Poor recordkeeping and unsafe loan practices are among the conditions that officials of Kappa Alpha Psi Federal Credit Union agreed to improve in a letter of understanding and agreement with the NCUA, according to documents released on April 20 by the NCUA.
The letter, which was signed June 30, 2009, stated that the Carrollton, Texas-based credit union hadn't reconciled its books in a timely manner and there isn't enough detail to identify specific information about certain transactions. It also stated that there was inadequate loan documentation and loan limits aren't based on credit risk and income levels. The letter modifies a previous one signed on Aug. 13, 2008.
The changes in its practices that the credit union agreed to include revision of its loan policy to implement risk-based lending, provide transactions to its record-keeping company in a timely manner and establishment of a central repository for all of the credit union's records.
NCUA Director of Public and Congressional Affairs John McKechnie explained the timing of the release of the letter by saying that "while progress has been made the issues have not been fully resolved, we took this step to move toward the conclusion of the process."
Kappa Alpha Psi Chairman Victor Russell said the credit union has made progress on improving its practices. It is working with the Texas Credit Union League to set up a back-office operation that will improve recordkeeping, and it has changed lending standards to reduce the likelihood that it will make unnecessarily risky loans.
Russell said the credit union has been working with its NCUA examiner to resolve differences over accounting methods. He noted that credit unions with assets of less than $10 million are not generally required to comply with GAAP, but the examiner had required that and that has created compliance challenges.
"Because we are a unique credit union, all virtual and a low-income credit union serving a national platform, it has taken time. But we are making progress toward making the improvement and are closer to the end than the beginning of the process," Russell said.
According to the credit union's latest financial report filed with the NCUA, which contained data as of Dec. 31, 2009, it had $764,309 in assets, a 12.2% decline from the previous quarter. The value of its investments declined 93.2% during the fourth quarter of last year. Its delinquent loan ratio was 9.68%, and its net worth ratio was 1.48%. Its return on average assets was 0.07%.
The credit union, which has no full-time employees, has 1,360 members.