The headline seemed straight-forward: “CU Failures Cost Share insurance Fund $785 Million In 2018.”
Except that’s not what happened. Here’s what it should have said: “NCUA Failures Cost Credit Union Members $1.2 Billion.”
That’s because the NCUA is blaming the victim for its self-serving cash outlays that cost the movement long-serving charters while stranding thousands of credit union borrowers.
The Largest Loss Ever For Natural Person Credit Unions
To understand the latest National Credit Union Share Insurance Fund debacle, it’s useful to look at the fund’s reported results from 2008 through 2018. Just last year, the NCUA spent almost $1.2 billion in cash outlays, an amount equal to 73% of the entire total spent during the prior 10 years, which includes the Great Recession.
This is the NCUSIF’s largest insurance loss expense ever. And it comes during the longest era of positive economic expansion in the country’s history.
Blaming The Victims
The NCUA has published no detailed explanations but has made no secret that it wants to pin much of the blame on two taxi medallion credit unions. The regulator conserved Melrose Credit Union and LOMTO Federal Credit Union in early 2017 and liquidated them in the third quarter of 2018.
The NCUA recorded a $743 million reduction in the loss reserve account but otherwise gave no details of this largest-ever one-time expense beyond blaming credit unions the agency itself failed to help.
The trouble with blaming credit unions is that:
The NCUA’s conservators managing the two credit unions reported that as of June 30, 2018, the combined capital deficits for the two were only $155 million, not $743 million.
The NCUA’s own Mission and Values Statement says it’s the regulator’s responsibility to oversee problem institutions to “provide ... a sound credit union system which promotes confidence in the national system of cooperative credit (by) protecting the consumers who own them through effective supervision, regulation, and insurance.”
The NCUA’s Dereliction Of Duty
Board member Rick Metsger documents his own agency’s failure. A press release from a Dec. 8, 2017, speech to the Oregon Credit Union League includes Metsger’s recognition that the agency issued a letter to credit unions in 2010 warning of concentration risk and issued a more specific letter on taxi medallion lending in 2014.
So, the NCUA recognizes it knew about the problem for three years before conserving and liquidating Melrose and LOMTO.
To resolve this longstanding potential risk first identified in 2010, the NCUA funded the largest cash liquidation ever. If this is “effective supervision, regulation, and insurance,” then why do credit unions have a regulator or insurer at all?
Deserting The Member-Borrowers
A $1.2 billion cash outlay — and the only solution was to hold a fire sale and send taxi loans to a third-party servicer? Call Report data suggests there could be as many as 8,000 member loans secured by taxi medallions in cities throughout the United States.
These liquidations prevent the members who borrowed from these two credit unions from restructuring to help them navigate the disruption in the industry.