Between now and December 31, 2015, credit unions and CUSOs can join NACUSO at 50% off the first year’s annual membership (only $425 instead of $850). If you are a non-credit union or CUSO service provider and qualify as a Contributory Member, you can join NACUSO at the same 50% discount between now and December 31, 2015: That’s only $675 instead of $1,350. Click to Join NACUSO – Membership Special
Author: Rebecca Issacs
NACUSO Member Update On Treatment of CUSOs in NCUA’s Proposed Risk Based Capital Rule
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.
CUSO Rule Implementation Clarification
To: NACUSO Members
From: Brian Lauer, Messick & Lauer P.C.
As we all know, the newly amended CUSO regulation will go into effect on June 30, 2014. On or before that date, federally insured credit unions with investments in or loans to a CUSO must obtain an agreement from such CUSO wherein the CUSO agrees to directly report information to the NCUA. There was some confusion among credit unions and CUSOs whether this regulatory burden extends to credit unions with only a contractual agreement for services with a CUSO. We did not believe that it did or that it should. The NCUA agrees. Attached is a general counsel opinion clarifying this position and explaining the origin of the confusion.
