Opposition Mounts To NCUA Bid To Spread Costs Of Corporate Resolution
ALEXANDRIA, Va. – NCUA’s proposal to spread the growing costs of the corporate credit union restructuring to privately insured credit unions, CUSOs and league members of corporates is creating a firestorm, with some promising a legal challenge if the measure is enacted.
“This attempt by the NCUA to extract funds from privately insured credit unions to pay for the corporate losses is obviously a case of this federal agency stepping out of its legal boundaries,” said Bruce Rodela, president of Reno, Nev.-based Frontier Financial CU, in a recent comment letter on the proposal. “The potential for legal proceedings and legal expenses looms on the horizon, and can be avoided altogether by removing this unreasonable requirement from the final amendments to the proposed corporate rules.”
Under the controversial proposal NCUA, which is paying the cost of the $16 billion corporate system resolution by assessments on federally insured credit unions, would allow corporates to assess “voluntary” payments on other members, including privately insured credit unions, CUSOs and trade associations that access corporate lines of credit and other services. Those entities could be expelled from the corporate if they do not “volunteer” to participate in the corporate bailout.
The proposal is part of a package of amendments NCUA would make to its new corporate regulation that also includes a limit on corporate membership to a single corporate, new requirements for disclosures of executive and director compensation, and Sarbanes-Oxley-like internal audit provisions.
Many commenters are pointing out that making CUSOs and state leagues pay a corporate assessment would amount to double taxation for federally insured credit union owners of the CUSOs or members of the leagues that are already paying corporate costs.
“Several of the credit unions that the Association represents have wholly owned credit union service organizations while a number of other affiliated credit unions have jointly owned CUSOs,” noted Robbie Thompson, president of the Credit Union Association of the Dakotas. “If this proposed rule were to be implemented, federally insured credit unions with investments in CUSOs would essentially be assessed twice.”
Doug Burke, president of CU Service Network LLC, which provides services to credit unions in seven states, noted that the CUSO’s 100 credit union members share cooperatively in annual profits. “If CU Service Network were to voluntarily make a payment, the payment would in fact be an additional payment from the credit unions that have already made a non-voluntary assessment payment. The net result is the credit unions are now paying twice,” he wrote.
But the vast majority of the opposition is being posed by members of Ohio-based ASI, who noted that their status as state-regulated and privately insured leaves them outside the legal authority of NCUA and its corporate assessments.
“As a privately insured institution, our credit union is not under the regulatory jurisdiction of the NCUA, nor are our deposits insured by this federal agency. As such, our credit union and other privately insured credit unions are not bound by contract with the NCUA, nor are we required by Idaho law to have to pay for federal share insurance losses,” wrote Cyndi Tiferet, president of Boise Valley CU in Idaho.
Several privately insured credit union executives pointed out that their credit unions also suffered losses of their capital through the failures of the five corporates, U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU, so have not been immune to the costs of the corporate meltdown. Others noted that last year’s corporate system resolution would not allow them to share in any future recoveries that would accrue to federally insured credit unions.
“My board is confident that you have no legal right to attempt to charge us via a ‘voluntary payment,’” wrote Drema Braun, president of BSE CU, in Middlesburg Heights, Ohio. “We disclose that we are not backed by the ‘full faith and credit of the U.S. government,’ as required by law, so why would we help pay for losses sustained by an agency of the U.S. government?”
“The bottom line is that there is no law that requires us to make any such contribution to the NCUSIF, and I am concerned NCUA is attempting to twist our arm to convince us to make these ‘voluntary’ payments. Last time I looked up the word voluntary, it does not state there are consequences tied to voluntary actions,” wrote Braun.