The failure last year of Nevada's $98 million Ensign Federal Credit Union and a defaulted $1.5 million loan apparently made to non-members and at the center of a lawsuit filed last month is firing up bankers' tax exemption talk.
The latest barrage comes from one of the American Bankers Association's chief front men, Keith Leggett, vice president/senior economist, who in his "Credit Union Watch" blog complains about Ensign making real estate loans to a group of three non-member borrowers via a broker. Leggett, a frequent CU critic, based his claims on media reports about the Sept. 30 lawsuit filed in a Las Vegas federal court in which NCUA is plaintiff to recover loan payment guarantees.
The NCUA made no comment on the Leggett blast or on the suit filed by a Las Vegas firm, Hutchison & Steffen. "Whenever a credit union failure occurs, we evaluate all outstanding obligations and make a determination as to whether to take legal action," the agency said.
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In this case involving now vacant property in downtown Las Vegas, the decision to file suit "is based on the specific facts and circumstances in each case; there is no blanket policy on NCUA's part," said John McKechnie, director of congressional and public affairs.
An article in the Las Vegas Review Journal over the weekend told of how the borrowers, led by Isaac Norman, a Los Angeles investor, had been led to a broker to borrow the $1.4 million for an office building, which fell victim to the city's real estate meltdown.
The article focused primarily on the problems borrowers with both banks and CUs have in dealing with NCUA and the FDIC in trying to reach settlements with Norman, charging the NCUA with "lending a deaf ear" instead of talking to the group. The FDIC has forecast more borrower suits would be forthcoming in light of the continuing spate of bank failures.
"How did these partners qualify to get a $1.4 million loan from Ensign FCU? Moreover, this is not the first instance of loans going to people who were not credit union members," Leggett of ABA said in his blog. "NCUA has noted that loans went to people who were nonmembers of Norlarco CU and Huron River Area CU and that both credit unions subsequently failed," he charged.
"If this is an emerging pattern of credit unions flaunting their membership requirements, then this is very troubling and requires a closer examination of their preferential tax treatment," Leggett concluded.
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