Nevada CUSO Sued by NCUA
North Star Business Services LLC, a CUSO that did business with the liquidated Ensign Federal Credit Union, has been hit with a complaint by the NCUA for ignoring requests to stop collecting payments on loans that were allegedly owned by Ensign.
According to the complaint filed Nov. 8 by the NCUA, which was the liquidating agent of Ensign, the agency was authorized to disaffirm and repudiate any contracts or arrangements on 18 commercial loans to which the credit union was a party. The regulator shut down the Henderson, Nev.-based Ensign Nov.13, 2009 because of its declining financial conditions. The NCUA authorized EDS Credit Union in Plano, Texas, to purchase and assume Ensign's member share accounts. EDS changed its name to InTouch Credit Union.
On the same day of Ensign's closure, the NCUA said it sent notice to NSBS's principals Mark B. Moody and David L. Osburn to disaffirm and repudiate the servicing arrangement on loans owned by Ensign. It is not known if NSBS responded to the notice. However, on March 24, 2010, the NCUA said NSBS sent a request to borrowers to continue making payments on the loans and threatened them with servicing fees if they did not comply, according to the complaint.
The NCUA responded by sending a cease and desist order to NSBS demanding that it stop interfering with its obligations and responsibilities related to assets owned by Ensign. Still, the CUSO continued to receive payments from borrowers, refused to provide the NCUA with all documents related to the accounts and refused to turn over funds it had collected, the NCUA said.
"The NSBS is not entitled to withhold a servicing fee from the funds it is retaining, because the liquidating agent disaffirmed and repudiated the arrangement NSBS had to service the accounts effective Nov. 13, 2009," the NCUA wrote in its complaint.
As of Oct. 1, 2010, the NCUA said it believes at least $45,911 was wrongfully retained by NSBS.
Neither Moody nor Osburn could be reached for comment by press time.
"[The] defendants' actions to coerce and/or pressure borrowers to continue making payments to NSBS, which defendants had no legal right to do, is fraudulent and inequitable," the NCUA said.
According to the complaint, the NCUA has cited eight causes of action against NSBS: conversion, declaratory relief, unjust enrichment, constructive trust, intentional interference with contractual relations, negligent interference with contractual relations, alter ego and intentional interference with prospective economic advantage. The NCUA is seeking a jury trial.
Credit Union Times profiled NSBS in 2007. The business lending CUSO, which was set up to serve both banks and credit unions, is headed by former bankers Moody and Osburn. After conducting a search to align with a business lending CUSO, Ensign signed on with NSBS. At the time, Diane Whitaker, former president/CEO of Ensign, expressed some trepidation on having a partnership with a CUSO that served both banks and credit unions. Whitaker said her concerns were addressed when NSBS assured her that Ensign would have a lead spot on its board. Other board members were contractors, real estate investors and developers but not bankers, she was told.
In December 2006, NSBS told Credit Union Times it had invited several credit unions to an introductory meeting but only Ensign had expressed the strongest interest in moving forward.
In October, the NCUA's Office of Inspector General said Ensign's closure was caused by several factors including the credit union's failure to implement appropriate risk management practices by not having a proper allowance for loan loss methodology and letting loan-to-value ratios on home equity lines of credit rise as high as 100%. The agency's OIG acknowledged that NCUA examiners missed opportunities to mitigate losses to the NCUSIF, which it is estimated cost the fund $30 million as a result of Ensign's shutdown.