The temperature this summer may have gone up a few more notches in credit union land when the NCUA announced a proposal that would bring several amendments to the CUSO rule.
In July, the NCUA proposed a rule that would require all CUSOs to file financial reports directly with NCUA and the appropriate state supervisory authority. The regulator also proposed making additional parts of the CUSO rule applicable to federally insured state-chartered CUs as well as federal credit unions.
The NCUA Board said it was also concerned that less-than-adequately capitalized federally insured state credit unions posed serious risk to their members and the NCUSIF when investing money into failing CUSOs. To address the concern, the regulator proposed limiting these FISCUs’ aggregate cash outlays to a CUSO, consistent with state laws.
More than 280 comment letters were sent to the NCUA, with many criticizing the proposed changes. Despite some rumblings within the industry that the proposal may be scrapped given the negative feedback, in November an NCUA spokesman said the board had not decided one way or the other.
Most of those against the amendments cited the need for more clarification. NACUSO President/CEO Jack Antonini questioned the definition of subsidiary. “Under the NCUA’s proposal, all requirements in the CUSO rule would also apply to subsidiary CUSOs. The association asked does a CUSO have to have controlling interest in a company or does a 1% ownership in a company make the company a subsidiary?”
“The informal rule has been that if there is an intent that a subsidiary of a CUSO was formed for the purpose of evading the CUSO rule, that would not be allowed,” Antonini wrote shortly after the NCUA issued its proposal. “We ask that this continue to be the rule as there may be very good business reasons for a CUSO to invest in a company that is not a CUSO.”
NACUSO also sought clarification on what is meant by “aggregate cash outlay on a cumulative basis,” questioning if this is reduced by dividends received by the credit union from a CUSO investment.
There were other concerns about exposing CUSO financial records and the impact that access would have on competing with non-industry firms.
“Increasing regulation will put CUSOs at a competitive disadvantage with non-CUSO competitors,” wrote Lisa Renner, CEO of CU Holding Co. LLC.
Credit Union Times recently contacted the NCUA for the latest update. “NCUA continues to consider the comments from the proposed CUSO rule and how best to proceed,” wrote Kenzie Snowden, a NCUA spokesperson.