Credit Unions Violate TARP Reporting Requirements
Six credit unions that received TARP funds under the Community Development Capital Initiative have never told the Treasury Department how the taxpayer money was used.
“Treasury has an important source of information about the financial stability of CDCI institutions in the TARP requirement that these institutions respond annually to a Treasury survey on the use of TARP funds,” said TARP’s special inspector general in an April 30 quarterly report to Congress.
“However, many CDCI institutions have not complied with this requirement, refusing to provide transparency. Treasury has not enforced the disclosure, thereby losing an important tool to gain information on the CDCI institutions,” the report continued.
The CDCI program originally included 36 small banks and 48 credit unions. According to the SIGTARP report, there are currently 69 banks and credit unions remaining in the program as of March 31, 2014, which will likely continue until at least 2018.
The six credit unions named in the report include the $50 million D.C. Federal Credit Union of Washington, which received $1.5 million; the $1 million Faith Based Federal Credit Union of Oceanside, Calif., which received $30,000; the $11 million Greater Kinston Credit Union of Kinston, N.C., which received $350,000; the $9 million Neighborhood Trust Federal Credit Union of New York, which received $280,000; the $5.6 million Union Settlement Federal Credit Union of New York, which received $295,000; and, the $1 million UNITEHERE Federal Credit Union of New York, which received $57,000.
UNITEHERE FCU merged into the $829 million USAlliance Federal Credit Union in Rye, N.Y., in May 2013.
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None of the credit unions listed in the report were immediately available for comment.
The U.S. Treasury rejected a quarterly reporting requirement recommended by SIGTARP, but did include a rule in CDCI contracts that the recipient must annually report on the use of their TARP funds, the effects of TARP capital on their operations and the status of the TARP recipient.
As a result, SIGTARP said the six credit unions violated their contractual obligation.
“Although the program itself is much smaller than CPP and the participating institutions are small, they play a vital role in serving low-income communities not traditionally served by larger institutions,” the report said.
“Treasury needs to conduct adequate oversight over these institutions to ensure that the purpose of the program, to increase small business lending in hard hit communities, is met, and to work with CDCI institutions and their regulators to ensure that eventually they will be able to stand on their own, financially stable, without taxpayer assistance,” it also said.
Banks and credit unions in CDCI continue to face challenges that could impact their financial stability, lending to small businesses in their communities, and repayment of TARP.
“Credit unions have experienced a rise in non-performing loans, which impacts their balance sheet and capital. Eight of the remaining CDCI institutions have current enforcement actions by their Federal banking regulator,” the report said.
“Moreover, many of the CDCI institutions are in economically hard-hit areas around the country that are still struggling to recover from the crisis.”
Due to these challenges, SIGTARP recommended that Treasury keep a watchful eye on taxpayer investments in CDCI institutions. However, Treasury’s ability to judge whether the goals of the program are being met has been hindered by banks and credit unions not reporting on their use of TARP funds.
“Never in the history of the CDCI program have all 84 CDCI banks and credit unions complied with the contractual requirement to report annually to Treasury on their use of funds,” said the report. “Treasury, in other words, has never had a 100% response rate, even though SIGTARP was able to obtain a 100% response rate from 360 CPP institutions in 2009. Moreover eight banks and credit unions in CDCI have never told Treasury how they used TARP funds, despite being required to do so in the contract they signed to get the TARP money.”