Credit Unions Have Problems Too

Now that big banks have become the symbols of corporate greed, credit unions are being lionized as the answer to consumers' dreams of an efficient, friendly and economical banking solution.

But while credit unions do indeed offer lots of services at little or no cost, they are not without their problems. Small is often regarded as beautiful and perhaps it is, but small institutions are not immune to greed, dishonesty and plain old incompetence, as a review of recent actions by the National Credit Union Administration shows.

Earlier this week, the NCUA – the FDIC of the credit union business – liquidated the New York City-based OTB Federal Credit Union. Perhaps not surprising for a credit union whose members are associated with Off-Track Betting parlors, the OTB FCU had a delinquent loan ratio of 7.02% and declining investment income.

Earlier this month, the Greensburg Community Federal Credit Union of Greensburg, Pa., was placed under conservatorship. It had assets of $2.2 million and 983 members.

Credit union members enjoy the same protections as bank customers. Credit union accounts are insured up to at least $250,000 by the National Credit Union Share Insurance Fund (NCUSIF), a federal fund managed by NCUA and backed by the full faith and credit of the U.S. Government.

Hard times

Small and neighborly though they may be, many credit unions are having a difficult time making ends meet simply because their members are going through difficult times. And unfortunately, employees of credit unions can also fall prey to financial pressures and simple greed, often leading to embezzlement and other forms of fraud.

Bernie Metz, 57, former CEO of Center Valley Federal Credit Union, will have to repay NCUA over $4.65 million and pay $200,000 to a local organization in Ohio as part of her sentence for embezzlement.

U.S. Attorney William Ihlenfeld announced yesterday that Metz received 108 months imprisonment in addition to the financial parts of the sentence. She also had to surrender properties she purchased during her decade-long embezzlement, along with several vehicles and over $14,000.

As a result of the embezzlement, NCUA closed and liquidated the CU in 2009.

Ihnlenfeld said many former members of the CU are still suffering the effects of the embezzlement and closure, Credit Union Times reported..

“While a number of former credit union members chose to meet with me and my staff in person to discuss their issues, I know that there are many more similarly situated people who still are having problems with their credit union accounts, whether they are upside-down on their automobile loans or they feel they are being unfairly harassed by collection calls,” said Ihlenfeld. “My message to those people is to make sure that they fully explore all of their rights under state and federal law, and to make sure that their legal rights are not being violated in any way.”

14 years

Yesterday, the former CEO of CU National Mortgage, Michael McGrath, was sentenced to 14 years in prison for his part in a scheme which saw some credit union mortgages fraudulently sold on the secondary market, according to the office of the U.S. Attorney for New Jersey.

According to an FBI release, McGrath admitted in court he “conspired with several others” over a five-year period to fraudulently sell credit union loans, using the proceeds to address cash flow problems created by losses on investments in mortgage-backed securities.

At first, McGrath began pilfering funds from credit union mortgages authorized to be sold to Fannie Mae. However, as U.S. Mortgage’s financial condition continued to deteriorate, McGrath admitted to selling hundreds of mortgage loans to Fannie Mae without the knowledge and consent of owning credit unions.