A large number of privately insured credit unions are not complying with federal law and adequately informing members that their savings are not federally insured, a new government report said last.
The report, issued by the General Accounting Office, called on Congress to lift an arcane decade-old ban preventing the Federal Trade Commission from enforcing provisions of the 1991 Federal Deposit Improvement Act requiring prominent disclosure of private insurance status.
The report was commissioned a year ago after $3-billion Patelco CU became the largest credit union to go private. It found that 37 of 57 privately insured credit unions visited in Alabama, California, Illinois, Indiana and Ohio, did not post notices of their private insurance status. "As a result, depositors at these institutions may not be fully informed that their deposits are not federally insured," the GAO said. NCUA has declined authority to enforce provisions regarding private insurance because of a potential conflict of interest and Congress ordered the FTC instead to enforce the private insurance provisions of the law. But every year since passage of the law Congress has prohibited the FTC from spending any money to monitor the required private insurance disclosures and other provisions of the measure.
There are about 215 state-chartered credit unions in 11 states that have private deposit insurance through Dublin, Ohio-based American Share Insurance, the sole remaining private deposit insurer. Release of the report comes as those credit unions are lobbying Congress to allow them to join the Federal Home Loan Bank System, which provides low- cost financing for mortgage-related programs.