The Alabama Credit Union Administration told an Alabama court that a recent cease and desist order to the $613 million Alabama One Credit Union in Tuscaloosa represents the credit union's last chance to avoid conservatorship.
In a brief that alternated between blistering and incredulous, the ACUA's lawyers tore into Alabama One's arguments and presented evidence that the cease and desist order resulted from the credit union's repeated failure to comply with previous administrative remedies.
"A parsing of non-related sections of the Alabama Code to advance the position that a cease and desist order may not require a credit union to do something in response to the stated violations is preposterous," the ACUA declared in its argument.
"If Alabama One's position is to be accepted, then the credit union is essentially arguing that the proper administrative action for the Administrator and ACUA to have undertaken was to place Alabama One into conservatorship, take possession and control of its business and its assets and rectify Alabama One's failures directly," the administration continued.
"The Administrator and ACUA have not placed Alabama One into conservatorship, although its documented concerns for the interests of Alabama One's members would allow it to do so under Alabama code … instead, by issuing the order, the Administrator and the ACUA have given the Board of Directors of Alabama One a 'final chance' to achieve compliance with the directives of its state and federal regulators without seizing control of the institution."
The ACUA's lawyers pressed the agency's points in an emergency hearing before the Alabama Circuit Court of Tuscaloosa Judge John England that ran late on April 30 and was held over into May 1, according to legal observers in the courtroom.
The ACUA also brought documents to back up its positions, including prior Letters of Understanding and Agreement and Documents of Resolution with which, the agency said, Alabama One had failed to comply. Specifically, the agency challenged the credit union's declarations about its financial strength.
The agency noted that Alabama One reported a net loss of $1.115 million as of March 31, compared to a positive income of $1.141 million in the first quarter of 2014. That represented a downswing of roughly $2.258 million over the course of one year, the ACUA pointed out.
Alabama One has also seen its net worth slide during the year, taking a net loss of $7.8 million in 2014, the agency noted.
"The fact that Alabama One possesses assets in excess of $600,000,000.00 is not an indication of its 'strength,' only of its size," the ACUA wrote. "An increase in deposits in 2015 is not an indication of increased financial soundness; in financial institution accounts, deposits are liabilities, not assets."
The agency recounted the credit union's previous failures to comply with other administrative orders and entered into evidence the confidential addendum to the cease and desist order that documents the agency's history of trying to get the credit union to comply.
For example, one DOR held that by Nov. 30, 2014, "the board of directors [of Alabama One] will take responsibility and hold the parties responsible that allowed the [loan concentrations] then failed to be worked out in the best interests of Alabama One Credit Union members."
However, the agency reported that as of December 2014, "the officials have not complied with the requirements of the DOR. The officials have not assigned accountability or held anyone in senior management accountable for the credit concentrations and millions in losses."
Read more: Alabama One answers back ….
For its part, Alabama One argued that the court should stay the cease and desist order because the agency has closed any avenue for meaningful appeal. For example, the credit union noted that the ACUA has set June 9 as the date it will hear the Alabama One appeal, but argued that many of the order's actions would have to be completed before that date, making the appeal moot.
Alabama One also noted that it had asked the ACUA to stay the order and clarify it, but that both motions were denied.
"Alabama One has already begun to try to abide by many portions of the cease and desist order, and it has spent outrageous amounts of time, energy, and money seeking to comply with the previous redundant directives of the defendants," the credit union wrote. "Without a stay and clarification of the cease and desist order, it will effectively have no appellate rights and have no ability to comply (or even know whether it has complied) with much of the order."
Alabama One also pointed to a previous case, Doolittle vs. NCUA, where a credit union president had become aware of an unauthorized loan to a member, took steps to correct it, but did not notify the credit union's board or the NCUA about the loan until it had defaulted later.
"Despite the failure to notify the board or the NCUA, the court concluded that taking corrective actions to minimize the risk of loss on improvident loans is not conduct contrary to accepted standards of banking operations which might result in an abnormal risk to a banking institution," Alabama One wrote.
The credit union also said that it has acted to correct many of the faults cited in the order. For example, the credit union argued the charge that it had not hired a chief lending officer was unfair, because the credit union had hired one, but the ACUA had not approved his employment in time. In another example, Alabama One argued the charge that it had not conducted performance reviews for any of its senior staff was incorrect, given the fact that the credit had conducted such reviews, even though only one, of the CEO, had been required under the LUA.
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