What CUSOs Should Be Watching Right Now – By Frank Diekmann, CUToday

LAS VEGAS — CUSOs here got an overview of more than a dozen regulatory and legal issues to which they were told to be paying attention.

In remarks to the NACUSO annual conference here, Brian Lauer of the law firm Messick & Lauer, noted the changes to which CUSOs are being subjected are numerous, but nearly all also include opportunities. Among the issues credit unions and CUSOs should be watching, said Lauer, are NCUA’s FOM proposal, associational common bonds, the final fixed asset rule, regulatory appeals, the final risk-based capital rule, cybersecurity, the CECL proposal, the GAO report on consolidation of regulators, network credit unions, small entity reg relief, and legal opinions (NCUA opinion letters have declined—just six in last two years (and two of those written in response to former ABA exec Keith Leggett).

Lauer said he has been pleased but what has been coming out of NCUA, including “what we hope is a trend toward principal-based regulation, and we hope toward transparency.”

In a far ranging discussion, Lauer and several others with the firm discussed many of the items listed above, along with others. Here’s a look at some of the points raised by Lauer and others who presented to the NACUSO meeting. 

CECL (Current Expected Credit Losses)

While the trade associations have been actively offering input to FASB on its CECL proposal, when Lauer asked how many in the room were familiar with it, just four raised their hands.

“You may not have thought about it, but it will,” said Lauer. “Something is going to happen with your Allowance for Loan Losses, and when it does it’s going to be a significant event. When CECL or some form of CECL comes out, what you’re going to need is data. You’re really going to need to know a lot about your loan portfolio.”

CECL is a forward-looking approach at losses that will hit a credit union’s books. It will involve more than just looking forward using the traditional rolling average forecast. As Lauer noted, it will require credit unions to hold more in reserves, with some forecasting it could require as much as a 20% increase in the average CU’s ALL. 

CUSO Exams

Lauer indicated he has heard a lot of concerns expressed that examiners don’t really have a lot of insights into CUSOs, much like they did not 10 years ago with Member Business Loans.

CUSO Registry

Noting the deadline for compliance with NCUAs new CUSO Registry was March 31, Mark Vakil noted one issue that has arisen is which CUSO data is subject to Freedom of Information Act (FOIA) requests. Some CUSOs have raised concerns over “trade secrets” being obtained through FOIA requests, but Vakil said “the NCUA has made it clear that if information is deemed to be a trade secret it is exempt from a FOIA request.”

While NCUA isn’t conducting a CUSO “exam,” Vakil and several other CUSO representatives at the meeting said that for all intentions, what NCUA is calling a “review” is in fact an exam.

Regulatory Developments

Jennifer Winston urged credit unions and CUSOs to pay attention to the Department of Labor’s proposed changes to the White Collar Exemptions Act and new requirements for overtime pay that will likely go into effect in 2016.

Meanwhile, when it comes to the CFPB and its Project Catalyst initiative, which is designed to encourage consumer friendly developments in markets for consumer financial products and services, Winston noted companies can now apply to the CFPB for a “No Action Letter.” Not that that letter has any real weight.

“The CFPB has said No Action Letters will not be routinely available and only be provided rarely,” she said. “These letters do not give an exemption or waiver of any law or reg, are non-binding on the CFPB and courts, can be revoked at any time, and provide no immunity against private litigation or enforcement actions by any other federal or state government agencies.”

Winston reminded that in March CFPB Director Richard Cordray acknowledged CFPB’s “regulation by enforcement” approach and stated the reach of CFPB consent orders is not limited to the parties involved. The orders are intended to have precedential effect,” Winston said.

One area of enforcement where Winston said there has been a lot of activity has been related to UDAAP and debt collection practices.

When it comes to CFPB policy priorities for the remainder of 2016, Winston said offered three

  • Look for proposed “larger participant rule” for the installment lending/open-use credit market.
  • Look for proposed rules on furnisher and consumer reporting accuracy and dispute resolution.
  • Look for rulemaking that establishes clear guidelines for all debt collectors throughout the debt collection process.

Diekmann-Frank_mediumABOUT THE AUTHOR: Frank Diekmann, is Co-Founder/Cooperator-In-Chief of CUToday.info. He has been called Mr. Credit Union because no one has the pulse of what is taking place in the world of financial services more than Frank. We are always delighted to have him cover our event.