BISMARCK – A group of North Dakota credit unions are suing in an attempt to recover funds they believe are rightfully theirs following the U.S. Central Federal Credit Union (U.S. Central) liquidation. The lawsuit was filed this month in U.S. District Court.

The 25 credit unions, all capital holders of the now dissolved Midwest Corporate Federal Credit Union, are advancing their claim against the National Credit Union Administration (NCUA), the liquidating agent of U.S. Central. Midwest Corporate FCU was a membership capital account holder of U.S. Central.

“We were really hoping to avoid litigation; however, the NCUA chose to put our members through an endless bureaucratic process of appeals and denials,” said President/CEO Jeff Olson, Dakota Credit Union Association. “When does an asset stop being an asset, and does the NCUA have the authority to just keep those assets from the rightful owners? What is the legal basis for this authority? This is what we hope to determine through litigation.”

At stake is the member Paid-in Capital balance of $3.3 million and membership capital account balance of more than $10.4 million that Midwest Corporate had with U.S. Central, as reflected on the claim receipt issued by the NCUA in 2010. Following the dissolving of Midwest Corporate, this claim receipt now belongs to these North Dakota credit unions.

For the past two years, the affected North Dakota credit unions have tried to work with NCUA to recover these funds; however, efforts were denied by the agency on a “technicality.”

“The reality is that the NCUA’s Corporate Stabilization Program was essentially a government-forced liquidation, where corporate owners were compelled to choose between recapitalizing after writing off millions in losses the previous year, or liquidating,” Olson said.

The NCUA sent the North Dakota credit unions letters stating they would not distribute the funds under the aforementioned claims receipt because Midwest Corporate no longer existed, even though NCUA knew the identity of individual capital holders of Midwest Corporate and had previously required them to write off their investments in Midwest Corporate and U.S. Central, other than the claim receipt.

The credit unions assert the NCUA had sufficient information to approve the claims and their failure to do so was arbitrary, capricious and an abuse of any discretion the NCUA may have had.

“The NCUA’s liquidating agent should have known that a claim certificate was issued, and these assets were in the process of being recovered. From our perspective, the NCUA itself is clearly at fault here. Unfortunately, North Dakota credit unions are the ‘collateral damage’ from negligence on the part of the NCUA,” Olson said.