Author: Rebecca Issacs

On February 10, 2015, NCUA presented testimony to the Senate Banking Committee hearing on Regulatory Relief for Community Banks and Credit Unions.   In NACUSO’s view, NCUA seemed to be out of touch with the purpose of the hearing, which was to examine means of removing regulatory burden for credit unions and fostering greater investment in local communities.

Instead of suggesting how NCUA can help meet the growing need of credit unions and credit union service organizations (CUSOs) to reduce unnecessary regulatory burdens, NCUA took the opportunity to ask Congress for additional regulatory authority.  We learned with great interest from NCUA’s testimony that the Agency’s number one legislative priority in 2015 is to obtain Congressional authority to dramatically expand the Agency’s statutory authority to enable NCUA to directly regulate and examine all CUSOs and third party vendors that do business with credit unions.  This will give NCUA new powers over thousands of non-credit union organizations.  This sweeping expansion of regulatory authority is at odds with the Senate Committee’s stated goal of reducing regulatory burdens that drive-up the costs of financial services.

From a CUSO perspective, we do not understand why NCUA would take the a risk of asking Congress to open the Federal Credit Union Act for this purpose since history has demonstrated that direct regulatory powers over CUSOs is not needed in order for NCUA to protect the safety and soundness of the credit union system. NCUA already has all the ability, though their regulation of the credit unions that are the owners of CUSOs, to see what CUSOs are doing and to enforce their will upon CUSOs.

Continue reading NACUSO Makes Congressional Visits to Oppose NCUA’s Request for Powers to Directly Regulate CUSOs

The revised NCUA Risk Based Capital proposal’s impact on CUSOs, which was approved at the January 15 NCUA Board meeting on a vote of 2-1, with NCUA Board Member Mark McWatters voting against the revised RBC proposal, are summarized as follows:

• If the CUSO’s financials are consolidated into a credit union’s financial statement under GAAP, there is NO separate applicable CUSO investment or loan risk weight.
• If equity investment in a CUSO is unconsolidated, then risk weight is 150%, an improvement from the 250% in the original RBC proposal, but still unreasonable for CUSOs that pose little risk to their credit union owners.
• Loans to CUSOs are still risk weighted at 100% for unconsolidated CUSOs.
• Non-CUSO equity investments are risk weighted at 300% for publicly traded entities and 400% for non-publicly traded non-CUSO equity investments.

Comments on the revised Risk Based Capital rule are due 90 days after publication in the Federal Register.

Dollar Associates, CUNA and NAFCU have highlighted many of the major provisions regarding the newly proposed second draft of the Risk Based Capital Rule. However, NACUSO would like to give our initial thoughts on the rule from the context of CUSOs. Many aspects of the rule beyond the treatment of CUSO investments and loans to CUSOs affect CUSOs because of the nature of CUSO services, but right now we want to analyze the direct treatment of CUSOs. In the near future, NACUSO will share its thoughts on the entire rule and provide members a copy of our comment letter to the NCUA as well as a sample comment letter for their review. In addition, we will have several representatives of NCUA at the NACUSO Annual Conference in Orlando this April, where this rule will be directly discussed.

Before we strike directly into the CUSO provisions of the rule, let’s highlight the fact that Board Member McWatters made a cogent argument about the statutory authority for even proposing the risk based capital rule in the first place, and he voted against it. Without getting into the thick of this particular issue, there are parallels to the new CUSO rule. First, NCUA admits that it does not have the authority to regulate CUSOs or vendors, yet it proceeded to pass a rule devoted entirely to the “indirect” regulation of CUSOs, mandating CUSOs, not their credit union owners, report to NCUA highly confidential and proprietary information. As we will see later this lack of regulatory authority rears its head again in the risk based capital rule.

Continue reading NACUSO Member Update On Treatment of CUSOs in NCUA’s Proposed Risk Based Capital Rule