NCUA Wont Halt Liquidation Of First Virtual CU
WASHINGTON – NCUA told a federal judge yesterday it won’t reverse the eight-day-old liquidation order issued to Kappa Alpha Psi FCU, but will agree to transfer the member accounts to HOPE Community CU, which could choose to complete the liquidation or continue to serve the tiny African-American credit union’s 1,341 members.
U.S. Judge Emmit Sullivan agreed with NCUA that he is powerless to stop the liquidation of the $750,000 credit union, but he did grant the six-year-old institution a seven-day stay of execution while he entertains arguments for NCUA to “show cause” for the liquidation. “I’m not aware of any authority that would grant the plaintiffs any extraordinary relief,” said Judge Sullivan, during a hearing yesterday.
The Judge, an African-American, initially told the representatives of the African-American fraternity he is not a Kappa, but is sympathetic to what they are trying to do. “But I just don’t think I have the authority to do that,” he said.
Robert Fenner, general counsel for NCUA, told the judge the liquidation, set in motion by an Aug. 3 NCUA order, will not be rescinded but can proceed in one of two ways. Either NCUA will issue checks to pay out share accounts at Kappa Alpha Psi FCU, or the agency will agree to transfer the deposits/shares in a purchase and assumption agreement to HOPE Community CU, a Jackson, Miss., community development credit union that has agreed to take on the member accounts. This will ensure that members of the internet-only credit union continue to have credit union service.
But Fenner said NCUA still is analyzing some 40 loans for $400,000 issued by the tiny credit union to determine their worth and condition. Because if that necessity, NCUA is not ready to assign the loans to HOPE Community to complete what would be a merger instead of a liquidation. “We have serious concerns about the loan underwriting process; about delinquencies and other irregularities,” said Fenner, who said NCUA is not willing to transfer the loans to other federally insured credit unions that would assume those liabilities.
But NCUA’s offer was not good enough for the nationwide fraternity, which wants to erase the stigma of a liquidation from its record – which management believes a full merger into HOPE Community will do. “We’re willing to be cooperative,” said Kenneth Cooper, a Washington lawyer who is a fraternity brother and credit union member, “but we don’t want to do it with a gun at our head.”
Fenner told Judge Sullivan he had conferred with all three NCUA Board members in the previous 24 hours and all three told him to stand firm against rescinding the liquidation. “There is no interest in undoing the liquidation order,” he said.
Bill Bynum, the CEO of HOPE Community, spoke at yesterday’s hearing via telephone and confirmed it would take on member deposits and service loans, but would need more time to analyze the quality of the loans before making an additional commitment. “We are prepared to take the members into HOPE Credit Union subject to a commitment of support from Kappa Alpha Psi fraternity,” said Bynum, a well-known figure in the CDCU movement.