ARNSTEIN – A meeting slated for tonight will give members of the Arnstein Credit Union a chance to learn what options are in store for the credit union.
The special meeting is scheduled to begin at 6:30 p.m. at the Royal Canadian Legion in Port Loring.
Bill Foster is the vice-president of Asset Management and Recoveries at Deposit Insurance Corporation of Ontario (DICO), the division responsible for loss management dealing with credit unions where there is impending failure or the credit union has already failed. By failure, Foster says he means insufficient assets to pay liabilities or insufficient assets to meet regulatory capital requirements.
The Arnstein Credit Union has been under DICO administration since March of this year.
Foster says the bottom line is that, as a result of a thorough review of the assets to the credit union and a review by the credit union’s new external auditor hired by the credit union.
“That was because the previous auditor said he could not finalize an audit for the credit union,” he said.
Foster says they have been concerned about the credit union for some time because they had problems in identifying the quality of their loans based on payment records for delinquencies.
“Their computer system was unable to track delinquencies so they really didn’t know whether members were paying their loans as they said they would,” he said. “Once that was corrected with a new computer system and a change in auditors it was determined that there were problems with the loan payments and with the likely recoverable values of some of the loans.”
Foster says due to member confidentiality he cannot divulge amounts.
“There are insufficient assets to repay all depositors, that’s why we are there,” he said.
Foster says Price has threatened injunctions, claiming that DICO is about to close the credit union and is trying to block that with an injunction.
“Our lawyers have already communicated on several occasions with his lawyer confirming that that is not the case and that we are not closing the credit union,” he said. “Imminently closing it? Someday we may, if we can’t find a solution.”
Foster says the point of the meeting is meant to provide open dialogue where the auditor will explain the financial state of the credit union and will be looking for options for the future, adding that an injunction is not needed.
“Ultimately because of our statutory role we are the ones that make the final decision but we certainly want to hear from the members and we want them to understand what is happening,” he said.
Foster says through administration DICO is in the process to trying to resolve problems, such as loan collection, restructuring with adequate security to make them pass all of the tests for accounting and the Act.
“We don’t know whether we will succeed or not,” he said.
He says a solution that has been used in the past is where members have purchased risk capital, investing in the credit union to bring it back to capital requirements under the act.
“We will provide that opportunity to the members at this meeting,” he said. “I would be very surprised if they are in a position where they want to do that.”
He says the recognize that the credit union is the only financial institution in the area, which is why he says they are trying to find some sort of solution that will allow banking services to continue to the community.
DICO has determined that the likelihood of the credit union continuing on its own is not strong because of the demographics of the community, the cost of security and the third challenge would be staffing.
“The demographics of this credit union in this community provide a reasonable amount of deposits but a very uncertain level of loans,” he said.
This could either be in loan demand, where qualified borrowers don’t want to borrow or loan demand, where unqualified borrowers do want to borrow but either can’t qualify for the loan or if they do, choose not to pay it back.
“It’s those demographics that we’ve hit the wall on right now with this credit union,” he said.
Older members are savers and younger are borrowers and this demographic has not been set up in this community.
He says the only secure way of bringing money in and out of the community is with an armoured car service, which costs about $600 per trip, without this service the courier is put at risk, members’ finances are put at risk, and it puts the credit union at a liability risk.
“There could be an incredible suit for negligence for allowing that to happen,” he said.
He says the third challenge, both if the credit union remained a stand-alone or if they were to form a sub-branch of another credit union, is staffing.
“It’s quite a challenge to find sufficient qualified staff within that community,” he said.
Foster addressed legal action taken by credit union director Larry Price who made an application to review an election of the board after the majority of members had resigned.
Foster confirmed that an affidavit was filed with the courts however, a motion was never brought forward to the court and no court date was scheduled.
The credit union under Foster’s direction is bringing a motion to have the original application struck out.
“We are still trying to get a court date for that and we expect that will be in September,” he said.
Foster says Price has brought the affidavits through for everyone to view but has never taken the issue further for the court to review.
“Rather than defend it, because it hasn’t been brought forward, we’ve brought a motion to the court to day just take it off your records,” he said. “It has no chance of success in any event, that’s our legal argument.”