The National Credit Union Administration Should Revise Liquidation Procedures To Reduce the Net Cost of Credit Union Liquidation

GGD-82-26: Published: Feb 19, 1982. Publicly Released: Feb 19, 1982.

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GAO reviewed the conduct of financial institution liquidations by the National Credit Union Administration (NCUA) to assess the economy and efficiency of the agency's program to liquidate failed institutions. GAO examined the following: (1) control over assets, including valuation, marketing, monitoring, and disposition; and (2) appropriateness of expenses incurred.

GAO approved of the recent efforts by NCUA to improve the management of the National Credit Union Administration Share Insurance Fund (NCUSIF). However, more still needs to be done to deal with the problem of reducing the net cost to the fund of liquidating a credit union. GAO estimated that in 1980 NCUSIF recovered from liquidation proceedings only about 60 percent of the outlays it incurred in liquidating credit unions. Net losses for both voluntary and involuntary liquidation activities totalled about $27.6 million in 1980. The implementation of changes already adopted and those recommended in this report should reduce the loss rate from liquidations by as much as 20 to 30 percent. Recent changes have been made to accelerate loan sales, offset shares of member accounts against loans that are delinquent, transfer shares to loans on small accounts, eliminate loan servicing activities at National headquarters, allocate all costs incurred in liquidation to individual cases, and improve cost and expense data collection. NCUA should take additional steps to maximize the value of the loan portfolios of insolvent credit unions. Unclaimed liabilities should not be trusteed, and procedures for unclaimed shares should be simplified. More active NCUA supervision is needed to ensure compliance with policies intended to reduce the net cost of liquidation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Please call 202-512-6100 for additional information.

    Recommendation: The National Credit Union Administration Board should drop its prohibition against the sales of loans to finance companies.

    Agency Affected: National Credit Union Administration

  2. Status: Closed - Implemented

    Comments: Please call 202-512-6100 for additional information.

    Recommendation: The National Credit Union Administration Board should adopt policies to preserve the value of assets before credit unions actually become insolvent.

    Agency Affected: National Credit Union Administration

  3. Status: Closed - Implemented

    Comments: Please call 202-512-6100 for additional information.

    Recommendation: The National Credit Union Administration Board should revise the priority of payments to place the share insurance fund on an equal basis with general creditors, assuming that share accounts can be treated as deposits for insurance purposes.

    Agency Affected: National Credit Union Administration

  4. Status: Closed - Implemented

    Comments: Please call 202-512-6100 for additional information.

    Recommendation: The National Credit Union Administration Board should limit the right for creditors to claim liabilities to the date of charter cancellation.

    Agency Affected: National Credit Union Administration

  5. Status: Closed - Not Implemented

    Comments: Unclaimed shares have been reduced in status to a general creditor; funds are being escheated to the States

    Recommendation: The National Credit Union Administration Board (NCUA) should: (1) give unclaimed share deposits a lower claim on liquidated credit union assets than NCUA Share Income Fund reimbursement; and (2) escheat unclaimed funds to the States after 18 months. For those unclaimed funds already placed in a trustee account, GAO recommends that NCUA dismantle the existing system of trusteed share and liability accounts in a manner consistent with its recommendations for unclaimed shares and liabilities. GAO recognizes the records may not be sufficient to make such an effort cost effective, in which case it is recommended that the funds be escheated to the States.

    Agency Affected: National Credit Union Administration

  6. Status: Closed - Not Implemented

    Comments: Although no formal standard has been adopted, new procedures emphasize selling loans as quickly as possible.

    Recommendation: The National Credit Union Administration Board should reduce the standard for selling loan portfolios to no more than 45 days.

    Agency Affected: National Credit Union Administration

  7. Status: Closed - Implemented

    Comments: Please call 202-512-6100 for additional information.

    Recommendation: The National Credit Union Administration Board should establish a system for monitoring regional office compliance with policies intended to assure that liquidations take place at the least cost to the fund.

    Agency Affected: National Credit Union Administration

  8. Status: Closed - Implemented

    Comments: Please call 202-512-6100 for additional information.

    Recommendation: The National Credit Union Administration Board should keep records on assets, expenses, and net costs of individual liquidated credit unions, periodically summarizing them to monitor performance, identify trends, and pinpoint problems.

    Agency Affected: National Credit Union Administration

 

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