The National Credit Union Administration is reining in an Oregon credit union that illegally added roughly 2,000 customers since 1989, an agency official said.

Highland Community Federal Credit Union, a community-based institution in Klamath Falls, may have to divest up to $4 million in deposits, said James Baylen, deputy director of the NCUA's Pacific region.

Highland Community Federal Credit Union At a Glance

ASSETS: $35.8 million

LOANS: $29.8 million

DEPOSITS: $32.4 million


'93 NET INCOME: $544,000

PRESIDENT: Nancy Nealy

HEADQUARTERS: Klamath Falls, Ore.


Source: Callahan & Associates

Mr. Baylen said the divestiture probably won't cause any safety or soundness problems.

"The credit union is in good financial condition," Mr. Baylen said. "There's no indication they're going to have any liquidity problems."

Highland also has up to $5 million in outstanding loans with illegal customers. The customers can repay those loans, but not start any other relationships with the credit union.

The credit union was to give NCUA a plan on Thursday for resolving the problem, Mr. Baylen said. Roughly 16% of the credit union's customers illegally joined the credit union, but if the credit union revises its charter, some customers may qualify for membership, Mr. Baylen said. Highland had 14,831 members as of December 1993.

"They can convert to an occupational/associational charter, in which case they could keep employee groups in Bend and members of record in Klamath Falls, but they couldn't continue to operate as a community charter," he said.

Exam Exposes Problem

The NCUA first became aware of the illegal customers during an examination earlier this year, Mr. Baylen said. Before the examination, a credit union in Bend, Ore., had complained to the agency about Highland's customer base.

The credit union apparently misinterpreted an earlier field-of-membership policy, Mr. Baylen said.

In 1984 Highland merged with a credit union in Bend. The credit union began adding Bend employee groups to its customer base, which was then permissible under agency policy.

This practice became illegal when a new field-of-membership policy was issued in 1989, but Highland continued adding groups, Mr. Baylen said.

The agency is operating under the belief the credit union made an honest mistake in expanding, and it isn't planning punitive action, Mr. Baylen said.

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