NCUA Settles with ND Credit Unions in US Central Assets
North Dakota credit unions will receive more than $11,900,000 in recovered assets that had previously been denied by the National Credit Union Administration (NCUA). The federal agency has agreed to settle the dispute following the judge’s denial to dismiss the lawsuit filed by the credit unions early in 2023 in US District Court in Kansas. NCUA plans to return the assets by January 18, 2024.
Over the past two years, the Dakota Credit Union Association has led the effort and assisted their North Dakota members in repeated attempts to recover the funds that were withheld following the financial collapse that began in 2008. The civil lawsuit was filed in April of 2023 by 25 North Dakota credit unions following repeated appeals to NCUA to return the recovered assets to the rightful owners.
When U.S. Central membership capital account (MCA) balances were depleted, 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 from October 5, 2010.
The lawsuit maintained 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 judge agreed.
On October 10, 2023, Judge Melgren, Chief Judge of the US District Court in Kansas, issued an order denying the NCUA motion to dismiss North Dakota credit unions’ lawsuit over the Midwest Corporate claims certificate and amounts owed by U.S. Central. Following the decision, NCUA agreed to settle, in effect returning $11.9 million to the credit unions.
In his memorandum and order, Judge Melgran shared the court’s position, writing, “simple logic and hornbook property law support construing the FCUA as including automatic transfer of assets. 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.”
When the NCUA began reimbursing recovered U.S. Central assets to credit unions in 2021, they sent letters to North Dakota credit unions indicating that because Midwest Corporate no longer existed, Midwest Corporate and its credit union members were not eligible to receive a distribution of the funds.
“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,” stated Jeff Olson, president/CEO of Dakota Credit Union Association. “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.”
Olson continued, “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.”
Background: Prior to the financial collapse in 2008-2009, U.S. Central Federal Credit Union was the largest corporate credit union in the country which provided services specifically to corporate credit unions, including Midwest Corporate Federal Credit Union, which was headquartered in Bismarck, ND. Due to massive investment losses, the NCUA placed U.S. Central into conservatorship and implemented the Corporate Stabilization Program in 2009. The NCUA then closed U.S. Central and placed it into liquidation in October 2010.