Banking Department Issues Consent Order to Cease and Desist
to Niagara Falls Penn Central Employees Credit Union
State of New York Banking Department
In the Matter of
WHEREAS, Niagara Falls Penn Central Employees Credit Union (“Credit Union”) located in, Niagara Falls, New York, is a credit union organized and existing under the Banking Law of the State of New York (the "Banking Law"), and is subject to the rules and regulations issued thereunder, as well as those of the National Credit Union Administration (“NCUA”); and
WHEREAS, the Superintendent of Banks of the State of New York (the "Superintendent") has supervisory and regulatory jurisdiction over the Credit Union; and
WHEREAS, Raymond Gruarin, Sr., James Rocatto, John Ricker, William DeGain, Paul Torrey, Michael Orsi, Stephen Urbanski, David Kellner, and Stephen Turner are members of the Board of Directors of the Credit Union (“Board”); and
WHEREAS, Kathleen Murphy, Joseph Skubis, and Ian Ricker are members of the Supervisory Committee of the Credit Union ("Committee"); and
WHEREAS, the New York State Banking Department (the "NYSBD") examined the Credit Union as of the close of business September 30, 2006 (the "Examination"); and
WHEREAS, the findings of the Examination established that the Credit Union is, and has been, conducting business in an unauthorized and unsafe and unsound manner, and identified certain supervisory concerns relating to the conduct of its business, including but not limited to the following areas:
- Loan underwriting and administration;
- Allowances for Loan and Lease Losses (“ALLL”);
- Internal controls with respect to call reporting;
- Asset/liability management (“ALM”); and
- Deficiencies relating to compliance with the applicable federal and state laws, rules and regulations relating to anti-money laundering (“AML”) policies and procedures, including the Bank Secrecy Act (31 U.S.C. § 5311 et. seq.); the rules and regulations issued thereunder by the U.S. Department of the Treasury (31 C.F.R. Part 103); NCUA regulation 12 C.F.R. § 748.2 (collectively, the “BSA”); and those of the NYSBD (3 N.Y.C.R.R. Part 300);
WHEREAS, the Superintendent has determined that the Credit Union has failed to establish the controls, policies and procedures necessary to ensure that it operates in a safe, prudent and lawful manner; and
WHEREAS, the Superintendent possesses the authority under Section 39 of the Banking Law to issue an order to the Credit Union to discontinue unlawful, unauthorized or unsafe practices; and
WHEREAS, the Superintendent believes that prompt enforcement action is necessary to address the numerous supervisory concerns cited herein; and;
WHEREAS, on June 13, 2007, at a duly constituted meeting, the Board adopted resolutions:
- Authorizing and directing John Ricker to enter into this Order on behalf of the Credit Union and consenting to compliance by the Credit Union with each and every provision of this Order; and
- Waiving any and all rights that the Credit Union might have pursuant to Banking Law § 39 with respect to:
- the issuance of a notice of charges and of hearing on any matter set forth in this Order;
- a hearing for the purpose of taking evidence on any matters set forth in this Order;
- judicial review of this Order; and
- challenging or contesting, in any manner, the basis, issuance, validity, terms, effectiveness or enforceability of this Order or any provision thereof.
NOW, THEREFORE, before the taking of any testimony or the making of any findings of fact or conclusions of law, and without this Order constituting an admission or denial of any allegation made or implied by the Banking Department in connection with this proceeding, and solely for the purpose of settlement of this proceeding without a protracted or extended hearing, and pursuant to the aforesaid resolutions,
IT IS HEREBY ORDERED, PURSUANT TO BANKING LAW § 39:
LOAN UNDERWRITING AND ADMINISTRATION
- Within 90 days from the effective date of this Order, the Board and Supervisory Committee will develop procedures and controls to ensure that deficiencies in underwriting and loan administration in the following areas are corrected as follows:
- Loan Policies – the Credit Union’s policies and procedures with respect to approval authority, lending limits, loan to value and debt to income ratio shall be observed and enforced;
- Insider Loans – loans to insiders shall not be disbursed unless and until they have been approved by the Board in accordance with applicable laws and regulations;
- Truth In Lending - controls to ensure that all disclosures required by the Truth in Lending Act are clearly and conspicuously noted on loan agreements prior to presentment to borrowers or guarantors for signature;
- Loan Documentation – a loan documentation checklist shall be developed for each type of loan made by the Credit Union to aid in assuring that all required documentation is completed and included in the loan file. The Committee shall conduct a post-closing quality control review of the loan files to verify that they contain the required documentation, and that they were closed in accordance with the loan policies and procedures. Loan files pertaining to loans for which exceptions to established policies and procedures were made should contain evidence that that they were approved by the Board prior to disbursement;
- Home Improvement Loans - the practice of granting 10 year term unsecured home improvement loans should be discontinued; unsecured loans for home improvement shall be limited to a five-year term and must include a contractor‘s estimate and a detailed description of the work to be performed, in accordance with the Credit Union’s loan policies and procedures;
- Collection Efforts On Delinquent Loans – the Credit Union’s guidelines, policies and procedures concerning contacts with delinquent borrowers in a timely manner by phone and subsequently by mail shall be observed. All such contacts shall be documented in the relevant loan files in accordance with the Credit Union’s policy. Where follow-up action does not result in a satisfactory resolution, the Credit Union should consider contracting with a collection agency.
- Loan Charge-offs – the Board will develop a process to ensure that seriously delinquent loans are charged-off in a timely manner in accordance with the Credit Union’s charge-off policy.
ALLOWANCE FOR LOAN AND LEASE LOSS POLICY
- Within 90 days from the receipt of this Order, the Board will develop and approve a written methodology, policies and procedures regarding the allowance for loan and lease losses (ALLL) that complies with NCUA Interpretative Ruling and Policy Statement 02-3 and generally accepted accounting principles. The calculation of the required ALLL balance, based on the approved methodology, should be presented to the Board and adjusted at least quarterly. The Credit Union’s methodology and calculation must be validated at least annually by a party not involved in the ALLL process.
INTERNAL CONTROLS OVER CALL REPORTING
- The credit union must improve its internal controls over call reporting to ensure that that the Credit Union’s financial position is correctly reported on the quarterly call report to NCUA. The two most recent examinations disclosed significant errors in the amounts reported and the classification of items on the call reports, resulting in distortion of the credit union’s financial position. Within 90 days from the effective date of this Order, the Board is directed to provide training to relevant Credit Union staff in call report preparation, and, if necessary in this regard, seek the services of a qualified outside consultant. In addition, the Board shall enroll the Credit Union in NCUA’s Small Credit Union Program (SCUP).
- Within 90 days from the receipt of this Order, the Board shall establish and provide training to an asset/liability committee that shall, in turn, provide training to management to enhance management’s knowledge of ALM strategies and provide direction to the ALM process.
SUPERVISORY COMMITTEE AUDITS
- Within 90 days from the receipt of this Order, the Supervisory Committee shall:
- Develop an audit plan and frequency schedule for quarterly reviews and tests of the Credit Union’s functions, accounts and internal controls. The items and activities subject to periodic review should include, but not be limited to, bank reconciliations, general ledger accounts, closed accounts, inactive accounts, loan files, file maintenance reports, BSA compliance, compliance with the regulations of the U.S. Department of the Treasury’s Office of Foreign Assets Control regulations (31 C.F.R. Part 500 et seq.), confirmation of investments, and verification that examination and audit exceptions have been satisfactorily resolved.
- Ensure that an annual supervisory committee audit is conducted in a timely manner, and that the written report is delivered to the Committee within 120 days of the end of the fiscal or calendar year audited, as required by NCUA regulation 715.9. The Committee shall resolve any exceptions noted in the audit report, and make any required adjustments to the Credit Union’s financial statements within 60 days of the receipt of the report.
- Maintain minutes of Committee meetings.
- Bank Secrecy Act/Anti-Money Laundering (BSA/AML)—within 90 days from the effective date of this Order, the Board shall conduct, or arrange for a third party to conduct, independent testing of the Credit Union’s compliance with the BSA, as required by 12 C.F.R. § 748.2(c) (2). The findings of such testing shall be set forth in a written report addressed to the Board or Committee, and shall attest to the effectiveness of internal procedures for monitoring compliance with the BSA, and comment on the adequacy of employee training and employee knowledge with respect to BSA matters. Going forward, all training shall be documented.
- Abandoned Property Report –the Credit Union manager shall ensure that the 2007 Report of Abandoned Property is filed in a timely manner with the State Comptroller’s Office of Unclaimed Funds.
- All communications regarding this Order shall be sent to:
Mr. Manuel Kursky
Deputy Superintendent of Banks
New York State Banking Department
One State Street
New York, New York 10004
- No provision of this Order shall bar, estop or otherwise prevent or preclude the Banking Department, or any federal or state agency or department from taking any additional action affecting the Credit Union or any of its officers, directors or employees.
- This Order shall become effective immediately upon the execution of the last signature required below.
By Order of the Superintendent this 15th day of June, 2007.
Niagara Falls Penn Central Employees Credit Union
printed: John Ricker Secretary of Board
Print Name and Title
Deputy Superintendent of Banks
New York State Banking Department