HOPE Emerges For Nations First Virtual CU To Avert Liquidation
WASHINGTON – A federal judge yesterday gave troubled Kappa Alpha Psi FCU 24 hours to work out an emergency merger with HOPE Community FCU to avoid a wholesale liquidation by NCUA.
But a Justice Department lawyer representing NCUA told Judge Emmitt Sullivan even if a merger deal could be reached it would be too late to avert the liquidation, which the NCUA Board put into motion for the nation’s first internet-only credit union on Aug. 3. “I think that actually the bell has been rung when we placed it into liquidation. There’s no way to stop it from ringing,” said Fred Haynes.
In an Orwellian situation reminiscent of an ongoing lawsuit over WesCorp FCU, Haynes told the judge the Federal CU Act allows a credit union’s board to challenge a liquidation order by requesting a court-directed show cause order, but even if the court finds no cause for the liquidation there is no mechanism to reverse the liquidation order. “Essentially the bell has been rung, your Honor,” said Haynes, during a court hearing yesterday.
In the WesCorp case, a federal court has allowed NCUA to assume the roles of both the defendants, the WesCorp management and directors, and the plaintiffs, seven credit unions suing the management and board, according to provisions of the Federal CU Act.
Judge Sullivan was unswayed by NCUA’s position on Kappa Alpha Psi, a six-year-old credit union chartered by the nationwide African-American college fraternity that counts only $750,000 of assets and expended all of its net worth paying assessments for NCUA’s corporate credit union bailout. The judge, asserting that the merger proposal by HOPE Community would allow the fraternity to avoid the stigma of a liquidation and discourage the credit union’s 1,341 members from withdrawing their deposits, and he urged the two sides to negotiate on a merger.
But Justice’s Haynes insisted that no one, outside of the NCUA Board, has the authority to overturn a liquidation order and that it has never been done before. Haynes also informed the judge that none of the three NCUA Board members is available to represent the board, having all scattered for the Board’s annual August recess.
Judge Sullivan ordered NCUA to make one of the Board members available for an additional session this afternoon, even if it were to require getting NCUA Chairman Debbie Matz hooked in by teleconference from her vacation in Jackson Hole, Wyo. “Someone has to be able to speak on behalf of that Board,” a clearly frustrated Judge Sullivan insisted.
Under a proposal by HOPE Community, a well-known Mississippi community development credit union, it would assume all of the member deposits and loans – just 41 loans for a total of $400,000. But the CDCU will need some time to analyze the loans, lawyers for Kappa Alpha Psi told the judge, perhaps as long as a week.
Ken Bynum, an Alexandria, Va., lawyer representing Kappa Alpha Psi, asked the judge for an order giving it until next Wednesday to negotiate a final deal with HOPE Community. “If they take it into liquidation a hostile environment will ensue. There will be a run on deposits,” he said.