63 Iowa Credit Unions Sue NCUA for $4.2 Million in Corporates’ Recovered Assets

Sixty-three of Iowa’s 75 credit unions are suing the NCUA for $4.2 million in recovered assets following the liquidation of the nation’s largest corporate credit union, U.S. Central FCU, in 2010.

Also named as plaintiffs in the federal lawsuit filed last Friday in U.S. District Court in Kansas City, Kan., are the Iowa Credit Union League, its foundation, political action committee, and an employee benefits company. The $1.3 billion Cobalt Credit Union in Papillion, Neb., and the $1 billion Marine Credit Union in La Crosse, Wis., are also listed as plaintiffs.

These credit union organizations were capital members of Iowa Corporate Central Credit Union. U.S. Central provided services to ICCCU.

After posting heavy investment losses during the financial crisis in 2009, the NCUA conserved U.S. Central and liquidated it a year later. The federal agency appointed itself as the liquidating agent.

After the U.S. Central Membership Capital Account (“MCA”) balances were depleted because of the losses, the NCUA issued claim receipts to members with MCA and Paid-in Capital (“PIC”) accounts. ICCCU, as an MCA holder and PIC account holder of U.S. Central, received a claim receipt in 2010. ICCCU was dissolved in 2013.

Years later, the NCUA determined there were sufficient funds available to make an interim distribution to account holders of U.S. Central. However, even though the NCUA previously informed ICCCU that it had a claim for which no further action was required, the federal agency advised the former capital members of ICCCU that the corporate credit union was ineligible to receive a distribution because ICCCU no longer existed, according to the lawsuit.

The NCUA then advised that the former capital members of ICCCU could file individual claims. Even though individual claims seeking their pro rata share of ICCCU’s claim receipt payments, the federal agency disallowed these claims as well, the lawsuit showed.

The lawsuit alleges NCUA wrongfully denied payment of ICCCU’s claim receipt and wrongfully denied the credit unions’ and other organizations’ individual claims because when the ICCCU ceased to exist the remaining assets became the property of the member credit unions and other organizations.

The NCUA does not comment on pending legislation, and it has not yet responded to the lawsuit.

A similar legal action was taken by 25 North Dakota credit unions that alleged the NCUA failed to pay them millions in recovered assets of Midwest Corporate Federal Credit Union, which was dissolved in 2011.

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.

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.

READ MORE: The full civil lawsuit filed by Iowa credit unions.