CUSO Change May Threaten Alternative Capital Choice
SAFE Credit Union cannot raise alternative capital from “outsiders” to build an indirect lending business but it can capitalize that venture through a CUSO.
Under the proposal, the agency would require CUSOs to file financial reports directly with the NCUA and the appropriate state supervisory authority. The NCUA board also wants to limit aggregate cash outlays to CUSOs from federally insured, state-chartered credit unions.
“CUSOs allow credit unions to act locally with the scale and efficiency of a national company,” Wirz said. “But CUSOs also allow credit unions to do something quite unexpected – build capital.”
Besides community development CUs and corporate CUs, Wirz said CUSOs are the only other means he knows of for CUs to create capital other than through retained earnings.
“NCUA strongly supports community development credit unions and corporates and allows them to raise alternative capital. I consider both high risk uses of capital compared to CUSOs,” Wirz said.
SAFE has several CUSO alliances and through those partnerships, Wirz said, the capital the CU has invested in these entities builds new capital either through direct returns such as the dividends that are paid on its stock, indirectly through lower operating expenses that increase the bottom line, or through higher revenues that flow to it.
“If the NCUA adds an additional regulatory burden to CUSOs it may discourage investments in [them] and it will certainly increase costs for CUSOs and reduce our return from the CUSO,” Wirz said. “The unintended consequence will be that NCUA's regulatory burden will limit the growth and success of the one means credit unions have to raise alternative capital and increase efficiency and take advantage of the economies of scale.”