One of the stated reasons for Texas Dow Employees Credit Union leaving CUNA was ourdisappointment with the unending vitriolic attacks on credit unionregulators that seem to dominate every meeting.

My view of regulators seems to be radically different from most creditunion professionals; possibly because I function in three highlyregulated environments. For over 25 years, I have interacted withthe NCUA and the Texas Credit Union Department. As aninstrument-rated pilot, I operate under the rules of the FederalAviation Administration. I serve my community as the chairman of alarge hospital district, which has numerous powerful regulatorsoverseeing medical care, and many that often conflict.

Compared with those other regulators, our credit unionregulators are highly responsive, understanding, flexible andalmost positively benign.

My experience with the NCUA and the Texas Credit UnionDepartment, especially when new regulations are issued or whenexisting regulations are strengthened, is very much akin to theFAA, where the catch phrase is “Nothing happens until somethinghappens.” Restrictive regulations arise when a specific situationmust be addressed. I have yet to see the NCUA or the Texasregulator design and implement a restrictive regulation that didnot address something that had  been done to either harmconsumers or threaten the insurance fund.

As hard as it is for some credit union managers to believe, ourregulators don't have time to sit around dreaming up new,unnecessary restrictions on our operations. They're far too busytrying to address the damage we, as an industry, seem to be able toinflict upon ourselves, at a sometimes alarming rate with seeminglyincreasing magnitude.

Our regulators are not naïve. A vibrant, growing credit unionmovement means job security, career advancement, agency growth andcontinuing agency independence for regulators. Claims that ourregulators intentionally restrict growth are ridiculous. If weprosper, they prosper.

The most recent wailings from credit unions are about CUSOregulation and raising the MBL cap. On these issues I stand solidly with the regulators.These two areas have far more potential to harm our insurancefund,  not to mention reputational risk to our movement,than anything resulting from the corporate collapse.

Increased member business lending is again being flogged as agalvanizing issue by trade organizations needing to appear relevantto their constituencies so that phones keep ringing and money keepsflowing.

Let's get serious. MBL is perceived as the salvation for creditunions that either can't, won't or don't know how to make consumerloans. MBL looks very attractive compared to grinding outpedestrian commodity loans for cars, houses and vacations. Insteadof having to make 120 auto loans for $25,000, just make that $3million motel loan.

Here's the reality: 85% of all credit unions have assets lessthan $120 million and 50% of all credit unions have assets of lessthan $19 million. Even a 25% cap does not allow for the criticalmass required to justify originating, servicing andcollecting  on MBL. Making the loan is the fun part. Fewcredit unions can afford to monitor and service MBL, and even fewercan do it right. Servicing, annual review, analysis and collectionsare killers.

CUSO failures have the potential to have all of us paying NCUSIFimpairment premiums indefinitely. CUSO financial and operationalrisks must be subject to regulatory scrutiny and be fullyencompassed by enterprise risk management oversight.

At minimum, regulators must examine CUSOs as they would a memberbusiness loan of similar size. This applies not just to the initialCUSO investment, but also to the entire CUSO net worth. Anallowance for CUSO losses is as appropriate as the allowance forloan losses. Anyone who does not understand this needs an immediateimmersion education into the fundamentals of consolidationaccounting, especially when a credit union owns more than 50% of aCUSO.

There is no corporate veil to protect consolidated incomestatements and balance sheets. Anyone who does not understand thedamage a CUSO failure can do to a credit union's net worth, farbeyond the initial CUSO investment, had better learn quickly. As tothe corporate veil that CUSOs provide, I strongly suggest we oughtnot to engage in any activity that needs such protection.

There is a looming direct line from future CUSO failures toNCUSIF impairment premiums. If solid credit unions are going tohave to make up insurance fund losses due to CUSO failures, then weshould demand that any areas that can generate those losses besubject to the oversight of the regulatory insurer. 

EdwardSpeed is CEO of Texas Dow Employees Credit Union, Lake Jackson,Texas.
Contact 979-299-0299 [email protected]