NCUA Pulls The Rug Out From Under Tiny Fraternity-Based CU

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WASHINGTON-Lawyers for Kappa Alpha Psi FCU were trying to regroup after NCUA liquidated the tiny credit union the day before the CU was trying to block the liquidation at a court hearing.

Robert Cooper, a Washington lawyer representing the $750,000 credit union, said they were proceeding with the case assuming NCUA would wait till after today's show-cause hearing to finalize the liquidation, hoping at the same time a federal judge would overrule the credit union regulator and save the six-year-old credit union.

"We heard rumors, but we didn't know for sure that it happened till Monday," Cooper said. Cooper, a member of the Kappa Alpha Psi fraternity the CU served, said he found out for sure when he got home after work and found an NCUA payout in his mailbox returning his deposit with no dividend.

The NCUA move came as the agency was negotiating with Kappa Alpha, the nation's first Internet-only credit union, on a purchase and assumption merger-for all intents a liquidation-into HOPE Community FCU, a well-known community development credit union in Jackson, Miss. Under the terms, NCUA said it would transfer Kappa's deposits to HOPE Community and Kappa's 1,341 members could choose to get their funds returned or continue on as members of the $95 million CDCU. The two sides were debating what would become of the loan portfolio, which consists of 41 loans totaling about $400,000. This would have allowed the nationwide African-American fraternity to avoid the stigma of having its credit union officially liquidated or failed. A federal judge was expected to consider the dispute at today's hearing.

But NCUA chose to complete the liquidation after Judge Emmet Sullivan told both parties he doesn't believe he has the authority to stop NCUA from the liquidation.

NCUA said yesterday it completed the liquidation to protect members' accounts. "Whenever we liquidate a credit union we are mindful of the responsibility to return funds to members in an expeditious manner," said John McKechnie, chief spokesman for the agency. "In this case, as with other liquidations, we were prepared to do that either by transferring the shares to another credit union or paying them directly to the members.

Kappa was unwilling to support a share transfer to another institution, and accordingly NCUA provided the funds directly to the members."

But Kappa's Cooper questioned that assertion. "None of the depositors asked for their money back. There was no urgency," he said.

National Federation of Community Development Credit Unions spokesman Rafael Morales said idea of appealing in the process of liquidation brings Alice in Wonderland to mind, quoting from the story: "'Let the jury consider their verdict,' the King said, for about the twentieth time that day. 'No, no!' said the Queen. 'Sentence first-verdict afterward.'"

Morales added that the Federation hopes Kappa will decide to have its day in court and said NCUA's actions leave several "troubling questions" including why NCUA didn't pursue a Purchase and Assumption agreement with another CU. While clearing the high bar to prove NCUA acted in an "arbitrary and capricious manner" will be very difficult, "that does not mean that the credit union movement will perceive NCUA's actions against credit unions as appropriate, unavoidable, and fair," Morales pointed out. "Amid the continuing pain of the corporate credit union crisis, we believe the credit union movement's perception of the agency matters."

At press time, Kappa's lawyers were meeting to decide whether to proceed with their case, even as the bottom appears to have fallen out. "There are still other issues at stake here," said Cooper.

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