After 43 years of providing financial services to low- and moderate-income residents in Watts and surrounding areas, the Watts United Credit Union (WUCU) was closed recently by the California Department of Financial Institutions.
In a press release on the state agency's web site, insolvency was cited for the closure of WUCU, which had some $800,000 in assets and about 1,000 members at the time it shut down operations.
Chartered in October 1966 after the riots that rocked Los Angeles and became known in the African-American community as the Watts Rebellion, the credit union grew to roughly $2 million in assets and more than 2,600 members in the 1980s and '90s. The member service area was eventually expanded to cover a swath of territory that extended well beyond the Watts district, with boundaries of the Santa Monica freeway on the north, La Brea Avenue on the west, Alameda Street on the east, and Imperial Highway on the south.
But the past four to five years brought ups and downs, said Dale Walker, who chairs the board of the Watts United Credit Union. Walker traced the institution's final demise to three events.
The first came when Western Corporate Federal Credit Union, known as WesCorp, was placed into conservatorship by the National Credit Union Administration in March. The San Dimas-based credit union was one of the nation's largest and held some of WUCU's deposits. All of its branches will close down in 2010, according to its Web site.
"They were like the credit union to credit unions," Walker said. "Each one of our members who were in our account, in essence, were members of their account. So we basically lost a portion of that money. Also, that was where the bulk of our outside investments were, so we would put our money in their account in order to get revenue that, we thought, was safe and secure."
The second event was the failure or inability of WUCU to take advantage of federal bailout money for banks. WUCU could have applied to become certified as a Community Development Financial Institution (CDFI). CDFI certification would have enabled the credit union to apply for financial assistance through the CDFI Program, and receive priority for funding under the U.S. Treasury's Bank Enterprise Award Program.
"We were listed as a low-income credit union, which gave us a heads-up shot at becoming a CDFI," Walker said. "It required that we make an application after the collapse of WesCorp. If it had happened correctly, we would have gotten about $100,000 that would have floated the credit union."
In order to get the grant and go to the next stage, the credit union needed assistance from the National Credit Union Administration (NCUA), Walker said.
"DFI would not allow NCUA to give us the assistance we needed to get the grant until after they had completed their audit," he said. "Of course, the audit made us insolvent so it was too late then."
But Alana Golden, a spokesperson for DFI, denied Walker's claim that the department would not allow NCUA to help the credit union.
The final straw, Walker said, was the credit union's inability, after a year of trying, to retrieve a BMW from a mortgage broker who had defaulted on his loan.
"We had two repossession agencies trying to find him," he said. "The regulators said the car was outstanding too long. That's another $30,000 we had to write off. Overall, all we needed to keep the credit union afloat was $67,000. The write-offs were what made us actually go under."
Walker said he even traveled to Sacramento, where he spoke with several politicians, including California Assembly Speaker Karen Bass. But because she and other lawmakers were involved in trying to alleviate California's budget crises, they could only offer to give letters of support.
"I was grateful they took the time to listen, but what we need is capital," he said.
The credit union almost got a last-minute reprieve from Pacific Coast Regional Development Corp., an African American-owned financial institution that assists small businesses and provides loan guarantees, bond guarantees, Disaster Bridge Loans, and Direct (Environmental) loans. The company reportedly has $8 to $10 million in assets. Walker said he had obtained a letter of intent from PCR to takeover WUCU and keep it in the community, but regulators ignored it, he alleged.
"A week prior to the closure, I brought it to their attention and they told me they would let me know," Walker said. "The next thing I heard, they (DFI) were closing" down the credit union.
But Golden said PCR's efforts would not have worked out because the corporation is not a credit union. Only a credit union can absorb or takeover another credit union, he said.
"They wouldn't have been able to help the credit union unless they are another credit union because a credit union is a deposit institution, which means they take in deposits," Gooden said. "Someone who has a license to lend can't absorb a credit union. They already have to be a lending and deposit organization, so it really has to be another credit union."
Golden added that the only way PCR could have helped WUCU would have been by giving — and not loaning — the credit union the money needed for it to become solvent.
"They couldn't even lend it to them at this point because the credit union was so far in the negative," she said. "We estimated that the June financials of the credit union were going to be negative over $61,000, $62,000...which would have been at a net worth ratio of less than 8 percent. You really can't get much worse than that, so we really had no choice but to close the credit union and turn it over to NCUA for insurance and deposits to make sure no one lost any money."
NCUA has been appointed to liquidate WUCU's assets. Accounts at WUCU are federally insured up to $250,000. NCUA plans to issue checks to Watts United Credit Union members for verified funds in their share accounts, according to a news release.
According to Cherie Umbel of the NCUA's Office of Public and Congressional Affairs, letters were sent to all WUCU members on July 8 regarding their share payout.
"The members should have or will be getting their funds within the next few days," Umbel said in a recent e-mail to the L.A. Watts Times.
The credit union provided a number of services to the community including free tax services, financial literacy courses, bank checks and had just recently established a debit card program.
"A good amount of our clientele was those who could not open bank accounts," Walker said. "It's never been a really strong credit union because the clientele is the low- to moderate-income people of Watts, but we provided an alternate location for people other than Nix and Ace check cashing. Now, the only thing left for the people in the community are the predatory check cashing institutions."
More info:
* State Orders Closure and Liquidation of Watts United Credit Union
Chico C. Norwood is a writer for the L.A. Watts Times.
Photo By Thandisizwe Chimurenga; announcement of WUCU's closure and liquidation from www.dfi.ca.gov
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