If a provision requiring CUSOs that use a corporate creditunion's services to pay a voluntary payment to the TemporaryCorporate Credit Union Stabilization Fund goes through, it mayforce some CUSOs to go outside of the credit union industry tosearch for liquidity.

In a Dec. 14 letter to the NCUA, NACUSO expressed its concernwith the proposed Part 704.21, the corporate credit union rule.

“Assessing CUSOs would be a double assessment against thefederally insured credit union owners, which will deter creditunions from forming CUSOs or, if formed, would force CUSOs to lookoutside of the credit union industry for liquidity,” wrote both TomDavis, president/CEO of NACUSO, and Jack Antonini, the group'sincoming president.

“While we understand that this payment is voluntary, it ishighly unlikely that any corporate credit union would not enforcethe voluntary assessment by expelling CUSOs that do not pay, giventhe regulatory pressures all corporate credit unions now face.”

NACUSO said it understands and shares the NCUA's interest inshortening the period required for the NCUSIF to repay the U.S.Treasury for the corporate stabilization expenses. It alsorecognized that the regulator has long felt that the NCUSIF couldpotentially be compelled to bail out nonfederally insured creditunions if they fail because this could pose a risk to the industryconfidence.

“However, there is no expectation that NCUA would bail out afailing CUSO or that the failure would cause an industry confidencerisk. Servicing the financial needs of CUSOs is not a systemic riskto the corporate credit unions. Thus, there is little, if any,compelling reason to include CUSOs in this voluntary assessment,”Davis and Antonini wrote.

Corporate stabilization assessments have already affected theability of credit unions to invest in new CUSOs, NACUSO said. Anindirect second assessment on the credit unions that have ownershipinterests in CUSOs “would seem to go well beyond the fair sharestated purpose of this provision and will undoubtedly result insome stifling of collaborative innovation.” The trade associationsaid this impact along with the fact that there is currently nostatutory authority for the direct regulation of CUSOs by the NCUA“goes well beyond the bounds of appropriate and authorizedregulation-at least as it relates to CUSOs.”

NACUSO said it is also concerned with a provision in proposedSection 701.5 of the corporate credit union rule that reads creditunions may only be members of one corporate credit union to preventunhealthy competition in rate chasing.

“While irrational rate chasing no doubt caused significantproblems in some corporate credit unions, we submit that yourremedy will create more problems than it cures,” NACUSO wrote.“Your proposal not only prevents unhealthy competition, it preventshealthy competition by which we meant to incent corporate creditunions to continue to improve their service offerings to win andretain business. The stifling of competition has rarely producedpositive results for an industry.”

NACUSO said once a natural person credit union has made anequity investment as a member of a corporate credit union andintegrated the corporate credit union's services into the naturalperson credit union's operations, it is highly unlikely that thenatural person credit union will change its corporate credit unionaffiliation.

“The process and timing of withdrawing capital and disruptingservices is too big a hurdle to overcome for many natural personcredit unions. A credit union will be stuck with taking whatevertheir corporate credit union offers; good or bad.”

The NCUA's philosophy has been that competition among naturalperson credit unions will result in better services to members,NACUSO said, adding it agrees and that it is healthier for theindustry to also permit competition among the corporate creditunions. Natural person credit unions will gravitate to the bestvalue offered if they are not locked in to one corporate creditunion by regulation, the trade group suggested.

“If your unstated goal is for the marketplace to lower thenumber of corporate credit unions for the sake of the industry'seconomic viability, this provision will slow that process downconsiderably.”

NACUSO said a better way to handle the NCUA's concern is tolimit the types of investments

corporate credit unions can make to reduce the investment risk,which the agency has done.