The credit union has been recognized as a community development financial institution by the U.S. Treasury Department's Community Development Financial Institution Fund and has been designated as a low-income credit union by the NCUA.

In an Aug. 4 letter to the credit union's 1,341 members on its website, Victor Russell, chairman, took pains to rebut what the NCUA said in its liquidation order.

Where the NCUA claimed KAPFCU was minimally capitalized, the credit union claimed that it had steadily improved its capital position to 3.67%. Where the agency complained the CU did not conform to traditional models for cash accrual, the credit union said the NCUA had never really accepted the CU's organizational model.

"NCUA never accepted our virtual format and pressured us to conform. Once we gained outside audit counsel and switched to 'modified cash' accounting, we grew our business 400%. The largest growth of any CU in the country," Russell said.

He also strongly objected to the agency's characterization that it had no reasonable prospects for recapitalization.

"KAPFCU has had plans on the table for months of growing its platform by merger, field of membership expansion to include [historically black colleges and universities], other Greek organizations, partnerships to provide credit card services and more," Russell said.

In its court papers, KAPFCU called the NCUA's Aug. 3 order a "surprise move" and suggested that the agency had overlooked the credit union's actual capital position.

"NCUA knowingly, intentionally attempted to summarily liquidate and revoke the chapter of KAPFCU with total and reckless disregard for the truth," the credit union said in its court filing.

The NCUA has not yet presented any briefs in the case, and the agency's Justice Department lawyer had not at press time returned requests for comment. According to press reports, the NCUA argued in court that the court lacked the authority to stay or stop the liquidation. U.S. District Court Judge Emmet Sullivan also questioned whether he had the authority.

But Judge Sullivan ordered the agency to produce an argument by Aug. 13 on why the court should not stop the liquidation. The order also gave the credit union until Aug. 16 to produce an argument as to why the court does have the authority stop the liquidation. The exchange of briefs will lead up to another hearing on the case scheduled for Aug. 18.

The credit union is working toward a merger with the $129 million Hope Community Credit Union, but the details have not been finalized.

Bill Bynum, CEO of Hope Community confirmed that Hope Community is ready to take on the members and accounts of Kappa Alpha Psi in a merger, so long as the fraternity also becomes a sponsor of his credit union.

"We would want an affinity relationship with the fraternity," Bynum said.

Even if the merger goes forward, it's unclear whether that would necessarily end the complaint. In its court documents, the credit union contended that publishing the liquidation order "is defamatory, casts KAPFCU in a false light, and has caused an erosion of public confidence."

Lawyers for the credit union had not commented further on the case at press time.

Reaction to the case has been muted as different groups have been waiting to see how the case ultimately concludes. Bert Hash, chairman of the African-American Credit Union Coalition, said his organization supports the agency's attempts to guarantee safe and sound financial institutions, but he was disturbed by the loss of a credit union with a field of membership that needs credit union services. "We always hate to see any credit union conserved or liquidated," Hash said.

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