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It's a Not So Wonderful Life: Credit Bias Against Minority Business

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It's a Not So Wonderful Life: NCUA Bias

Threatens Small/Minority Credit Union

In It's a Wonderful Life George Bailey [James Stewart] ran a Building and Loan Association that provided home loans to the working poor and was vital to the citizen's of Bedford Falls the community it served. Unfortunately, a heartless bank examiner ruined this thriving business and drove George Bailey to brink of suicide. Today, Low Income Credit Unions (LICU) and Community Development Financial Institutions (CDFI) play the central role of the Bailey Building and Loan Association, while NCUA examiners are the heartless bank examiners that can destroy a thriving community development credit union with the stroke of a pen or today the click of a mouse.

On April 20, 2010 the National Credit Union Administration (NCUA) published a Letter of Understanding and Agreement (LUA) for Kappa Alpha Psi Federal Credit Union. Victor Russell, President and Chairman of the Board remarks, "We are disappointed that the NCUA decided to take such a drastic action at this time, especially since the NCUA acknowledges that KAPFCU was making progress towards implementation of the LUA." Russell continues, "In fact, KAPFCU is already in complete compliance with the published LUA today."

"The "recordkeeping' concerns were eight missing journal entries between 3/31/09 and 12/31/09. The aggregate amount of these reconciliation items totaled less than $1,400 or 0.17% of KAPFCU total assets $760,000 which was clearly an immaterial amount." Russell adds, "The LUA also reference poor "credit quality,' however KAPFCU has experienced only one loan loss (unrelated to credit scoring) in its five year lending history for a total of $3,800 or 0.9% of a $420,000 loan portfolio. Consequently, we do not understand why the NCUA decided to publish this LUA at all."

Letter of Understanding and Agreement

1. Engage a qualified third party to reconcile the member share and loan trial balances and agree them with their general ledger balances. DONE KAPFCU contracted the Texas Credit Union League to perform back office procedures starting in March 2009.

2. Research and clear all outstanding items on the 03/31/2009 Century Bank and Southwest Corporate FCU statements. DONE performed by Texas Credit Union League as of March 2010.

3. Prepare reconciliations on Century Bank and Southwest Corporate FCU accounts and record adjustments in a timely manner. DONE performed by Texas Credit Union League beginning in March 2009.

4. Provide all transactions and related documents to the contracted record keeping company on a timely basis. DONE KAPFCU provides this information to the Texas Credit Union League since March 2009.

5. Provide for a centralized repository for all original credit union records and make those records available upon request to your assigned Examiner. DONE KAPFCU leased new office space at 15305 Dallas Parkway, Addison, TX in February 2010.

6. Revise loan policy and implement Risk Based Lending to our loan policy. DONE by KAPFCU Board of Directors in September 2009.

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James J. Murtagh, Jr. is a doctor of pulmonary, critical care and sleep medicine, and the Medical Director of several sleep laboratories in Southern Ohio. Dr. Murtagh extensively writes on medical ethics. Dr. Murtagh is the founder of a new (more...)
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