Of the nearly 70 comment letters the NCUA has received so far in reaction to its proposed amendments to the CUSO rule, it’s no surprise that the majority are opposing the measure.
In addition to several CUSOs, nearly 30 credit unions cited detailed instances of how CUSOs have helped to bring added services to their respective membership and increased their bottom line.
The National Cooperative Business Association, which represents more than 29,000 cooperatives including credit unions, criticized the proposal saying it “will stifle the ability of CUSOs to innovate and provide collaborative solutions that will sustain credit unions.”
“CUSOs are the collaborative arm of credit unions trying to solve operational and financial issues for credit unions,” wrote Paul Hazen, NCBA president/CEO. “Credit unions should not have unnecessary hurdles placed in their path as they seek solutions to their sustainability.”
However, at least one cooperative, the $49 million Total Community Credit Union in Taylor, Mich., agreed with the NCUA’s intentions. President/CEO Phillip Matous said it “makes good sense” to require all CUSOs to file report directly with the NCUA and the appropriate SSA.
Matous also supports making it a condition of federal share insurance for federally insured, state-chartered credit unions to require their CUSOs to give the NCUA access to books and prepare financial quarterly statements and annual audit under generally accepted auditing standards and to follow generally accepted accounting principles.
“This also makes good sense. While the CUSO and the CU are legally separate entities, the CU set up the CUSO to provide services not available under the powers of a CU,” Matous wrote. “Were the CU able to provide those services directly, such services would be governed by GAPP.”
On whether less than adequately capitalized credit unions should seek supervisory approval before making CUSO investments should apply to all FICUs, Matous said he supports the amendment.
“However, a decision should not be prolonged. If a CUSO is in need of liquidity, it could fail if the liquidity is not quickly forthcoming,” Matous said. “Consequently, the review process should be expedited and not require several layers of approval by SSA or NCUA.”
While Greg Wischmeyer with the $215 million Frankenmuth Credit Union in Frankenmuth, Mich., is opposed to most of what the NCUA has offered, he does support requiring less than adequately capitalized FICUs to seek supervisory approval before making CUSO investments.
The American Bankers Association is backing the proposal but said the NCUA should take more steps to mitigate the risk to the NCUSIF, wrote Keith Leggett, ABA vice president and senior economist, in his Aug.16 letter.
The ABA said it has concerns about the section of the proposed rule, which would allow undercapitalized, federally insured state chartered credit unions to invest in a CUSO to the permissible state limit.
Specifically, some state laws have significantly higher CUSO investment limits than the Federal Credit Union Act, which would cause the CUSO investment to represent a significant contingent claim on the net worth of an undercapitalized FISCU, Leggett said.
The NCUA said, given the growing number of CUSOs and their potential impact on credit unions and the NCUSIF, in July, the board proposed a rule that would require all of them to file financial reports directly with regulator and the appropriate state supervisory authority.
Because of what it sees as “serious risk” to their members and the NCUSIF, the NCUA has also proposed limiting FISCUs’ aggregate cash outlays to a CUSO, consistent with state laws.
Leggett said after conducting an analysis of NCUA Call Report data, it found there were 28 undercapitalized FISCUs that had investments in CUSOs at the end of first-quarter 2011. Some undercapitalized FISCUs reported holding significant aggregate investments in CUSOs as a percent of net worth, he noted.
“For states with more permissive investment limits, such an investment by a FISCU could represent a significant contingent claim on the net worth of the credit union if the CUSO fails; and thus could pose a significant risk to the credit union and the NCUSIF,” Leggett wrote.
Rather than following a “one-size-fits-all” CUSO investment limit for a specific state where the FISCU is chartered, Leggett suggested the NCUA set different CUSO investment limits for all undercapitalized credit unions, both federal charters and state charters, based upon the activities of the CUSO.