Report on Advocacy Fund spending…NACUSO Working for you

Through the support of our partners, NACUSO raised approximately $63,000 in contributions toward its Legal and Litigation Fund in 2014 with a primary purpose to develop strategies for the most effective way to seek the repeal and/or mitigation of the impact of the CUSO Rule that NCUA had adopted in November 2013.  Subsequently, NACUSO established an Advocacy Fund to supplement the Legal and Litigation Fund.  The goal of the two funds together were to enable NACUSO to coordinate legal decision making, with a crucial advocacy component that will have more impact than the always risky option of legal action.  In total, $190,600 was contributed to the NACUSO Advocacy Fund.  Combined these two related initiatives received total contributions from NACUSO partners of approximately $253,600 in 2014 and 2015.

In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars, we would like to provide you with the following information.  NACUSO spent the following amounts from the two funds during 2014 and 2015:

$36,520 –  Legal Fees paid to outside counsel to evaluate the legal basis of suing NCUA
to stop implementation of the CUSO Rule
$25,000 – Lobbying fees paid to help determine the likelihood of Congress granting “Vendor Authority” to NCUA if NACUSO sued over the CUSO Rule and the NCUA lost.  If Congress was likely to grant NCUA the authority anyway, then it was the position of the NACUSO Board that any legal action, should it be considered, would be a waste of time and money.
$24,000 –  Dollar Associates, LLC – paid for advocacy work with Congress and NCUA on CUSO issues
$24,000 – Messick & Lauer, P.C. – paid for advocacy work with NCUA and meetings with Congress on CUSO issues.
$   4,073 – Travel to Washington DC for meetings with Congress and NCUA
$      367  Miscellaneous

$113,960   Total amount spent influencing Congress and NCUA for favorable CUSO environment

The remaining funds, out of the total $253,600 in combined contributions, equal $139,640.  This represents the balance in Restricted Cash as of 12-31-15, as per the NACUSO Advocacy and Legal Fund Analysis report (click link below).

The NACUSO Board and its Legislative and Regulatory Advocacy Committee is continuing to prioritize the advocacy of a regulatory environment that is pro-CUSO and pro-collaboration within our industry.  NACUSO needs your support for this initiative and its purposes.  While strategies may change over time based upon circumstances and opportunities to advance the cause of CUSOs, the necessity for funding of such initiatives is essential if NACUSO is going to remain in a position to impact the decision-making process for CUSOs and the credit unions that invest in, or utilize them.

For a summary of how NACUSO has worked to maintain an environment that is supportive of collaborative investment, the following report entitled NACUSO Working For You provides a summary of the work we have done on your behalf.  To capsulize some of its key points, a summary of what we feel are the NACUSO “wins” this past year are:
  • Visiting key Congressional Offices to oppose the extension of Vendor Authority to NCUA.  NACUSO moved quickly to issue a letter to key Congressional Leadership when a bill to provide Vendor Authority was about to be introduced.
  • Working with NCUA on the revised MBL Rule.
  • Advocating for the expansion of CUSO powers to include originating auto loans, especially for indirect programs.
  • Encouraged NCUA to be transparent in its rule making which includes the OTR calculation.
  • Worked with NCUA, and in particular Vice-Chairman Rick Metsger’s Office to reduce the risk based capital rating of CUSO investments from 250% to 100%.
  • Working with NCUA to minimize adverse impact of the CUSO Registry and to correct the acknowledgements initially in the Registry.

To emphasize the last bullet above, initially, in its first version of the CUSO Registry documentation that CUSOs were required to submit with their data to NCUA, the agency’s acknowledgement form required CUSOs – when submitting their data – to accept responsibility under regulations that apply to credit unions but were not intended to, apply to CUSOs.  These acknowledgments, if left unchallenged and signed by CUSO officials, could expose CUSOs to potential penalties under regulations that do not, and were never intended to apply to CUSOs.  Upon becoming aware of this inappropriate acknowledgement requirement, NACUSO worked directly with senior NCUA staff to bring our concerns to their attention.  NCUA agreed to the NACUSO position and made the needed changes to the acknowledgements for the CUSO Registry data submission process.  In addition, for those CUSOs who had already submitted their registration and signed the acknowledgements, NACUSO developed a letter with the appropriate wording for those CUSOs to send to NCUA to clarify this acknowledgement concern.

Effective advocacy requires ongoing diligence in following every aspect of regulatory requirements impacting CUSOs and the credit unions that invest in them.  It necessitates prompt response at times and the ongoing resources to interact positively on behalf of the CUSO community on issues and requirements of all types.  We hope that you agree such diligent advocacy initiatives are crucial to the long term viability of the collaborative movements within the credit union community.

We hope this report helps you see how we have carefully managed the funds entrusted to us, for Advocacy purposes.  We would be happy to answer any questions that you may have.  Please consider adding your support to the advocacy efforts by contributing today.

Button-Advocacy Pledge

 NACUSO Working For You Report
Legislative & Regulatory Advocacy Update

Vendor Authority

Knowing that obtaining vendor authority was the number one legislative issue for NCUA in 2015, Jack Antonini and Guy Messick met with key Congressional representatives in January to tell Congress why credit unions and CUSOs oppose the extension of this expansive, costly and unnecessary authority to NCUA.  When NCUA made their official request for vendor authority, at a Regulatory Relief hearing in February, Congress was not persuaded by their arguments.

When the “front door” did not work, NCUA tried to get vendor authority through the “back door.”  Earlier this month, Senator Warren was provided a proposed amendment to the Cyber Security Bill that went far beyond cyber security. The Warren Amendment, portrayed as a non-controversial provision to give NCUA parity authority with FDIC, would have given NCUA authority to examine every third party credit union vendor from CUSOs to check processors to the cleaning service at the branches.  This unlimited authority, well beyond anything FDIC has ever implemented, would create considerable regulatory burden for both credit unions and those that do business with them – both CUSOs and non-CUSO vendors.

NACUSO mobilized with our legislative advocacy partners to halt any progress on this unnecessary amendment, and the vendor authority amendment was not added to the Cyber Security Bill.  NACUSO delivered a letter (click to see letter) to the Senate leadership explaining our opposition to NCUA’s request for vendor authority.  We will continue to monitor the situation to ensure that the Senate and House recognize that such an unwarranted extension of regulatory and examination authority beyond the current statutory mandate of NCUA is both controversial in the industry and potentially damaging to an industry that is dependent upon third party relationships because of their smaller size in comparison to many of their competitors.  Credit unions need third party support and collaborative innovation to continue to effectively meet their members’ needs, and a burdensome regulatory and examination regime for anyone who does business with a credit union will not foster that support and innovation.

To hear more about what NACUSO is doing to help protect CUSOs and their credit union owners from Congress granting unnecessary and costly vendor authority to NCUA, click here to see the video interview with CU Broadcast.

NACUSO is focused on protecting credit union collaboration through CUSOs, but we need your help, so we can continue to be vigilant in monitoring legislation in Congress, contribute to NACUSO’s Advocacy Fund today – click here to contribute.

Proposed Amendments to NCUA’s MBL Rule

NACUSO is supportive of a number of the positive changes in NCUA’s proposed MBL Rule, including the greater authority to waive personal guarantees, a more balanced approach to construction loan limitations, enhanced flexibility on counting loan participations against the MBL cap and the improved treatment of 1-4 dwelling rental property.  NACUSO also offered, in consultation with our business lending CUSO members, additional suggestions to help enhance the NCUA’s amendments to the Member Business Lending Rule.  A full copy of our comment letter to the NCUA is available at this link.

Expansion of CUSO Authorized Powers
NACUSO wrote to the NCUA Board requesting an amendment to NCUA Regulations Part 712.5 to add to the list of authorized CUSO powers to help facilitate a competitive solution to the growing Internet and peer-to-peer lending competitors for car loans and unsecured loans faced by credit unions in today’s environment (see NACUSO’s letter).  Chairman Matz responded that she is not opposed to reconsidering new authorities for CUSOs, indicating “if CUSOs can legally provide additional services to benefit credit unions and their members without compromising safety and soundness, I would strongly support those efforts.”  Chairman Matz went on to say that she has asked NCUA staff to review the policy and safety and soundness considerations relative to our request, and this review is already underway (see Chairman Matz response).

Update on CUSO Rule Implementation

Pursuant to the CUSO Rule the NCUA adopted in November 2013, CUSOs have to report certain information directly to NCUA per agreement with their investing credit unions.  Those agreements were due to be signed by June 2014. In the meantime NCUA has been building an on-line reporting system that will go live in the first quarter of 2016.  NCUA says that they are on schedule to meet that time-table.

NCUA is currently in the process of gathering 25 CUSOs to participate in its beta/pilot test, which is scheduled to begin in September.  Towards the end of the year NCUA plans to roll out messaging and support materials to the broader credit union and CUSO audience, to help them prepare for the year-end 2015 reporting requirement for CUSOs.  We understand that the system will be structured to have “yes” and “no” answers with the ability to upload information as needed to respond to the questions.   We will inform you of further developments when known.

NACUSO continues to work with regulators minimize the regulatory burden on CUSOs and to help credit unions realize the maximum benefit from collaboration through CUSOs.  We work to ensure regulations affecting credit unions and CUSOs are as favorable as possible, but we need your help to continue this regulatory advocacy work, please contribute to the NACUSO Advocacy Fund today.

NACUSO Supports Transparency on OTR

NACUSO has long expressed its concern about the growth of NCUA and its extension of its regulatory arm, both directly and indirectly, into areas of questionable statutory authority such as the de facto regulation and examination of CUSOs through the 2013 CUSO rule that is beginning to be implemented by NCUA this year.  The extension of regulatory authority by NCUA comes with increased costs, costs that are paid for ultimately by credit union members. NCUA not only wants expanded regulatory authority over CUSOs, it also is seeking regulatory authority over all vendors that sell products and services to credit unions.

NCUA takes money from the insurance fund to pay for its operations through the Overhead Transfer Rate (“OTR”).  The OTR currently funds 71.9% of NCUA’s budget.  NCUA does not have to justify its expenses or ask permission from anyone to take as much money as it deems appropriate from the share insurance fund for its operations.  NCUA has discontinued its practice of holding public hearings as part of its budget process and does not publish details of how it calculates the OTR.  NASCUS has a legal opinion that the Administrative Procedures Act (“APA”) requires a notice and comment period to establish the OTR but NCUA disagrees.  Legal issues aside, this lack of opportunity for the credit unions to have input into these important decisions unnecessarily alienates credit unions and leads to mistrust and animosity between the regulator and the regulated.

When the NCUA budget has increased by 50% over the past five years and the number of credit unions has shrunk by over 20%, legitimate questions exist as to the reasons decisions are made.   As is the case with all stakeholders in the credit union system, NCUA needs to be accountable and transparent to maintain its credibility.  NACUSO urges NCUA to hold budget hearings, to be specific on how the OTR is calculated and to follow the APA to have a public comment period in establishing the OTR.  NCUA will still have the power to make decisions on its budget and the OTR but giving credit unions the opportunity to comment will provide the transparency that is sorely needed.

NCUA Risk Based Capital Proposal

Because of potential negative impact on both the CUSO collaborative model as well as the capital weighting for investments made by CUSO credit union investors, NACUSO issued a strong letter supporting a number of substantive changes to the original risk-based capital rule proposed by NCUA in 2013-14.  The NACUSO original comment letter on RBC1 is available through this link.

Following a number of improvements from a CUSO perspective that resulted from NACUSO’s work with NCUA, we were pleased with the improved direction of NCUA’s revised RBC2 proposal when it was re-issued last year.  However, the NACUSO Legislative and Regulatory Advocacy Committee, as well as the NACUSO Board, still had some ongoing concerns about NCUA potentially adversely impacting the CUSO model – even with RBC2 improvements we were able to support and see incorporated into the second version of the proposed rule.  Therefore, NACUSO joined with over 2100 other commenters (a number that actually exceeded the record number of comments on the original risk based capital proposal) recommending further changes before the RBC rule is finalized.  A copy of the NACUSO second comment letter on RBC2 can be accessed by this link.

In response to this second outpouring of public comments, NCUA is now indicating they will further adjust the RBC rule before it is finalized, plan to come forth with a Supplement Capital rule later this year that would be effective at the same time as the final RBC rule and is still committed to longer implementation schedule of effectiveness in January 2019 for credit unions to comply with RBC.  All of these provisions were supported by NACUSO, and we believe that each these improvements will help credit unions in meeting the new risk based capital requirements.  In addition, the assigned risk weighting for CUSO investments has been reduced from an unjustifiably high 250% to a still too high, but much improved 150%.  NACUSO is pleased that NCUA gave such serious consideration to our position and has responded to a number of our suggestions, including eliminating any RBC for wholly-owned CUSOs.  We are optimistic that there could possibly be other positive CUSO developments in the final rule and, for that reason, we remain engaged in dialogue with NCUA.

The most recent word from our sources is that it will likely be year-end 2015 or early 2016 before NCUA comes back with a final RBC rule, since they have well over 2,100 comments to consider.  Because at the same time they will be working to assure Congress that they are not going too far with their RBC rule, the possibility remains that ongoing NACUSO interaction with NCUA might bring about other improvements in the risk based capital rule.  NACUSO’s engagement has been consistent and constructive.  We will continue to seek to influence the final rule, in accordance with the recommendations of our comment letters, until the rule is finalized by the NCUA Board.

NACUSO 2015-16 Legislative & Regulatory Advocacy Plan

As we explained when we announced the formation of the NACUSO Advocacy Fund a year ago, the regulatory climate that enabled credit unions to maximize the benefits of CUSOs and collaboration is under siege, and as an industry, we need to respond.  NACUSO has established an Advocacy Fund to supplement its efforts to promote and protect a collaboration/CUSO friendly regulatory climate.

As was announced at the 2015 NACUSO Annual Conference, we have developed a NACUSO 2015-16 Legislative & Regulatory Advocacy Plan, based upon the four basic precepts upon which our advocacy work is based.  Those four pillars are designed to support an environment that:

  • Encourages credit unions to deliver a better member experience and improve the financial well-being of members
  • Encourages credit unions to seek new ways to serve members needs
  • Rewards investment in innovation and collaboration
  • Supports the use of CUSOs as the incubators for collaboration and innovation so that credit unions can reap the benefits of entrepreneurialism without direct riskThe Advocacy Plan also identifies the key associational positions that NACUSO will be focused on, for the benefit of CUSOs and their credit union owners, which are summarized as follows:
  • Withdrawal of the 2013 CUSO Rule
  • Making the reporting and review process as efficient and non-disruptive as possible, if the CUSO Rule is not repealed
  • Oppose the granting of regulatory authority over CUSOs and other vendors
  • Opposing the risk rating of CUSO investments over 100%
  • Expanding the services CUSOs can offer
  • Encouraging regulators to adapt their supervision to accommodate new services and processes to minimize cost and disruption
  • Oppose risk based NCUSIF premiums, which are unnecessary and duplicative of risk based capital, and would deplete credit union capital to the detriment of investing in innovative and collaborative CUSOs

Key strategies for accomplishing the NACUSO 2015-16 Legislative and Regulatory Advocacy Plan are detailed in the Advocacy Plan.  In order to have a maximum impact upon the regulators and the industry, CUSOs and their credit union owners must stand united as we promote the unique collaborative opportunities and risk sharing benefits that our CUSOs provide.   Together, our participation in collaboration advocacy efforts through NACUSO will be our most effective way of impacting the future regulatory environment under which CUSOs operate, from the impact of the CUSO Rule to the risk based capital requirement for CUSOs.

NACUSO will focus its advocacy efforts on those issues most critical to the CUSO community as a whole and will attempt to avoid watering down its message on key issues by taking public positions on all issues that may impact CUSOs or credit unions in a more indirect manner.

In the current environment it has become increasingly important for credit unions to find new sources of non-interest income in order to enhance earnings, build capital, and support member growth.  Thus, collaboration and innovation are more critical now than ever before to create sustainability for the credit union movement.  NACUSO educates the industry as a whole (CUSOs, credit unions and other providers) on the benefits of collaboration and innovation, facilitates cooperative business opportunities, and provides leadership on how to implement these strategies within a favorable legislative and regulatory environment.

It is the desire of NACUSO to be recognized as an effective organization in support of building a favorable legislative and regulatory environment through what we consider the four pillars of future credit union success – collaboration, innovation, growth and entrepreneurship.  NACUSO will be balanced in approach, but bold in action to aggressively promote this agenda and will seek to join with other like-minded organizations, when appropriate, to work in collaboration with NACUSO to see these key agenda items accomplished.

All of the organizations associated with the NACUSO Board of Directors have already made contributions to the NACUSO Advocacy Fund.   We urge you to add your collaborative voice to NACUSO’s advocacy efforts.  Please complete the commitment form today, and send your contributions to NACUSO so we can help you.  Please share with your friends in the industry who want to ensure a bright innovative, collaborative future for our industry and our members.  If you or your industry friends are not yet members of NACUSO, now is the time to join, and be part of the collaborative solution!  If you have questions about the NACUSO Advocacy Fund, click the link to go to the NACUSO Advocacy Fund FAQ’s.

Jack M. Antonini
President & CEO