Texas Regulators Clarify CUSO Rules
The Texas Credit Union Commission recently addressed several matters regarding investments in credit union service organizations in the Lone Star State.
At its June 16 and 17 meetings, Commissioner Harold Feeney said the proposed amendments clarify that a CUSO must comply with all applicable state or federal licensing requirements. In addition, the proposed amendments would increase the time from 15 days to 20 days to notify the commissioner of certain CUSO activities and impose a new requirement that Texas Credit Union Department must approve any investment that would cause the aggregate investment in CUSOs to exceed 25% of the credit union’s net worth.
Under the proposal, the commissioner may also order the divesture of a CUSO investment or loan upon finding that the credit union is not in compliance with the CUSO rule and if it presents a safety and soundness issue. Commission Member Allyson Morrow moved to recommend that the commission approve for publication and comment the proposed amendments to 7 TAC Section 91.801.Commission Member Manuel Cavazos seconded the motion and it was unanimously adopted, according to the June 16 meeting’s minutes.
Commission Member Gary Tuma asked about an example of what constitutes a “material change in the ownership interest” under subsection (c)(1) of the proposal. Feeney indicated that “material change” was existing language. However, the proposal seeks to substitute “ownership interest” for “organizational structure” to clarify what type of change is important to the department in evaluating any enhanced risk presented before a credit union initiates a significant change.
Feeney noted that there is no precise definition of the term “material,” but it is generally interpreted as a change that is significant and could have a noticeable impact on the current situation. He further explained that materiality is “fact-specific as to a given circumstance but, in general, it would be a change which is important in terms of the size of the investment, its value or rights to manage or control the CUSO.”
Tuma also questioned if there was a specified timetable for responding to a request for approval under subsection (e) of the proposal. Feeney indicated that legislature has established in the state’s finance code that an application must be approved or denied within 60 days. He noted that the same guidelines would apply to this type of application. The motion was passed unanimously, according to the commission meeting’s minutes.
In a May 24 comment letter, NACUSO said it was uncertain of the full implications of the proposal asking will CUSOs have the same powers and limitations of credit unions and requesting clarity on what the term “limitations” means.
“If the intent is to subject CUSOs to the same regulatory restrictions and supervisory authority as those facing credit unions, this is a serious departure from the current powers in every other state that regulates credit unions and the federal authority of the NCUA,” NACUSO President/CEO Jack Antonini wrote.
The Texas Credit Union League had also taken issue with the proposal saying it appears to be a conflict between existing regulations in the Texas Credit Union Act and other laws CUSOs may be subject to. Regarding the commission’s June meeting, the league said it is pleased so far.
“We wrote our comment call based on a much earlier draft of the CUSO rule as it came out,” said Winter Prosapio, TCUL assistant vice president of public affairs. “At this point we feel the great deal of the concerns that we raised were addressed in the revision and we’re still gathering information from credit unions to see if they’re still an existing concerns regarding the rule.”