NACUSO: Corporate Rule May Backfire
If a provision requiring CUSOs that use a corporate credit union's services to pay a voluntary payment to the Temporary Corporate Credit Union Stabilization Fund goes through, it may force some CUSOs to go outside of the credit union industry to search for liquidity.
In a Dec. 14 letter to the NCUA, NACUSO expressed its concern with the proposed Part 704.21, the corporate credit union rule.
"Assessing CUSOs would be a double assessment against the federally insured credit union owners, which will deter credit unions from forming CUSOs or, if formed, would force CUSOs to look outside of the credit union industry for liquidity," wrote both Tom Davis, president/CEO of NACUSO, and Jack Antonini, the group's incoming president.
"While we understand that this payment is voluntary, it is highly unlikely that any corporate credit union would not enforce the voluntary assessment by expelling CUSOs that do not pay, given the regulatory pressures all corporate credit unions now face."
NACUSO said it understands and shares the NCUA's interest in shortening the period required for the NCUSIF to repay the U.S. Treasury for the corporate stabilization expenses. It also recognized that the regulator has long felt that the NCUSIF could potentially be compelled to bail out nonfederally insured credit unions if they fail because this could pose a risk to the industry confidence.
"However, there is no expectation that NCUA would bail out a failing CUSO or that the failure would cause an industry confidence risk. Servicing the financial needs of CUSOs is not a systemic risk to 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 the ability of credit unions to invest in new CUSOs, NACUSO said. An indirect second assessment on the credit unions that have ownership interests in CUSOs "would seem to go well beyond the fair share stated purpose of this provision and will undoubtedly result in some stifling of collaborative innovation." The trade association said this impact along with the fact that there is currently no statutory authority for the direct regulation of CUSOs by the NCUA "goes well beyond the bounds of appropriate and authorized regulation-at least as it relates to CUSOs."
NACUSO said it is also concerned with a provision in proposed Section 701.5 of the corporate credit union rule that reads credit unions may only be members of one corporate credit union to prevent unhealthy competition in rate chasing.
"While irrational rate chasing no doubt caused significant problems in some corporate credit unions, we submit that your remedy will create more problems than it cures," NACUSO wrote. "Your proposal not only prevents unhealthy competition, it prevents healthy competition by which we meant to incent corporate credit unions to continue to improve their service offerings to win and retain business. The stifling of competition has rarely produced positive results for an industry."
NACUSO said once a natural person credit union has made an equity investment as a member of a corporate credit union and integrated the corporate credit union's services into the natural person credit union's operations, it is highly unlikely that the natural person credit union will change its corporate credit union affiliation.
"The process and timing of withdrawing capital and disrupting services is too big a hurdle to overcome for many natural person credit unions. A credit union will be stuck with taking whatever their corporate credit union offers; good or bad."
The NCUA's philosophy has been that competition among natural person credit unions will result in better services to members, NACUSO said, adding it agrees and that it is healthier for the industry to also permit competition among the corporate credit unions. Natural person credit unions will gravitate to the best value offered if they are not locked in to one corporate credit union by regulation, the trade group suggested.
"If your unstated goal is for the marketplace to lower the number of corporate credit unions for the sake of the industry's economic viability, this provision will slow that process down considerably."
NACUSO said a better way to handle the NCUA's concern is to limit the types of investments
corporate credit unions can make to reduce the investment risk, which the agency has done.