National Credit Union Administration CUSO Proposal

The National Credit Union Administration (NCUA) is proposing amendments to its existing regulations covering Credit Union Service Organizations (CUSOs) (12 CFR Parts 712 and 741). These proposed additional CUSO regulations will significantly alter the balanced approach taken by the NCUA and credit unions should consider voicing their objections to the proposals for the following reasons:

• The information disclosure and proposed regulation of CUSOs will:
  • Be burdensome and costly to CUSOs, many of which are small and do not have large administrative staffs, which will decrease their efficiency and value;
  • Put CUSOs at a competitive disadvantage with their competitors that do not have to disclose proprietary, confidential business information to a government regulator, where such information may become publicly available under FOIA or equivalent state law procedures for accessing government records;
  • Inhibit CUSO innovation and collaboration, by replacing value and service factors with regulatory compliance and information disclosure as major considerations in deciding to invest in a CUSO; and
  • Not provide a significant recognizable regulatory value beyond what currently exists, because the NCUA already has the tools to examine CUSO books and records and many CUSOs are already directly regulated by other federal or state regulators.
• CUSOs currently help credit unions save millions of dollars under the current balanced regulatory approach taken by NCUA and there is little risk that CUSOs pose a systemic risk to credit unions:
  • In the case of Credit Union 24, each shareholder credit union's direct investment risk is nominal ($2,500 or less);
  • Nationally the aggregate amount invested in or loaned to CUSOs is only 22 bps of industry assets.
  • The NCUA currently has the ability to examine the books and records of CUSOs and exercise its full regulatory powers and leverage over the credit union owners of CUSOs to resolve any safety and soundness issues.
  • The NCUA gives only one example where a business lending CUSO realized substantial loan losses, so if there is a particular problem, the solution should be tailored to address the problem and not alter the balanced approach that has worked so well for the CUSO industry as a whole.
• Some of the provisions in the proposed amendment are unclear. The definition of a subsidiary CUSO requires further clarification, i.e. does the CUSO have to have a controlling interest, and if not, is there any de minimis exception?

Recently, Credit Union 24 sent a communication to the National Credit Union Administration voicing our stance on the proposed credit union regulations. Click here to read the communication.