Raritan, N.J. ? A number of credit unions have received notice that Bank of America is shutting down accounts the CUs had come to rely on as an important source of liquidity.
Although CU Journal could only confirm a handful of credit unions in New Jersey as being affected by BofA's move, the letter sent to the credit unions offers three separate phone numbers for account holders to call based on where they are located, which could indicate that it is happening across the country.
At $3 million in assets, for Prime CU, it's a small credit union with a big problem. "We've had an account with the bank for more than 20 years, back before it was Bank Of America," explained Terry Niles, CEO of Prime CU. "We have a cash drawer, but we really don't carry a lot of cash. When a member comes in for a $3,000 loan, we write them a check on our bank account, and then with two forms of ID they can go to the bank and cash the check."
Niles, who has been with the credit union for 27 years, said this arrangement has been in place since before she started working at Prime. "I know that [MembersUnited Corporate FCU] can help us, but they're in New York, and that's a long ways away. We wanted to deal more locally."
When the letter came, it took Niles by surprise. "The letter is very strange. It's not signed, and it looks like a copy instead of an original on letterhead," she related. But the letter was all too real, even if it did take several tries to get it confirmed.
"First I spent an hour on the phone and that didn't seem to get me anywhere, so then I went to the local branch and spent an hour there," she related. "The local branch didn't know anything about it. But when they finally got to the right person at corporate, they confirmed that our account would be closing, with all activity stopped as of Nov. 19 and final closure on Nov. 27."
Once she confirmed the letter, Niles asked what her options are. "They said I could get a CD for $100,000, but that felt like bribery," she said. "We're talking with MembersUnited now."
Bill Warren of Manville Area FCU, Manville, N.J., had a similar story. A larger credit union at $24 million, Manville Area has a relationship with a corporate credit union, so the impact isn't as great, he said, but it was still a strange, unpleasant surprise when he received the same letter.
"We are right next door to a Bank of America branch, and we really just use them to get rid of our coin. We're not really using them for anything else," he offered. "But for these other credit unions, they are using BofA for their primary checking account. It's how they fund their loans. It's a real problem for them."
When Warren tried to get an answer as to why the bank was shuttering the account, he was simply told it was "a corporate decision," but he has his own theory about it.
"Our feeling is that BofA is trying to reduce the choices people have in their financial affairs by affecting the ability of these small credit unions to serve their members," he said. "They're looking to eliminate the competition."
The outcry has been unexpectedly quiet, possibly because the move is hitting small credit unions, at least some of whom don't belong to any of the trade associations that might otherwise call attention to the problem.
"We're a rather small credit union, we can't afford to pay the dues to belong to our league," Niles said. "And I know it sounds bad, but I just don't think you get anything out of it. You pay dues but then you still have to pay for the educational sessions."
But Niles suggested there's good reason to believe there are more credit unions out there facing the same problem. "When we showed the letter to our supervisory auditor, he said, 'oh, you're just getting that now?' So, obviously he's got other clients who have gotten the same letter."
At press time, BofA had no comment.
(c) 2007
