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.
Anticipating that NCUA would continue its campaign for direct regulatory authority over CUSOs and third party vendors, NACUSO has created an Advocacy Fund funded by NACUSO members and retained the services of a governmental relations entity to communicate to Congress NACUSO’s opposition to giving NCUA the authority to directly regulate CUSOs. NACUSO leadership has visited the offices of key House and Senate members on the respective banking committees to advocate NACUSO’s position.
In order to justify new regulatory powers, it is the position of NACUSO that there must be a compelling need for the regulation. History has shown us that NCUA currently has all the ability it requires to oversee what CUSOs are doing. For over 20 years, NCUA has required credit unions to have their CUSOs contractually agree to open up their books and records to NCUA.
NCUA’s lack of congressional authority to regulate CUSOs has not hindered NCUA from amending the CUSO Regulation in November 2013 to require CUSOs to directly report to NCUA certain information on an annual basis. As can be seen by this history, NCUA has always had the power to see exactly what a CUSO is doing and can clearly see that CUSOs are producing considerable savings through collaborative risk sharing and significant non-interest income.
Only 22 basis points of credit union assets are invested in CUSOs – hardly a systemic risk. And there have been very few CUSO failures. We would submit that, where there have been occasional CUSO failures, they did not result from a lack of NCUA authority over third-party vendors and CUSOs – but rather a failure of NCUA to effectively utilize the authority the Agency already has under existing law and regulation.
Congress needs to seriously vet the underlying facts that are used to support the assertion by NCUA that CUSOs have caused the losses that NCUA ascribes to them. In the example cited in the testimony, the CUSO provided underwriting advice but the credit unions made the credit decisions and the loans were on the books of the credit union – not the CUSO. Were the losses caused by the CUSO or the credit union’s credit decisions?
CUSOs save credit unions millions of dollars annually on operational costs and provide millions more in non-interest income. CUSOs help credit unions deliver products and services more conveniently to 100 million members through shared ATMs and branches, and by providing brokerage services, trust services and more. CUSOs are innovators and incubators of new ideas, which are sorely needed to deal with changing economic realities. The law and regulations already deal with the risk issue by limiting the power to invest and loan to CUSOs to a nominal amount of 2% of the balance sheet.
Innovation is never fostered in a highly regulated environment and NACUSO fears that the direct regulation of CUSOs will smother the ability of credit unions to share risk and utilize CUSOs to experiment and innovate. Without a compelling reason for additional regulation, no additional regulatory authority should be granted NCUA to directly regulate CUSOs and third party vendors beyond that already available to them – which is considerable.
CUSOs are a unique asset to the credit union industry. NACUSO will continue to advocate to prevent the excessive regulation of CUSOs that would hinder the tremendous value CUSOs bring to credit unions.
