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Kappa Credit Union Blocks NCUA Liquidation

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WASHINGTON, DC (August 6, 2010) Federal District Court for the District of Columbia issued a Temporary Restraining Order today against the National Credit Union Administration blocking the surprise liquidation and revocation of Kappa Alpha Psi Federal Credit Union.

Last week, Region IV of the National Credit Union Administration (NCUA) served a surprise liquidation order on Kappa Alpha Psi Federal Credit Union (KAPFCU), the first "virtual" credit union authorized by the NCUA and the only Low Income designated credit union (LICU) that operates on a national footprint. KAPFCU is also a Certified Community Development Financial Institution (CDFI).

Unfortunately, the NCUA issued an Order of Liquidation and Revocation on August 3, 2010. The basis of this decision was that KAPFCU was "minimally capitalized" with a Net Worth Ratio of 1.95% on March 31, 2010 with no reasonable prospect to recover.

As of March 31, 2010 KAPFCU had a NWR of 1.95% or "minimally capitalized" which was still the highest NWR that KAPFCU had achieved historically. However, KAPFCU's second quarter results were 3.67% or "moderately capitalized" for June 30, 2010 after which, NUCA elected to "Liquidate" the credit union on August 3, 2010.

The August 3, 2010 liquidation was based on the false impression in the press and media was that KAPFCU's NWR had dropped down to 1.95% and had no reasonable chance for recovery. The reality is that KAFPCU is a new credit union, starting from scratch 0%, which had built its NWR up to 1.95% as of March 31, 2010 and even higher to 3.67% by June 30, 2010. This chart is a visual depiction of KAPFCU Net Worth Growth since its inception in November 2004 through June 30, 2010 right before our involuntary liquidation on August 3, 2010.


KAPFCU - Net Worth Ratio (2005-2010)
(Image by Kappa Alpha Psi Federal Credit Union)
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Thus, KAPFCU insists that any adverse NCUA action in August that was based on March 31, 2010 data as opposed to the June 30, 2010 financial statements is arguably "intentional, malicious and discriminatory" treatment. It is also troubling that NCUA chose the unusual and extreme measure of liquidation, without consideration of a merger, when KAPFCU had suffered only one loan loss (for less than $4,500) in its six year operating history.

NCUA Rules and Regulations give new credit unions ten (10) years to become "adequately capitalized" and achieve a Net Worth Ratio of 7%. Net Worth is a measure of financial health and stability. KAPFCU is in its sixth year of operation and has a current NWR of 4% (7/31/2010). It was 3.67% according to our 2nd Quarter call report (6/30/2010). Therefore, KAPFCU was within the applicable NCUA Rules and Regulations for an institution of its size and character.

Consequently, the NCUA decision to liquidate KAPFCU on August 3, 2010 under these conditions was ill-advised, improper and legally actionable. NCUA rushed to liquidate KAPFCU not because they were failing, but because KAPFCU was becoming too successful. This was a NCUA abortion of a African-American credit union.

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Michael McCray is a public interest advocate who combats racism and corruption in the government and other institutions which deprive individuals of their basic civil rights, human rights and constitutional liberties. McCray is co-chair of the (more...)
 

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