The National Credit Union Administration, the nation’s credit union insurer, assumed control of North Little Rock-based People’s Trust Community Federal Credit Union on Jan. 14 because of “unsafe and unsound credit practices.”

Arlo Washington, the lender’s founder and former chief executive officer, is fighting the conservatorship action in federal court. Washington was the subject of the Academy Award-nominated documentary “The Barber of Little Rock,” which detailed his efforts to create the state’s only minority-owned credit union.

Member services will be uninterrupted during the conservatorship and can be accessed through an Arkansas Federal Credit Union branch in Little Rock, according to the administration. In the meantime, the government-backed insurer will work to resolve issues affecting the credit union’s operations, with no definitive timeline yet set for an end to the conservatorship.

In its order, the administration characterized People’s Trust as “uncapitalized,” according to a filing by Washington in the U.S. District Court for the Eastern District of Arkansas. It cited declining net worth, record-keeping concerns and unsound lending practices as reasons for its ruling, according to the filing.

“The closure of (People’s Trust) without adequate process affects not only the institution but also the community it serves. The conservatorship sends a message about whether institutions led by and serving African Americans can succeed within the regulatory framework,” Washington’s federal filing says.

People’s Trust is a federally insured, federally chartered credit union with assets totaling more than $3.2 million, with nearly 1,800 members. It serves customers in Pulaski and Saline counties.

Conservatorship can have three outcomes: the credit union resolving its operational issues and returning to member ownership, a merger with another credit union or complete liquidation by the administration, according to the financial regulator’s website.

Washington filed a complaint in federal court on Jan. 23., asking for a stay on the conservatorship ruling pending a judicial review of the record.

His filing also asks that the court set an expedited hearing and order the National Credit Union Administration to dissolve the conservatorship or, in the alternative, order that the administration’s board provide the lender with the opportunity to present evidence and respond to the allegations before final action is taken.

He characterizes conservatorship as an “extreme remedy” that was disproportionate to the risk in his federal filing. Washington could not be reached for comment.

“Applicant does not seek to avoid oversight,” Washington’s filing says. “Applicant seeks a stay of conservatorship actions pending judicial review of a deficient record, and an opportunity to present evidence that contradicts the factual premises of the conservatorship determination.”

In his filing, Washington said the bank experienced troubles early on, including a ransomware attack six months after its September 2022 chartering, which he attributed to software failures.

The attack disrupted the credit union’s operations for nearly two months, materially affected the lender’s early operations and played a role in the lender’s decisions regarding policies surrounding vendor risk management and cybersecurity.

Throughout 2023 and 2024, the software continued to fail.

Washington’s filing said that the software vendor did not “provide effective support” and that the lender’s management sent formal complaints to the administration, but the federal insurer did not respond or investigate.

Ultimately, this meant that the lender’s early struggles were the result of this vendor failure, rather than a failure of management, according to Washington’s filing.

Washington’s complaint also argues that those investigating People’s Trust had conflicts of interest.

According to the filing, one of the federal insurer’s examiners worked for Little Rock-based Telcoe Federal Credit Union — which the filing describes as a direct market competitor to People’s Trust — before coming to the administration. This examiner “issued findings that affected the institution’s standing.”

Telcoe “publicly opposed” a People’s Trust expansion during the period in which the investigator was conducting examinations of the North Little Rock lender, according to the filing.

After leaving the insurer in August 2025, the examiner went back to work at Telcoe, which the complaint says creates the appearance that the examiner served the interests of their former employer, rather than regulatory neutrality.

Another principal examiner’s husband is the executive vice president of Arkansas Federal Credit Union — the lender that is temporarily serving People’s Trust’s members — according to the filing.

The filing also says that an unnamed principal examiner referred People’s Trust to an external auditor, but delayed “substantive engagement” with the North Little Rock lender until the day of the examination, on top of having a prior professional relationship with the auditor that was not disclosed to management.

On June 30, the credit union administration’s examination identified alleged unsafe and unsound conditions relating to the lender’s management. The complaint says that during a meeting on Dec. 3, the administration said that the lender would be given time to address the examination’s findings and submit a revised business plan.

It submitted a revised business plan and board memorandum to the watchdog in December, nearly one month before the conservatorship ruling, according to the filing.

The decline in the company’s net worth that the credit union cites as a basis for conservatorship can be attributed to vendor price escalation, fraud losses through “insecure vendor payments” and system unreliability-related operational inefficiencies, among other reasons, according to Washington’s filing.

According to the filing, Washington has cooperated with the conservator’s staff, including providing records access and responding to inquiries.

“The Conservator’s staff have not identified fraud, embezzlement or gross negligence. Member accounts have been verified as accurate. Operations have continued without material incident,” Washington’s filing says. “The absence of findings of fraud or gross mismanagement contradicts the characterization in the (confidential conservatorship statement) that management is unable to safely operate (People’s Trust).”

The National Credit Union Administration did not file a response Tuesday.

Lucas Dufalla is a Report for America Corps member. Financial support for this coverage came from the Community Journalism Project.