The National Credit Union Administration's (NCUA) decision not to go forward with a final CUSO rule was one of the best it has made in a long time – consistent with its new approach on Troubled Debt Restructurings (TDRs). Credit Union National Association (CUNA) has continually opposed this rulemaking since it was proposed last summer, and as recently as Tuesday of last week had another series of conversations with agency personnel about their concerns.
It is not clear when the CUSO rule will resurface. Meanwhile, CUNA will be working diligently to urge the agency to discard this proposal altogether.
As we all know, the CUSO proposal was seriously flawed on every level. The proposed rule would have required all CUSOs to file financial reports directly with NCUA and if applicable, the appropriate state supervisory authority. Any CUSO subsidiary would also have been required to comply with the regulation. A CUSO’s direct financial reporting would have included a list of the CUSO’s services, the CUSO’s customer list, information on the CUSO’s board and management, and the CUSO’s balance sheet and income information. Federally insured state credit unions would have had to comply with certain requirements regarding CUSOs that federal credit unions (FCUs) must currently meet, such as agreeing to follow NCUA rules on accounting, allowing access to the CUSO’s books and records, and making FISCUs subject to NCUA’s CUSO investment limitations for less-than-adequately capitalized credit unions.
As CUNA pointed out repeatedly to NCUA, including in a comment letter filed last September, the agency simply does not have the authority to regulate CUSOs in the proposed manner, and were concerned that NCUA’s efforts to overregulate CUSOs would limit their ability to provide innovative services. Credit unions and leagues also aggressively opposed the proposal.
It is CUNA's understanding that NCUA had made some efforts to respond to concerns, and that the final rule that had been slated to go before the board last week was different from the proposal in several ways. We know there had been discussions about a centralized registry and some reporting for all CUSOs, with heavier reporting responsibilities imposed on CUSOs providing services in the areas of lending, information technology, and data security.
The changes would not have gone far enough, however, and the Board made the right call to delay its consideration. That is not to suggest, however, that NCUA should ignore safety and soundness issues, including ones involving CUSOs. The agency already has authority, however, to address those concerns.