Iowa & N.D. CUs to Get $15 Million From Assets of Dissolved Corporate CUs

After years of wrangling and recent legal fights with the NCUA, more than 80 credit unions in Iowa and North Dakota will finally be paid more than $15 million in recovered assets from federal corporate credit unions that were dissolved following the 2007-2008 financial crisis.

In a statement released Thursday, the Dakota Credit Union Association said the NCUA agreed to settle the dispute after a judge denied the federal agency’s motion to dismiss the lawsuit filed by North Dakota credit unions in April 2023 in U.S. District Court in Kansas. By Jan. 18, the NCUA plans to return $11,996,023 that will be paid to the 25 North Dakota credit unions that invested in Midwest Corporate Federal Credit Union.

In addition, the NCUA also agreed to settle a lawsuit filed in June 2023 by more than 60 Iowa credit unions who invested in the nation’s largest corporate credit union, U.S. Central Federal Credit Union. The federal agency has agreed to pay $3,729,215 to Iowa credit unions, according to the Iowa Credit Union League.

The settlement agreements were not publicly disclosed.

Before filing its lawsuit against the NCUA, the Dakota Credit Union Association led efforts for more than two years to assist their North Dakota members in repeated attempts to recover their invested funds that were withheld following the financial collapse.

When U.S. Central membership capital account (MCA) balances were depleted, the NCUA appointed itself the liquidating agent and issued claim receipts to MCA holders, including Midwest Corporate Federal Credit Union (Midwest Corporate) and its capital members, which were North Dakota credit unions. The former owners of Midwest Corporate possessed a claims certificate issued by the NCUA on Oct. 5, 2010.

The lawsuit argued that when Midwest Corporate was dissolved in 2011, its remaining assets became the property of the credit unions, and that the NCUA wrongfully denied payment of their share of those assets. The federal agency, however, said in letters to North Dakota credit unions that since Midwest Corporate was liquidated in 2011, and the three-year provision to conclude its affairs ended in 2014, Midwest Corporate was ineligible to receive a distribution of the remaining assets, which meant the credit unions would not receive payments.

The federal agency filed a motion to dismiss the lawsuit, but U.S. District Chief Judge Eric F. Melgren denied it last October.

In his memorandum and order, Judge Melgran wrote, “In general, assets do not simply evaporate when the owner is unable to collect; rather the property must go somewhere. Consequently, a credit union’s assets likewise do not cease to exist come the last day of wind-up. Instead, the most logical conclusion is that the assets vest in the credit union’s shareholders.”

“The Judge’s clear and concise statement of the court’s position was almost word for word the argument North Dakota credit unions made to the NCUA on day one,” Dakota Credit Union Association President/CEO Jeff Olson said. “Further, the court held as a matter of law the claim receipt vested in the individual credit union members upon dissolution. We were very critical of the NCUA throughout the process, as we maintained that the agency was not properly recognizing our North Dakota members as the rightful owners of the recovered U.S. Central assets. Based on the claims receipt, we firmly believed that our North Dakota credit unions were entitled to the entire MCA balance and an equal percentage of the paid-in capital payments that have been reimbursed to other credit unions. We are extremely pleased with the decision to settle, and I enthusiastically applaud the NCUA for doing the right thing.”

Although the NCUA also filed a motion to dismiss the Iowa lawsuit last August, Judge Melgren did not issue a ruling to dismiss or grant the federal agency’s motion.

The Iowa credit unions were capital members of Iowa Corporate Central Credit Union. U.S. Central provided services to ICCCU.

Although the NCUA previously informed ICCCU that it had a claim for which no further action was required, the federal agency later 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 federal agency then advised that the former capital members of ICCCU could file individual claims, but the NCUA disallowed those claims as well.

Iowa credit unions argued the NCUA wrongfully denied these payments because when the ICCCU ceased to exist the remaining assets became the property of the member credit unions.

“The Iowa Credit Union League is very pleased Iowa credit unions and the NCUA reached a mutually satisfactory resolution of the matter, and the former members of Iowa Corporate Central Credit Union will be treated in the same manner as all other former members of US Central Corporate Credit Union,” Iowa Credit Union League President/CEO Murray Williams said.

The NCUA declined to comment.