Privately Insured CUs Fight Corporate Bailout Assessment

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ALEXANDRIA, Va. – Privately insured credit unions are threatening NCUA’s efforts to spread the costs of the corporate credit union bailout to non-federally insured members of the corporates, with one executive likening the NCUA proposal to extortion.

“I read with amazement the proposed changes to Rule 704, specifically where it proposed that non-FICU members make a “fair share” or “voluntary” contribution to the (corporate bailout fund). Of course it doesn’t sound too voluntary, since, if you don’t pay it...the subject corporate credit union is required to call a membership meeting within 90 days for the purpose of its members voting on expulsion of the non-federally insured credit union for not making its “voluntary contribution,”’ Paul Simons, the president of Credit Union 1 and chairman of the board of private insurer ASI, wrote to NCUA in a comment letter on the proposal “Not to use too strong a word but that sounds very close to extortion.”

The comment is in response to NCUA’s proposal to spread out the $16 billion cost of the corporate bailout to privately insured credit unions, CUSOs and state leagues that use the corporates for liquidity and other services. But the proposal has caused a firestorm, with privately insured credit unions and CUSOs threatening to abandon the corporate system for other sources of these services.

“We feel so strongly on this matter,” wrote R. Wayne White, president of ASI-insured East Ohio United Methodist Conference CU, in North Canton,  “that we are willing to take legal action through whatever court system is required to halt the NCUA’s attempt to increase its authority over non-FICU entities.”

The NCUA proposal comes as members of ASI, the lone-survivor of what was once a network of some two dozen private insurers for credit unions, are also being squeezed by growing credit union losses and have paid special premiums to raise the reserve ratio for ASI in each of the last two years. But so far, the privately insured credit unions, most of which are members of one or more corporates, have not been drawn into the corporate bailout.

Ohio-based ASI, which insures deposits for 150 credit unions, has become somewhat of an anomaly because there are no longer any banks or S&Ls that have non-federal deposit insurance.

“In reviewing the proposed rule, the NCUA has no such authority to even suggest such a ludicrous rule,” wrote Leah Jett, president of ASI-insured Danville (Ill.) Bell CU, noting that privately insured state chartered credit unions are outside NCUA’s legal orbit.

“Federal law,” noted Bruce Ingraham, president of Beacon CU, another privately insured credit union in Wabash, Ind., “clearly instructs the NCUA to charge only federally insured credit unions for any assessment due to (the corporate bailout fund).”

The privately insured credit union executives assert that the corporate fund, formally known as the Temporary Corporate CU Stabilization Fund, is a legal extension of the National CU Share Insurance Fund, which by law is financed only by federally insured credit unions. “The TCCUSF was created by Congress to mitigate the burden on federally insured credit unions and only federally insured credit unions,” wrote Ingraham.

“The losses sustained by the TCCUSF fund cannot be disguised as anything other than losses normally sustained by the NCUSIF,” wrote Sue Darrow, chairman of the board for Clearwater CU, a Lewiston, Idaho-based ASI customer. “It is ludicrous that NCUA would assert a legal obligation upon non-FICU users of a service provided by an insured credit union for losses sustained by the NCUSIF any more than it can charge individual consumers for losses the NCUSIF sustains in natural person credit unions.”

“Are you going to force a corporate credit union to expel us,” asked Rebecca Overstreet, manager of ASI-insured Kyger Creek CU, Cheshire, Ohio, “when we have made our required capital contributions and honored our obligations under our membership agreement?”

“I do not understand why you would deny me access (to the corporates) just because I feel that I should not have to bail out another insurance fund, that I chose not to partake in,” wrote Patricia Niese, president of ASI-insured Members Choice CU, in Greenville, Ohio.

“If the proposed rules become new law,” wrote Daryl Sawyer, president of ASI-insured Greater Cincinnati CU, “then I expect to be able to withdraw my capital contributions without delay.”

The growing opposition by privately insured credit unions comes as CUSOs are also rebelling at the proposal, arguing that to assess corporate bailout charges to CUSOs would amount to a double assessment on federally insured CUSO owners who are already paying the costs of the corporate bailout. “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,” wrote Doug Burke, president of the Lakewood, Colo., CUSO for 100 credit unions.

The privately insured credit union executives also point out that the corporate bailout law passed by Congress last year will allow federally insured credit unions to share in any future recovery on legacy assets beyond the bailout payments, but does not allow for privately insured credit unions to share potential recoveries. “According to the proposed rules, the obligations of non-FICUs are to equal those of FICUs, but our rights to future dividends are non-existent,” noted Kyger Creek’s Overstreet.

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