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Two Niagara Falls credit unions hit with cease-and-desist orders Regulators said they were operating in an 'unsafe and unsound manner'

Two Niagara Falls credit unions have been spanked by regulators for operating "in an unauthorized and unsafe and unsound manner" in their lending, compliance, accounting and controls.

The state Banking Department imposed the unusual cease-and-desist orders on Niagara Frontier Federal Employees Credit Union, with 559 members and $2.5 million in assets, and Niagara Falls Penn Central Employees Credit Union, with 1,141 members and $5.34 million in assets.

The formal orders, signed last month, cite the credit unions based on the results of examinations last September, and said the two credit unions "failed" to ensure they operated "in a safe, prudent and lawful manner." State regulators chose to act because they felt "prompt enforcement action is necessary" to correct "numerous supervisory concerns."

Cease-and-desist orders are the highest level of enforcement.

Niagara Frontier CEO Craig W. Drachenberg and Niagara Falls Penn Central board secretary John Ricker declined to comment.

The order against Penn Central requires it to enforce its existing policies and procedures on loan approval authority, maximum loan amounts, and how much it will loan someone relative to an asset's value or the person's debt level.

It bars loans to insiders unless they have been properly approved by its board. And it prohibits home improvement term loans of more than five years.

It also requires all loan disclosures under the Truth in Lending Act be "clearly and conspicuously" noted on loan agreements. It mandates a loan documentation checklist and a quality review after closing to make sure all forms are completed and included in loan files. And it requires the credit union to make "timely" contacts with delinquent borrowers and properly write-off "seriously delinquent" loans.

Within 90 days, the board must develop and approve written procedures for calculating how much money to set aside each quarter for loan losses.

It must also improve its financial reporting to regulators to prevent the kind of "significant errors" found in past call reports, and train both a board committee and executives on managing the balance sheet. It must develop a plan and schedule for operational audits. And it must conduct an independent test of its compliance with the federal Bank Secrecy Act and anti-money laundering rules.

In Niagara Frontier's case, regulators first ordered it to revise its Bank Secrecy Act and Office of Foreign Assets Control procedures to ensure better compliance, independent testing once a year, staff training, and designation of who is responsible for compliance. The state also mandated the first independent test of both within 90 days.

The credit union's board must hire an accountant to reconcile all accounts and develop a monthly process to ensure all accounts have supporting documents. It must provide written disclosure of loan prepayment penalty fees to all applicants or remove the penalties from its loan policy. And it has to correct problems in two specific auto loans identified by name.

It must independently review its policy for setting its loan loss reserve within 90 days, implement a formal policy on dormant accounts within 60 days, and test its disaster recovery plan within 120 days. And it has to update its bylaws to include all recent amendments.


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