Member business loans caused Chetco’s failure

by. Keith Leggett

The Material Loss Review (MLR) of National Credit Union Administration’s Office of the Inspector General (OIG) found that Chetco FCU (Brookings, Oregon) failed because of inadequate management and board oversight of the credit union’s member business loan program. In addition, the MLR points out that NCUA examiners missed numerous red flags with regard to Chetco’s member business lending.

The loss to the NCUSIF is estimated at $76.5 million.

The report noted that Chetco experienced rapid growth in its business loan portfolio, as it took advantage of its exception to the member business loan cap of 12.25 percent of assets and its waivers of Member Business Loan regulations.

Member business loans grew from $33.2 million (21.5 percent of assets) in 2002 to a high of $212 million in 2009, before leveling off to $189.4 million (56 percent of assets) in 2010. This represented an increase in member business loan concentrations from less than 26.6 percent of total loans as of 2002 to over 60 percent as of December 2009.

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