North Dakota CUs Sue NCUA Over Recovered Assets of Midwest Corporate FCU
The federal agency is claiming a technicality prevented the distribution of $10.5 million.
Twenty-five North Dakota credit unions sued the NCUA for allegedly failing to pay them millions in recovered assets of Midwest Corporate Federal Credit Union, which was dissolved in 2011 following the financial crisis.
The civil lawsuit, filed in U.S. District Court in Kansas City, Kan., on April 10, claimed that when Midwest Corporate was dissolved, its remaining assets became the property of the credit unions, and that the NCUA wrongfully denied payment of their share of those assets.
A spokesperson for the NCUA said the federal agency does not comment on pending litigation.
Over the last two years, however, the Dakotas Credit Union Association has repeatedly attempted to resolve this dispute with the NCUA. In letters to the DCUA, filed as exhibits with the lawsuit, the federal agency refused to pay the credit unions because of a technicality. The NCUA said because Midwest Corporate no longer existed, Midwest Corporate and its credit union members were not eligible to receive a distribution of the funds.
Last August, the NCUA announced a $313 million distribution to more than 400 members and paid in capital shareholders of former corporate credit unions including United, Constitution and U.S. Central, which served Midwest Corporate.
Jeff Olson, president/CEO of the Dakota Credit Union Association, blasted the NCUA for failing to pay the North Dakota credit unions $10.5 million in recovered assets of Midwest Corporate.
“North Dakota credit unions are being disregarded as the NCUA distributes recovered capital shares to credit unions across the country,” Olson said. “In all, Dakota credit unions, and ultimately their members, are being deprived of more than $10 million as the NCUA cites a ‘technicality’ that precludes North Dakota from the settlement.”
Prior to the financial collapse in 2008–2009, U.S. Central Federal Credit Union was the largest corporate credit union in the U.S. providing services to other corporate credit unions, including Midwest Corporate Federal Credit Union. Because of massive investment losses incurred by U.S. Central, the NCUA implemented the Corporate Stabilization Program and placed U.S. Central into conservatorship in 2009. By October 2010, the NCUA closed U.S. Central and placed it into liquidation. The federal agency appointed itself the liquidating agent.
Although the U.S. Central Membership Capital Account (MCA) balances were depleted because of the losses, the NCUA issued claim receipts to MCA holders, which included Midwest Corporate and its capital members, the North Dakota credit unions. The receipts were issued in the event any assets would be left over after all of the liabilities were satisfied from the U.S. Central liquidation.
The NCUA-issued claim receipts for member contributed capital for Midwest Corporate showed a paid-in capital (PIC) and MCA balances of $3.3 million and $10,448,323, respectively, as of Nov. 30, 2008. In March 2011, the board of directors of Midwest Corporate voted to voluntarily liquidate Midwest Corporate and its charter was cancelled by the NCUA in October.
In April 2021, the NCUA authorized 100% reimbursement of MCA and 3% of PIC in the U.S. Central liquidation.
Although the North Dakota credit unions were entitled to payment of the entire MCA balance of $10,448,323 and payment of $99,000 on the PIC balance based on the claims receipt, the NCUA sent the North Dakota credit unions letters advising them the federal agency would not distribute the funds due under the claims receipt, according to the lawsuit.
In its letter, the NCUA said there were sufficient funds available in the U.S. Central Asset Management Estate to make an interim distribution to its former capital account holders.
“Since Midwest Corporate liquidated in 2011, however, and the three-year provision to conclude the affairs of the liquidated credit union ended in 2014, Midwest Corporate is ineligible to receive a distribution,” the NCUA wrote. “Because Midwest Corporate no longer exists, there will be no distribution from the U.S. Central Asset Management Estate to Midwest Corporate, and therefore, no ensuing distribution from the Midwest Corporate estate to your institution.”
In other words, the NCUA argued that since there is no legal entity to which to pay any claim, the former credit union members of Midwest Corporate also lacked the legal authority to make a claim because Midwest Corporate ceased to exist as a legal entity in October 2014.
The lawsuit is seeking a “judicial determination” that the remaining Midwest Corporate assets of $10.5 million be paid to the North Dakota credit unions.