Innovation is my passion and has been during my two decades ofwork in the credit union industry. In reviewing the NCUA's proposedCUSO regulation, I am more than a little concerned about the impactthat it will have on the ability to foster innovation in ourindustry.

At this time, I just can't see any upside to the proposedregulation.

My personal experience in working with the NCUA has largely beenpositive. As we worked to launch TMG Financial Services in 2007, weinteracted with thoughtful people at the agency who are clearlycommitted to the credit union industry and were helpful in workingwith us to change the CUSO rule to allow for credit card loanorigination CUSOs.

But the dynamics in a regulating innovation areproblematic and often at cross-purposes–individual examiners, andthe agency as a whole, are not praised when a new and innovativeCUSO succeeds, but they are often taken to the woodshed when oneencounters problems.

Regulators often work to eliminate risk. And, there's the rub.At its core, innovation is about risk. And the key part about CUSOsis that they let the credit union industry take these riskscollaboratively, minimizing the risk to any single institution.Let's be honest with ourselves. It will take a significant amountof innovation in the coming decade for credit unions to remainrelevant to consumers. This is about transformational change, notincremental change.

Credit unions need to offer the types of products and servicesthat resonate with younger consumers, consumers in emerging marketslike the Latino market, and small businesses. These are differentthan the products we have offered in the past. If history is ourguide, CUSOs are the most likely to bring these innovations to thecredit union market in a wide-scale manner.

But innovation doesn't happen overnight. Innovation cansometimes be a bit messy as you adapt to changing markets and workto define your long-term value proposition. Any new product,service or business needs time to become an established player.

In reality, this often means losing money as a business startsup. In a world where the NCUA is regulating CUSOs, you have towonder how much time they'd allow to pass before they would feelcompelled to close it down.

In my mind, it is not a huge leap to believe that while thisproposed regulation is intended to manage safety and soundnessconsiderations, it could easily position the NCUA to take over andrun a CUSO.

That begs the question do they have the expertise? All CUSOs arenot created equal. Just in our family of companies at AffiliatesManagement Co., there is a card processing company, a complianceand public affairs company, a Hispanic-focused consulting company,a business lending CUSO and a credit card agent issuer.

Perhaps, more importantly, NCUA already has access to CUSO booksand records. When a credit union loans, participates or invests ina CUSO, the NCUA has the authority to provide oversight to thetransaction. The argument for the proposed regulation is moretransparency. The information is already at hand, so what more dothey need?

I fundamentally believe that this proposal is born out ofreaction to management issues and not regulatory issues. This isnot to dismiss the severity of the problems that arose in variousplaces in the country during the past few years, but there are fewsigns that this indicative of a larger problem. It certainly doesnot rise to the level of a systemic risk.

In the coming weeks, I know there will be much more debate aboutthis topic. But I believe that this new regulation will not protectthe credit union industry from future threats, but instead stiflemuch needed partnerships and innovation that provide thecompetitive products and services that current (and future) creditunion members deserve. 

Jeff Russellis president/CEO of TMG FinancialServices.