NCUA Rejects Excess Insurance Scheme On Failed CU
ALEXANDRIA, Va. – The NCUA Board denied a bid by Employees CU in Dallas for reimbursement on an additional $287.67 of dividends it had accrued on a $250,000 CD it had with St. Paul Croatian FCU, after NCUA liquidated the one-time $210 million Cleveland credit union last April.
Under its agreement on the Jumbo CD, St. Paul Croatian would pay the Texas credit union its dividends on the first day of every month, leaving the maximum insured amount of $250,000 in its account after dividends. But NCUA took over St. Paul Croatian on April 23 and liquidated it a week later, on April 30, leaving the accrued interest in the account of the Texas credit union. If the credit union had not failed, it would have paid the accrued interest the following day.
In liquidating the failure, NCUA determined the amount in the account exceeded the $250,000 maximum coverage under federal law and it would pay out only that amount, leaving an unpaid balance of $287.67. Employees CU claimed that NCUA should have honored the practice of St. Paul Croatian and paid it the additional dividends owed.
But NCUA said once it liquidates a credit union, “Obligations of the institution to make payments arising after that date are effectively cut off by the intervening appointment of the liquidating agent,” whose charge is to, according to NCUA’s regulation addressing involuntary liquidation and creditor claims: “do all things desirable or expedient in its discretion to wind up the affairs of the credit union...”
The Cleveland credit union was one of the biggest natural person credit union failures ever, which investigators have attributed to fraud. The failure is projected to cost NCUA as much as $170 million in losses.