Kappa Alpha Psi Continues Its Legal Action in Federal Court

The credit union says it is seeking its constitutionally guaranteed due process from NCUA.


Kappa Alpha Psi Federal Credit Union, the $750 thousand institution NCUA liquidated in August, is seeking constitutional due process in a lawsuit filed in the Federal District Court for Washington, DC.

The NCUA served a surprise liquidation order on KAPFCU on August 3, citing the credit union’s Net Worth Ratio (NWR). The order said the credit union was “minimally capitalized” with no reasonable prospect to recover.

According to an August 31 press release, KAPFCU is now mounting the first legal challenge to the constitutionality of NCUA’s enforcement and liquidation proceedings. The credit union contends the proceedings were a violation of its civil rights and denied it Fifth Amendment due process.

“KAPFCU contends the liquidation was based on the false impression in the press and media that KAPFCU’s NWR had dropped to 1.95% and had no reasonable chance for recovery,” the press release says. “The reality is that KAFPCU was a new credit union, starting from scratch with a 0% NWR. We built its NWR up to 1.95% as of March 31, 2010 and even higher to 3.67% by June 30, 2010.”

The NCUA gives new credit unions 10 years to become adequately capitalized and achieve a Net Worth Ratio of 6%. In its sixth year of operation, KAPFCU says it achieved a Net Worth Ratio of 3.67%, which NCUA validated on the credit union’s second quarter Call Report. A net worth ratio of 3.67% would make the credit union moderately capitalized.

 “KAPFCU was within the applicable NCUA Rules and Regulations for an institution of its size and character,” the press release says. “Consequently, the NCUA decision to liquidate KAPFCU on August 3, 2010 under these conditions was ill-advised, improper and legally actionable.”

Download KAPFCU’s press release to read about the lawsuit.

Read more CreditUnions.com coverage of KAPFCU’s liquidation: Historic Legal Hearing on NCUA’s Supervisory Action Continues Today; NCUA Files Response to Judge and then Liquidates Kappa Alpha Psi FCU