In 2010 NCUA’s regulatory activity reigned unchecked. Even though the economy was on the mend its penchant for shutting down credit unions was unabated. It would ultimately lead to the liquidation of five corporate credit unions in September—the most catastrophic decision in credit union history.
On August 3rd, 2010, six years after founding, Kappa Alpha Psi FCU ($750K, Dallas, Tx) fell under NCUA’s knee having been served a surprise order of liquidation and charter revocation.
In the regulatory environment, one might assume this was just another small credit union falling prey to economic circumstances. But then something happened that no other credit union had dared in this situation. The credit union appealed NCUA’s action, filing a complaint contesting the order on both factual and constitutional grounds.
KAPFCU requested a temporary restraining order against NCUA: “Petitioner fears that before a show cause hearing can be held, the Respondent will complete what has already been threatened, and that is to hastily liquidate assets, expend money, enter or break contracts and disrupt the ongoing operations of the credit union.”
In response, a federal judge in DC granted a temporary injunction and scheduled a hearing on the issue in the time provided for an appeal.
Who is Kappa Alpha Psi (source: KAP web page)
“The Kappa Alpha Psi® college Fraternity, was born in an environment saturated in racism. Indiana became the 19th state of the Union in 1816 and it founded Indiana University in Bloomington four years later. The state of Indiana became a stronghold for the Ku Klux Klan.
In the school years of 1910-11, a small group of Black students attended the University. Most working their way through school. Realizing that they had no part in the social life of the university they decided that a Greek-letter fraternity would do much to fill the missing link in their college existence. . .
It became the first incorporated Black Fraternity in the United States, granted a charter by the Indiana Secretary of State on May 15, 1911.
Kappa Alpha Psi® is the 1st historically black Greek Letter intercollegiate Fraternity incorporated as a national body. The Fraternity has over 125,000 members with 700 undergraduate and alumni chapters in nearly every state of the United States, and international chapters in Nigeria, South Africa, the West Indies, the United Kingdom, Germany, Korea and Japan.
One of the Objectives of the Fraternity is: “To promote the spiritual, social, intellectual and moral welfare of members.” Reliance would be placed upon high Christian ideals and the purpose of ACHIEVEMENT.
The Fraternity seeks to raise the sights of Black youths and stimulate them to accomplishments higher than might otherwise be realized or even imagined.
Local chapters participate in community outreach activities to feed the homeless, provide scholarships to young people matriculating to college, serve as mentors to young men, participate in blood drives and serve as hosts of seminars for public health awareness to name a few.”
The Credit Union’s Brief History
Kappa Alpha Psi FCU, chartered in 2004, was in its sixth full year of operation when NCUA struck. It was classified as a “new” credit union, that is, in operation for less than 10 years and its total assets did not exceed $10 million.
NCUA Regulations provide that ‘new credit unions’ must be ‘adequately capitalized’ or (6%) Net Worth Ratio within 10 years.
NCUA based its liquidation order on the credit union’s net worth ratio, asserting that because the financial institution was minimally capitalized at the end of first quarter 2010 with no reasonable prospect for becoming capitalized, prompt corrective action was warranted.
The credit union notes its first quarter net worth ratio was 1.95%; by the June 30, 2010 second quarter however, the credit union was moderately capitalized with a net worth ratio of 3.67%– a 600% increase since its December 31, 2009 rating.
These numbers, for reasons never explained, were not reflected on the credit union’s second quarter 2010 Call Report posted by NCUA. Who altered Kappa Alpha Psi FCU’s second quarter Call Report to make it appear insolvent? What was the basis for the change? Why was the credit union not contacted?
Read Part II for the outcome tomorrow:
Why Kappa Alpha Psi FCU’s Stance Matters Today