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This enforcement action was terminated on July 23, 2013.
This Letter of Understanding and Agreement (LUA) is made and entered into on October 12, 2012, by and between Lynn Municipal Employees Credit Union (Credit Union), a credit union organized under the laws of the Commonwealth of Massachusetts and doing business at 3 City Hall Square, Room 104, Lynn, MA 01901, the Commonwealth of Massachusetts Division of Banks (Division), and the National Credit Union Administration (NCUA).
This LUA sets forth significant adverse conditions and unsafe and unsound practices, identified by the Division and NCUA as a result of its examination of the Credit Union with an effective date of March 31, 2012 (3/31/12 Joint Exam Report), and the agreements and timeframes by the Credit Union’s officials to resolve them. If left unresolved, these deficiencies may jeopardize the financial condition and/or operations of the Credit Union. By signing this LUA, the Board of Directors of the Credit Union hereby acknowledges that serious areas of concern exist and agrees to take the necessary actions set forth below to restore the Credit Union to a safe and sound condition.
In consideration of the Credit Union entering into this LUA, the undersigned Division and Regional Director hereby agree to refrain from recommending any formal administrative action in connection with the specific conditions addressed in this LUA, provided that the Credit Union and its officials make a sustained, effective, and good faith effort, as determined by the Division and NCUA to comply with all terms, actions and corresponding timeframes prescribed in this LUA.
In the event that the Division and NCUA determine that the Credit Union or its officials have failed to make a sustained, effective, and good faith effort to comply with the terms, actions and corresponding timeframes prescribed in this LUA, it is understood and agreed that the Division or NCUA may undertake appropriate administrative action, including but not limited to, issuing an order to cease and desist, assessing civil money penalties, or placing Lynn Municipal Employees Credit Union into conservatorship, as provided by Massachusetts General Laws, Chapter 167, Section 22, or the Federal Credit Union Act, 12 U.S.C. §1786, et. seq.
During the March 31, 2012, examination conducted by the Division and NCUA, the Examiners identified adverse conditions and trends in the Credit Union. If left uncorrected, these conditions and trends will continue to undermine the Credit Union’s financial and operational stability. Specifically, the report identifies and addresses the following adverse trends and conditions:
I. UNSAFE AND UNSOUND PRACTICES
The following significant unsafe and unsound practices were discovered as reflected in the 3/31/12 Joint Exam Report:
AGREEMENTS AND TIMEFRAMES
Therefore, the Credit Union must comply with Section 701.14 of the NCUA Rules and Regulations by submitting appropriate documentation to the Division and the NCUA containing applications of any proposed changes in the Board of Directors, committee members, or senior executive staff, 30 days prior to the effective date of any changes, and obtain approval from both agencies.
i. the item,
ii. the required corrective action,
iii. who is responsible for implementing the corrective action,
iv. the date by which each item will be corrected, and
v. shall be submitted to the Commissioner of Banks and the NCUA Regional Director for review.
Within thirty (30) days from the receipt of any comments from the Division and, after the adoption of any recommended changes, the Board shall approve the Action Plan and record its approval in the minutes of the Board meeting.
The Board shall review management’s adherence to the Action Plan, at a minimum, on a monthly basis and prepare a written progress report. Submit copies of the Action Plan progress reports monthly to the Commissioner of Banks and NCUA.
i. The monthly balance sheet and income statement,
ii. Delinquency Summary report, and
iii. Board of Directors minutes including special meetings, executive session meeting minutes, and Audit and Credit Committee meeting minutes,
All progress reports and other written responses to this LUA shall be reviewed by the Board and made a part of the minutes of the Board meeting.
Because of critical deficiencies in the bookkeeping function, the Credit Union must comply with 209 CMR 43.04 (1)(d). The goal of the audit must be to determine whether adjustments to the books are needed in current and prior periods and to provide sound financial statements as a starting point going forward.
The contract or engagement letter, at a minimum, must include:
(i) A description of the work to be performed under the contract or engagement letter;
(ii) The responsibilities of the CPA or public accountant;
(iii) An identification of the professional standards covering the work to be
(iv) The qualifications of the individual(s) who are to perform the work;
(v) The time-frame for completion of the work;
(vi) Any restrictions on the use of the reported findings; and
(vii) A provision for unrestricted examiner access to work papers of the third party.
Going forward from the effective date of this LUA, the Board:
The matrix must include, at a minimum:
i. information describing the finding,
ii. how it will be remedied,
iii. who is responsible for implementing the corrective action, and
iv. progress toward completing the corrective action.
While this tracking matrix may initially be part of the Action Plan described above, tracking future audit and examination findings in this manner should be part of routine operations going forward.
Given the Credit Union’s size, establishing ideal segregation of duties may not be practical. As such, the Audit Committee’s oversight role must be expanded and enhanced. In particular, the Committee must ensure the Credit Union’s operating bank accounts are reviewed in detail regularly.
a) Review and revise the credit union’s Loan Policy within ninety (90) days from the effective date of this LUA, incorporating, at a minimum, the following improvements to the underwriting process:
(i) Ensure credit reports reviewed during the underwriting process contain credit scores;
(ii) Ensure loan documentation includes discussion of why members with adverse credit are granted loans;
(iii) Ensure debt-to-income ratios are calculated correctly and include all debts from the member’s credit report and loan application; and
(iv) Ensure loan notes are completed accurately and ensure proper procedures are in place in the event that loan notes are changed.
a) Correct the violations of laws and regulations cited within the 3/31/12 Joint Exam Report.
b) Implement policies and procedures to prevent future violations in the identified areas within the time frames agreed to in the Document of Resolution.
Ensure compliance with NCUA Rules and Regulations Part 748, Appendix A, as it pertains to the information security program.
This Letter of Understanding and Agreement (LUA) will remain in effect until the conditions cited above have been resolved and the agreements reached have been met.
Upon publication, Lynn Municipal Employees Credit Union agrees that the LUA shall be considered a written agreement pursuant to 12 U.S.C. §1786(s)(1)(A), for which a violation may be enforced by NCUA and the Division.
The following individuals, as authorized by the board of directors of the credit union, indicate they understand and agree with the contents of this Agreement by affixing their signatures below. The officials understand by signing this Agreement, they must make a sustained and conscientious effort to resolve the conditions and trends cited.
AGREED TO AND ACCEPTED by the undersigned on behalf of Lynn Municipal Employees Credit Union, the Commonwealth of Massachusetts Division of Banks, and the National Credit Union Administration.
For the Lynn Municipal Employees Credit Union:
October 12, 2012
For the Commonwealth of Massachusetts Division of Banks:
October 12, 2012
David J. Cotney,
Commissioner of Banks
For the National Credit Union Administration:
October 12, 2012
Mark A. Treichel,