KNOXVILLE, Tenn. — A Tennessee credit union filed suit against CUNA Mutual Group claiming the credit union insurer should be responsible for millions of dollars of failed loans approved under the credit union's former president.
Johnson City FCU claims that under a faithful performance bond claim CUNA Mutual should be responsible for as much as $2.5 million in losses on signature loans accrued under the management of then-CEO G. Donald Cowan, who left the CU in September 2006 under a "forced resignation."
No Profit Alleged
The credit union is not alleging that Cowan profited from the loans, most of them vehicle loans, but was negligent in having them approved.
After Cowan's departure, the $50-million credit union notified CUNA Mutual that Cowan "consciously disregarded the lending policies of the credit union, that illegal member accounts were identified," according to the action, filed in U.S. District Court for the Eastern District of Tennessee. The CU is alleging the accounts were "illegal" because they violated NCUA rules and regulations.
And Then the Charge-Offs Began
Beginning in April 2007, Johnson City FCU began charging off loans, an amount it expects to exceed $2.5 million. The CU is seeking treble damages in the suit. Because of the loans, Johnson City reported a $1.1 million loss for 2007, a $1 million loss for 2008 and a $450,000 loss for the first six months of 2009. The CU is claiming "bad-faith failure to pay promptly" under Tennessee state law, and unfair and deceptive practices.
CUNA Mutual said it is limited in what they can say because the case is in litigation. "This is a standard faithful performance bond claim, which we don't believe is covered under the policy," said Phil Tschudy, a spokesman for the credit union insurer.
The CU is represented by Nicholas Esposito of Esposito & Staubus, which is expert in pursing bond claims for credit unions and banks. "The credit union presented a well-documented bond claim and intends to vigorously pursue recovery," said Esposito.
Johnson City FCU CEO Kevin Jones declined to comment and referred calls to Esposito. Cowan could not be reached for comment at press time.
