mid-Atlantic Corporate will maintain its current location in Middletown, Pa.  Its directors, supervisory committee and officers will continue after the merger, said the joint announcement.

CU System brief (11/15/2011)

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  • INDIANAPOLIS (11/16/11)--Doug True has been named CEO of FORUM CU, effective Nov. 11. True has been with the credit union for more than 20 years, most recently serving as its chief lending and technology officer. He was an original member of the Filene i3 group of innovators and is treasurer of the Indiana Credit Union League, where he spearheaded the development of the ignite Indiana program, an innovation think tank of credit union professionals in the state.  He was architect of FORUM's wholly owned subsidiary, FORUM Solutions and served as president of the company. The credit union, which is celebrating its 70th year in 2012, has 12 branches, serves more than 100,000 members and employs nearly 300 people in central Indiana …