The NCUA is going back to the drawing board on its CUSO rule and the industry is happy.
“The [comment] letters indicated that the proposed rules were seen as having gone too far. So my sense is that the agency wants to find a way to achieve its goals of ensuring the safety and soundness of the system in a less intrusive way than they had outlined,” said Guy Messick, general counsel of the NACUSO.
CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn said the overwhelming opposition in the letters in light of the already heavy regulatory burden indicates that the agency probably realizes it went too far.
After receiving more than 280 comment letters, most of which contained serious criticisms, the NCUA has begun the process of overhauling the rule.
NCUA spokesman David Small said the agency “always takes into account the comments it receives on proposed rules.” However, Messick, Dunn and others said, based on their conversations with agency officials, these changes will be more than just slight revisions to the original proposal. The changes won’t be finished until next year, according to several industry sources.
After most comment periods, the agency makes changes to its proposals, but they are often just minor tweaks to the proposed rule. This time is different because industry officials and state regulators found major flaws with the rule.
The NCUA’s proposed rule would require all CUSOs to file financial reports directly with the NCUA and the appropriate state supervisory authorities. The board also proposed limiting federally insured state-chartered credit unions’ aggregate cash outlays to a CUSO.
It also proposed that less than adequately capitalized state-chartered federally insured credit unions to get permission from their regulators before making investments in a CUSO. The rule would mandate CUSOs to use GAAP accounting, prepare quarterly financial reports and get annual audits. In addition, the rule would expand the definition of CUSO to include CUSO subsidiaries.
At the time the agency issued the rule in July, NCUA Chairman Debbie Matz said “we have our hands tied behind our backs without attaining this information.”
The agency has also said it plans to ask Congress to for the power to examine CUSOs, which Matz has said is needed to further ensure the industry’s safety and soundness.
Messick said he has conveyed in its meetings with regulators that CUSOs “do well under the current regulations, which have in place safeguards to ensure safe practices. But we fear that the proposed rules will stifle innovation and collaboration and not necessarily be more effective at guaranteeing safety and soundness.”
He added that “to the agency’s credit, they have been receptive and seem to want to improve the rule.”
NAFCU Vice President and General Counsel Carrie Hunt said the agency hasn’t given any hints as to what changes they might make in the proposed rules. However, she expressed hope that the concerns raised about the legality of the proposed rules, especially requiring financial reporting by the CUSOs, and the added regulatory burden could likely prompt significant revisions.
“The agency doesn’t have the authority to regulate third-party vendors and trying to do so would prompt litigation,” Hunt said. “Also, we question the need to add to the regulatory burden of 7,000 credit unions just because a few of them had problems caused by CUSOs. We think it would make more sense for them to have their examiners be more vigilant in dealing with those credit unions that have difficulties in this area, rather than add to everyone’s burden.”