Just days after the liquidations, the FBI launched an inquiry into possible financial improprieties at the credit unions, all of which were run by the same person. A former president of one of the credit unions told CU Journal that the FBI was looking into money that had gone missing from the credit unions. All members' accounts were protected by the National Credit Union Share Insurance Fund.
A seventh Philly-area credit union First African Baptist Church FCU with ties to the initial six liquidated institutions was shuttered by NCUA in November for similar reasons. Credit Union Journal reached out to the FBI's Philadelphia branch office in December for an update, but a spokesperson for the bureau said it could not comment on ongoing investigations.
In the fall of 2015, New York's Montauk CU was placed into conservatorship due to surging delinquencies related to its taxi medallion loans. In March of this year it was merged into Bethpage CU. Montauk's challenges were a preface for some of the troubles to come in 2016, as midway through the year Melrose CU also in New York fired its CEO amid a 180% surge in delinquency rates on medallion loans. While Melrose quickly appointed an interim leader, it was faced with the task of creating a net worth restoration plan that would satisfy NCUA, following a three percentage-point drop in its net worth ratio tied to medallion loans, from 10.37% in Q1 to 7.49% in Q2.
While Melrose had the most high-profile challenges surrounding medallion loans this year, it was far from the only credit union to face such issues. Purchase, N.Y.-based Quorom FCU did not originate any medallion loans, but as of mid-year it held nearly $75 million in medallion loans, approximately 8% of its total assets. Similarly, Progressive CU in New York holds more than $400 million in medallion loans, and increased its allowance for loan losses by one-third during the second quarter of 2016 to $62 million while reporting a net income loss of $19 million during the first two quarters of the year.
The losses emerged when regulators from Michigan's Department of Insurance and Financial Services (DIFS) uncovered irregularities at the credit union and traced them to Lajoice, who was subsequently terminated and then turned himself into police, admitting to his crimes. Later in the year Clarkston Brandon was absorbed by Michigan State University FCU, giving it a deeper foothold in Southeast Michigan. In the wake of the Clarkston Brandon case and a host of other fraud scandals at CUs in recent eyars, the Michigan Credit Union League released a white paper during the summer on how credit unions can better spot instances of internal fraud.
In November, Jajoice pleaded guilty to bank fraud as part of a plea agreement. He now faces a prison term ranging from 10 years to a maximum of 30 years. His sentencing is set for March 2017.
Along with Clarkston Brandon in Michigan, Saginaw-based Valley State CU was also placed into conservatorship, with regulators citing "unsafe and unsound practices." Ohio's Cory Methodist Church CU was placed into conservatorship in February for similar reasons, but by September it had merged into Euclid, Ohio-based Eaton Family CU.
But while some CUs only faced conservatorship or merger, 11 institutions shut their doors for good as a result of liquidation, seven of which were shuttered as part of the large-scale Philadelphia liquidations. Among them were Veterans Health Administration CU, Washington, D.C.-based Education Associations FCU, Virginia's Mildred Mitchell-Bateman Hospital FCU and CTK CU in Milwaukee.
As the industry has consolidated in recent years, these closures along with mergers and other factors shrinking the overall number of credit unions nationwide have led to a debate over whether or not there is still a future for small credit unions, though at least one expert has noted that when small CUs close it has less to do with environmental factors than with those institutions' own aptitude.
In a series earlier this year, Credit Union Journal looked back on some of those turnarounds and the lessons other CUs might be able to learn from them.