North Bay Credit Union's Cannabis Lending Bet Cost $4.24M
Summary
North Bay Credit Union, a Santa Rosa, California credit union chartered in 1948 with $118,851,187 in reported assets, expanded into marijuana-related business lending and a fintech Banking-as-a-Service program its own controls could not keep up with. A June 26, 2026 review by the National Credit Union Administration's Office of Inspector General found a core system conversion that left a 2-month gap in anti-money-laundering monitoring, general ledger accounts that could not be reconciled, and an unmonitored fintech subsidiary -- failures that forced a cash-assisted merger and left the federal Share Insurance Fund with a $4,240,000 loss.
A credit union that grew into businesses its controls couldn't track
The 's review attributes the loss to North Bay becoming undercapitalized through a series of regulatory and operational failures tied to its move into higher-risk, complex business lines: a high concentration of poor-quality marijuana-related business loans, and a Banking-as-a-Service program the credit union started in March 2025 to generate additional revenue. That program ran a wholly-owned subsidiary providing wires, ACH transactions, deposit accounts, ATM network access, and compliance support to outside fintech companies -- without proper controls, including transaction monitoring, in place. State and NCUA examiners paused onboarding of additional fintechs once the exposure came to light.
View data as table
| Total assets, March 31, 2025 | $118,851,187 | reported total assets |
|---|---|---|
| Guaranteed line of credit | $100,000,000 | approved July 30, 2025 |
| Loss to Share Insurance Fund | $4,240,000 | final cost of the merger |
A two-month gap in anti-money-laundering monitoring
The most recent joint on-site examination by North Bay's state regulator and the NCUA, as of March 31, 2025, uncovered a stack of problems severe enough to draw multiple Document of Resolution items -- the escalation category reserved for issues examiners judge could otherwise trigger elevated enforcement action. A core system conversion that April, combined with delayed implementation of new Bank Secrecy Act monitoring software, left a 2-month gap in transaction monitoring; management leaned on manual oversight that proved insufficient, and examiners found the conversion itself had gone forward without appropriate due diligence, including no data validation review. Examiners also found the credit union's general ledger accounts were never formally reconciled, with supporting documentation either incomplete or inconsistent with its own call reports -- discrepancies the says made it impossible to verify North Bay's true financial condition.
A $100 million backstop, then a federal-state jurisdictional snag
NCUA issued North Bay a preliminary warning letter on July 17, 2025 for extreme weaknesses in its BSA/anti-money-laundering program, then approved a $100 million guaranteed line of credit on July 30, 2025 to cover expected commercial write-offs, recordkeeping-driven losses, and potential member withdrawals -- a backstop roughly 23.6 times the size of the loss the fund ultimately absorbed. When the state regulator issued a consent order on November 4, 2025 requiring North Bay to find an acceptable merger partner within 30 days, the credit union's marijuana-related lending complicated the exit: that business is legal under California law but illegal under federal law, which the says limited NCUA's own options, such as acting as agent for the credit union had it been conserved. NCUA's Office of General Counsel told the that supervisory guidance for credit unions doing marijuana-related business is still being developed with other federal regulators. The merger cleared NCUA's own approval on February 12, 2026, but final sign-off from all parties -- delayed, per the , by the California Franchise Tax Board -- did not close until April 24, 2026.
View data as table
| To guaranteed line of credit | 13 days | Jul 17 -> Jul 30, 2025 |
|---|---|---|
| To state consent order | 110 days | Jul 17 -> Nov 4, 2025 |
| To NCUA merger approval | 210 days | Jul 17, 2025 -> Feb 12, 2026 |
| To all-parties merger close | 281 days | Jul 17, 2025 -> Apr 24, 2026 |
- The Share Insurance Fund absorbed a $4,240,000 loss -- about 3.57% of North Bay's own $118,851,187 asset base -- when NCUA approved its cash-assisted merger into Alero Financial Credit Union.
- NCUA's own material-loss formula put the review threshold at $36,885,118.70 for a credit union North Bay's size; the actual loss came in at only 11.5% of that threshold, which is why the conducted a limited review rather than a full material loss review.
- The $100 million emergency line of credit NCUA approved was about 23.6 times the size of the loss that ultimately materialized -- a gap between the worst case NCUA prepared for and what the fund actually paid.
- 281 days passed between NCUA's July 17, 2025 warning letter and the merger's final close on April 24, 2026, a span the attributes partly to delays at the California Franchise Tax Board rather than to North Bay's own condition.
This is an limited review, not a material loss review -- a narrower product the Federal Credit Union Act requires for any Share Insurance Fund loss below the material-loss threshold, focused on determining whether unusual circumstances exist that would warrant a deeper look. The found none here. The report does not name any individual credit union officer, employee, or board member as responsible for the failures it describes; it attributes them to "management" and to identified control gaps. This article does the same.
Sources(2) ▾
- National Credit Union Administration, Office of Inspector General, OIG-26-08: Limited Review of North Bay Credit Union (2026-06-26) — 6-page memorandum from Acting Inspector General Marta Erceg presenting the 's limited review of the Share Insurance Fund loss tied to North Bay Credit Union, Santa Rosa, California -- a review the Federal Credit Union Act (12 U.S.C. Sec. 1790d(j)(4)) requires for any Share Insurance Fund loss that falls under the material-loss threshold. Covers the semiannual loss-reporting period October 1, 2025 through March 31, 2026; fieldwork ran April-May 2026. Fetched directly as a PDF from ncua.gov and read via its text layer. ncua.gov · original document
- National Credit Union Administration, Office of Inspector General, OIG Hotline | NCUA (2026-07-20) — The NCUA 's own public hotline page, re-fetched to source the call-to-action contact details and confirm the phone number matches the one printed in the -26-08 report footer. ncua.gov · original document
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North Bay Credit Union, a state-chartered, federally insured credit union in Santa Rosa, California chartered on January 1, 1948, reported $118,851,187 in total assets as of March 31, 2025. Ten months later, on February 12, 2026, the NCUA approved its cash-assisted merger into Alero Financial Credit Union -- a rescue that left the National Credit Union Share Insurance Fund with a $4,240,000 loss, according to a limited review⧉ published June 26, 2026 by the NCUA's Office of Inspector General.