NCUA Chairman Debbie Matz has again expressed her desire to regulate CUSOs. This regulation change was proposed and abandoned in 2011 when both Board Members Mike Fryzel and Gigi Hyland opposed the move. Initially Board Member Fryzel was concerned over whether NCUA has the legal authority under the Federal Credit Union Act. Board Member Fryzel was recently quoted as saying that he now believes that NCUA has the authority to regulate CUSOs but still opposes the regulation of CUSOs due to unknown examination costs that NCUA would be assuming.
NACUSO, CUNA and NAFCU do not believe that NCUA has authority to regulate CUSOs. NCUA has previously acknowledged that it does not have the expressed authority under the Federal Credit Union Act to regulate CUSOs but may have what it describes as “implied authority”. We are not sure what NCUA is thinking and we are consulting with independent legal counsel to review the issue.
With a three person board, it only takes two board members to approve a new regulation so NACUSO wanted to make sure that the new board member, Rick Metsger, was well informed of our position. Mr. Metsger is a former Oregon State Senator, a former director of OnPoint Community Credit Union and has worked with the Northwest Credit Union Association. He understands the challenges credit unions face.
NACUSO has had two meetings with Mr. Metsger. NACUSO Board Chair Mark Zook met with Mr. Metsger in Oregon for ninety minutes on October 3. Jack Antonini and Guy Messick met with him at NCUA Headquarters in Alexandria for an hour on October 10. All three of us found Mr. Metsger to be open to consideration of our position. He agreed that CUSOs are an important tool for credit unions to innovate and collaborate.
As a regulator, NCUA needs to know and understand CUSOs and how they are impacting credit unions. We stated that NCUA already has the tools to do that. NCUA can inspect the books and records of any CUSO at any time and has done so with great success. If NCUA is particularly concerned about CUSOs that provide lending services and IT services, it can focus on those CUSOs.
The real issue to NCUA is the inefficiency of “going through credit unions” to review CUSOs. They want to go straight to CUSOs as their regulator. If they rely upon credit unions reporting information on CUSOs, credit unions are not always accurate. We stated that there are ways to gather accurate information about CUSOs without regulating CUSOs. As a condition of investment, CUSOs can be required to fill out an information sheet providing its name, investors and services. NCUA can then determine which CUSOs represent a higher risk and monitor those CUSOs. NCUA already talks directly to CUSOs in the review process so additional powers are not needed.
We emphasized that it is important that the review of CUSOs be part of the examination of credit unions which protects against the disclosure of confidential information under the Freedom of Information Act. Finally, we counseled against opening up the Federal Credit Union Act for the purpose of NCUA obtaining vendor examination authority. Once Pandora’s box is open you do not know what damage the bank lobbyist could do.
In summary, we found a person who was willing to listen and has the background to understand how issues affect credit unions. We will have to wait and see what actions NCUA may take to regulate CUSOs.