Six Credit Unions Violate TARP Reporting Rules
Six credit unions that received Troubled Asset Relief Program funds under the Community Development Capital Initiative never told the Treasury Department how the taxpayer money was used, according to TARP's special inspector general.
However, one of the credit unions – a $9 million institution in New York – explained its use of the TARP funds to CU Times.
“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,” the Special Inspector General TARP – or SIGTARP – said 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, losing an important tool to gain information,” 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. The program will likely continue until at least 2018.
The six credit unions named in the report were 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.
CU Times reached out to each credit union for comment.
“All TARP money had been paid back before the merger with USAlliance. As a result, USAlliance has no knowledge or experience with the situation,” said Joann Kay, assistant vice president of marketing and communications.
Rafael Monge-Portaro, president of Neighborhood Trust, said his credit union is proud of its record.
“Since the CDCI loan to NTFCU in early 2010, NTFCU has been able to substantially increase its lending to its target low-income community,” he said.
“Between December 2010 and December 2013, NTFCU has increased its lending from $3.1 million to $5.7 million (83%) and increased its loans/shares from 50% to 86%, well exceeding its peer average,” Monge-Portaro added.
He said the Treasury's CDCI secondary capital was instrumental in these accomplishments.
“This track record and more detailed reporting that we have provided to Treasury has enabled NTFCU to be re-certified as recently as earlier in 2014 as a Community Development Financial Institution based on our track record of serving our predominately very low-income community,” Monge-Portaro said.
“Like other credit unions, our quarterly call report to the NCUA is available to the public, providing transparency not only to the Treasury, but to all,” he added.
None of the other credit unions listed in the report returned requests for comment.
The U.S. Treasury initially rejected a quarterly reporting requirement recommended by SIGTARP, but did include a rule in CDCI contracts that recipients 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.
The report said CDCI banks and credit unions continue to face challenges that could impact their financial stability, lending to small businesses in their communities, and repayment to 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, the 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, the report said.
“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,” the report said. “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.”