Trades Suggest Easing Reins on CUSOs
ALEXANDRIA, Va. -- The industry's trade groups are hoping a number of suggestions will be strongly considered for a proposed CUSO rule that would add more activities to engage in and ease certain restrictions on expanding services to more members.
In April, NCUA proposed changing its CUSO rule (12 CFR Parts 712 and 741) by adding credit card loan origination and payroll processing services to the list of permissible activities. The proposal would also add new examples of activities within existing categories and would expand the scope of two categories of services to include persons eligible for credit union membership.
Other changes include imposing new regulatory limits on the ability of credit unions to recapitalize their CUSOs in certain circumstances; extending to all federally insured credit unions the provisions ensuring that credit union regulators have access to books and records, and ensuring that CUSOs are operated as separate legal entities. The proposal would also clarify that CUSOs may buy and sell participations in loans they are authorized to originate under the current rule. Finally, NCUA proposed to delete an "unnecessary" section in the current rule concerning amendment requests.
While NAFCU said it supported adding credit card loan origination and payroll processing services, other activities should be considered, especially auto lending. The expansion will help small credit unions better serve their members at lower costs, wrote Dan Berger, NAFCU senior vice president of government affairs in a June 30 comment letter. Regarding NCUA's recommendation of new examples of permissible activities, NAFCU supported adding real estate settlement services, employee leasing services and support, purchase and servicing of nonperforming loans, business counseling and referral, and processing of loan applications for members that have been turned down.
Both CUNA and NAFCU disagreed with eliminating a credit union's ability to petition NCUA to add to the activities that its CUSO may engage in. Berger wrote that the petition process presents a platform for credit unions to make their case to offer other services in a timely manner; otherwise, members seeking those services will go somewhere else.
CUNA encouraged NCUA to allow CUSOs to engage in indirect automobile lending services and to sell loan participations interests in a credit card portfolio to credit unions but also to allow CUSOs to choose from the range of activities permissible for FCUs.
"While activities that would render the CUSO a credit union or other financial institution could not be engaged, we do think CUSOs should be able to have the widest possible options from which to select permissible services in order to serve credit unions to the fullest," wrote Mary Mitchell Dunn, CUNA senior vice president and deputy general counsel in a June 30 letter to NCUA.
CUNA said it does not support NCUA's efforts to apply certain provisions of the CUSO rule to state-chartered credit unions that would give the agency authority to examine the books and records of a state credit union CUSO. Following the congressional sunset of NCUA's authority to examine third-party vendors, Dunn said, "It seems inconsistent with congressional intent for the board to recreate by regulation the same authority Congress has not continued in the statute."
Among its other suggestions, CUNA said it is against requiring all FCUs with a net worth of less than 5% to seek prior approval from NCUA to recapitalize an insolvent CUSO. Credit unions with 4% to 5% net worth should only be required to provide prior notice to the agency, which NCUA could pursue if concerns existed, CUNA said.
NASCUS focused much of its feedback on access to CUSO books and records urging NCUA to consider working within the parameters of state authority before unilaterally applying the proposed rule to federally insured state-chartered credit unions.
"Should NCUA choose to apply the rule to all FISCUs without considering state authority, the agency would be adding a redundant regulatory layer upon FISCUs without any demonstrable corresponding improvement in oversight," wrote Brian Knight, NASCUS senior vice president of regulatory affairs in a June 30 letter.
At a minimum, in cases where NCUA's concerns regarding the true condition of a credit union's investment in a CUSO may be satisfied by working with the state regulator, NASCUS said NCUA should exempt that state's FISCUs from the proposed requirement.
Regarding corporate separateness, NASCUS agreed with NCUA that it is sound business practice for credit unions to maintain corporate separateness from their CUSOs, Knight wrote.