A former credit union now turned bank may find out that it didn’t clear itself from all of its CU relationships in time to avoid losing significant money.According to court documents filed first in Rhode Island Superior Court and then transferred to the U.S. District Court for Rhode Island, Coastway Community Bank, headquartered in Cranston, R.I., alleged that when it was Coastway Credit Union it had $1 million deposited with Members United Corporate Federal Credit Union in a membership capital share account.At the time, Coastway’s corporate credit union was Empire Corporate Federal Credit Union, which subsequently merged with Mid-States Corporate Federal Credit Union to form Members United.The bank complained that under the capital share deposit agreement it signed with Empire and that was subsequently transferred to Members United, it was to have been able to withdraw the money from the account with three-years notice and that it notified the corporate of its intent to withdraw the funds in September 2006. Coastway further complained that the corporate acknowledged in October 2006 that the money would be available in September 2009. But on the date agreed, the bank says only $420,000 was available in the transaction account and that the corporate has not made the balance available.Phone calls to law firms representing both institutions were not returned as of press time, and Members United Corporate has declined comment, citing its policy of not commenting on litigation.But sources familiar with the case suggested that the bank may have been lucky to have gotten what it did. Under the NCUA’s Letter to Credit Unions 09-CU-10 that addressed paid in capital accounts and membership capital accounts, it appears that the bank has no claim for money lost by Members United from its membership capital account.“Once a corporate’s retained earnings are exhausted, recognition of further losses creates a retained earnings deficit,” the letter said. From that point forward, the “losses that exceed retained earnings” trigger the regulatory mandate to apply PIC to “cover losses” represented by the retained earnings deficit on a dollar-for-dollar basis. Once PIC is exhausted, further “losses that will exceed retained earnings and PIC” trigger the regulatory mandate to apply MCA to “cover losses.” When that occurs, the impact flows down to the members of the corporate that must each evaluate their PIC and MCA investments for impairment and apply the lost value against their own retained earnings.The court has ordered Members United to deliver a response to Coastways’s complaint by Oct. 30. –[email protected]

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