Kappa Alpha Psi Credit Union Blocks NCUA Liquidation

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The nation’s first online-only credit union is fighting regulators who say it must close — and blaming them for its financial woes.

On Tuesday a federal court will hear a plea by Kappa Alpha Psi Federal Credit Union to block an Aug. 3 liquidation order by the National Credit Union Administration.

The Texas credit union, chartered in 2004 by the nationwide African-American college fraternity, claims that NCUA actions, including the ongoing corporate bailout assessments, pushed it to the brink of insolvency, wiping out a mere $27,525 of midyear net worth it had accrued as of June 30. The money would have amounted to a 3.67% net worth ratio on $750,000 of assets at midyear. NCUA records, changed in the days after the liquidation order, show the credit union with negative net worth of $22,496.

“I don’t know where it went,” Kenneth Bynum, a Virginia lawyer representing Kappa Alpha Psi Federal Credit Union, told the Credit Union Journal this morning, questioning the NCUA’s sudden adjustment of the net worth.

Representatives of the credit union met with NCUA officials just days before the liquidation order, Bynum said, and the NCUA had not been showing the credit union’s net worth as negative at that time. “That came after the hearing,” he said.

The institution, officially based in Henderson, Texas, but in actuality the nation’s first virtual credit union, also claims that the NCUA refused its request for a technical assistance grant through its Community Development Revolving Loan Fund as well as its request for a $100,000 grant through the Treasury Department’s Troubled Asset Relief Program—either of which would have created enough net worth to put it on track for the 10-year period allotted new credit union charters to become adequately capitalized.

In its court pleadings, Kappa Alpha Psi FCU asserts that its own calculation of 3.67% net worth at midyear would have qualified it as moderately capitalized under NCUA’s minimum capital rules, known as prompt corrective action, and put it well on track to achieving acceptable capitalization with the allotted 10-year period after chartering.

The credit union “fears that before a show cause hearing can be held, (NCUA) 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,” it said in its request for a temporary restraining order.

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