News & Highlights

Ten Keys to Transitioning Investment Services from the CUSO

by Guy Messick

Moving your investment securities back into the Credit Union

The Securities and Exchange Commission (“SEC”) does not permit commissions from securities sales to be shared with non-registered persons. This is so the SEC and the National Association of Securities Dealers (“NASD”) can oversee and discipline persons who violate the securities laws and cause harm to investors. (more…)

Plugged In

by Thomas C. Davis & Valorie A. Seyfert

The goal is for members to identify credit union Financial Advisors as preferred “Trusted Advisors”.

The networked economy has ushered in new challenges and opportunities for credit unions. Competition is fierce and the need to create differentiated, sustainable advantage is more critical than ever. To surmount these challenges, some credit unions are trying to link the credit union’s reputation of trust to initiatives that carryover from the retail financial products and services side to the non-traditional side of the business. The goal is for members to identify credit union financial advisors as preferred “Trusted Advisors”-for all financial transactions, whether it be the sale of stocks, bonds and insurance products or auto loans, credit cards, CDs and mortgages. (more…)

Expanding Options: CUSOs And Loan Participations in Business Lending

by Guy Messick

The passage of the amendments to the NCUA’s Member Business Lending Regulation in September is evidence of a healthy and vibrant regulatory environment. The Credit Union Membership Access Act (“Act”) put restrictions on the ability of credit unions to meet the business lending needs of their members. The restrictions were not the result of an analysis of the ability of credit unions to serve the business market or safety and soundness considerations. These restrictions were part of the political price that credit unions paid for the passage of the Act. (more…)

5 Best Ways to Build Your Business

by Bob Dorsa

For many years CUSOs pioneered the development of non-traditional products and services for credit union members. What happened?

With the passage of incidental powers regulations for both federal and state chartered credit unions the playing field has changed. Surveys of credit union members conducted over the past few years indicate the trust members have for their credit unions surpasses other financial institutions. So the obvious question would have to be, why have CUSOs struggled to attain product penetration and profitability? Can it be the simple fact that many financial services oriented CUSOs were unable to establish that all-important link between their subsidiary and their parent CUSO, in the eyes of their members? (For the sake of discussion we are talking about a CUSO selling or offering retail investment, insurance and real estate loans to credit union members.)As we move forward what have we learned from the nearly 20 years of CUSOs in the financial services marketplace? What can we take from our experience to improve our sales activity? Here are a few ideas, which may shed some light on the subject.

TIP ONE: Integration of Investment and Insurance programs

Aggressive posture required! CUSOs have been involved in the sale of retail investments since the regulations were revised in the mid 1980s. While changing regulations will require CUSOs to divest of the interests in the sale of retail investment activities, this may be a blessing for credit unions. Integration of investment sales programs in the credit union itself may in fact increase sales volume. As we remove a layer of confusion in the member’s perspective, what once was deemed as mandatory for corporate veil protection may also have created some confusion and hindered sales.

With the equities markets rebounding, credit unions should take an aggressive posture on investment sales. A great deal of money resting on the sidelines may be leaving CUs bound for retail investments. Disintermediation has always concerned CUs, however this may be a good opportunity to rebalance the CUs deposit base and actually attract new funds to the CU.

The key has and still seems to be product penetration and utilization. A consistent validation that investments sales are integral to the CUs overall member service strategy is a must!

TIP TWO: CU employees must be trained and skilled to “ask for the business.”

Unless members are aware the CU has the capability, the trust factor is a non-factor. Sales training for CU staff has been an on-going effort for many years. We must however impress upon the staff the importance of providing members with products and services to meet all their financial needs. If CUs don’t act, the competition will!

TIP THREE: The US must improve Real Estate Lending capabilities.

The US Census and Mortgage Bankers Association reports home ownership in the US is slightly over 68%. While CUs have an anemic 3% of this market, the future could very well hinge on CU improvements in this area.

It has been well documented that real estate lending with its asset/liability risks and complexity of underwriting present some unique challenges. However, this may easily be overcome if CUs will carefully examine those risks and the rewards for their efforts.

Many CUSOs engage in the business of real estate lending. Our observations would be this exists mostly in larger organizations. The disconnect seems to be with those CUs who are lesser in assets. For many years the perception of the potential threat from the large credit union CUSO as a solution for smaller CU has been mitigated by the threat that the larger CU is only using this as a disguise for a potential move to merge or acquire the smaller CU?

While this may be true in some cases, this situation needs to be addressed for several reasons. Smaller CUs really don’t have many other viable alternatives. If the relationship is properly created it will result in a win-win situation. In any event big-time improvement in the origination and servicing of real estate loans is key to the future of the credit union industry!

TIP FOUR: Increase advertising – especially to new groups

It is amazing how little most Americans know about the values and benefits offered by credit unions. We seem to be content, for the most part, in spending money to “preach to the choir” so to speak. I agree existing members still have many misconceptions about the level and sophistication of the products and services offered by credit unions and CUSOs.

It becomes increasingly more important to expand into younger demographic groups and all ethnic groups if we are going to grow and prosper in the future. I have observed improvements in many of these areas, but we need to do much more!

Some organizations have expanded beyond the traditional direct mail advertising to include cable TV advertising, highway billboards signs and the like. Has anyone considered approaching the commercial airlines for advertising on in-flight programming? What about moving billboards that are driven around local communities to attract attention? How about getting more involved with charitable events as a means of promoting the credit union spirit? Some of this again is being tried, but I submit not nearly enough!

TIP FIVE: Seize the opportunity!

Often times in business, opportunities come and go, but usually they do not linger. I have heard the comment “credit unions are the best kept secret” for many years. What will it take for our industry to step up to the plate and seize opportunities at hand? We can usually cite the various obstacles that get in our way or the increasing competition as justification for our actions. The next several years will be very critical for credit unions.

We have the desires and the best interests of our members at heart. We must rethink our strategies to appeal to a new type of credit union member. One that may be ethnically diverse, perhaps even upscale, however it is imperative we take careful stock of the changing needs of younger generations and reinvent the credit union system to appeal to their needs and wants. We have the capability, the systems, and resources before us. I believe it will take some masterful thinking and execution to reach further into the financial markets where we are not as well known as we would like. However there are not many alternatives as positive as moving forward aggressively and communicating our message to the consumers of our nation.

In closing, if there would be one tip I believe is the most critical of all it would be the need to communicate the credit union story and our commitment to the consumer financial services marketplace. With the combined resources of credit union and CUSO we have all that we need to substantially increase our market share. Once again the fundamental challenge may be many consumers do not have clear and precise understanding of what credit unions can offer and why we are the better choice. In most cases we have to learn to ask for the business. However we must be cognizant that when we ask for it we had better be ready to execute the business to meet or exceed the consumer’s expectations. If we can do that, all will be good for the long haul!

Dating, Marriage, and Divorce – Cooperative CUSOs: Relationship Advice for Credit Unions

by Guy Messick

There is a lot of interest in cooperative CUSOs these days.

Credit unions are finding that it is more effective and economical to offer financial services and operational services on a cooperative basis through CUSOs. The types of services offered by these CUSOs vary widely and include services such as business lending, mortgage lending, information technology, insurance, human resources and trusts. Until a few years ago there were only a handful of cooperative CUSOs, shared branching CUSOs being the most prominent. Since then, credit unions have been eager to find ways to work together to provide services more efficiently and effectively. I believe this changed attitude was the result of economic and competitive factors as well as seeing evidence of successful CUSOs. We can talk at great length on why credit unions should cooperate but that is the subject of another article. This article focuses on how credit unions should structure a cooperative CUSO to prevent organizational issues from interfering with the effectiveness of the CUSO enterprise.

DATING

The first stage of the cooperative relationship is not unlike dating. You wonder what it would be like to partner with particular credit unions. Would they have the same vision, passion and commitment that you do? Do they have the same needs? Do you trust them to do the right thing? Successful partnerships are driven by strong underlying economic and competitive forces to partner but they also require personal synergies. Do you like and trust your partners on an emotional level? If the trust is not there, the partnership will never be successful.

My colleague in CUSO Advisors, Tom Davis, has conducted many visioning sessions with prospective credit union partners. Credit unions gather at visioning sessions to discuss possible joint ventures and drill down to see if there is sufficient commonality of interests and philosophy to continue to discuss a joint venture. Often the most important aspect of these sessions takes place after hours where the senior staff and the boards of the credit unions get to know each other on a personal basis and trust and comfort is found or not found.

Tom has found that it is the board members in particular that need this personal interaction time as they do not have as much of an opportunity to interact with other board colleagues as the senior staff has with their counterparts. This interaction time is most important when the credit unions are not geographically close. There is a trend for geographically diverse credit unions to unite in joint ventures in order to avoid the competitive issues that are becoming common in credit unions with overlapping fields of membership.

If the right fit exists, there will be excitement and passion for the possibilities of the CUSO. This passion translates into mutual support among the credit unions, which will empower the enterprise.

MARRIAGE

Now that marriage looks like a strong possibility, it is time to discuss the nitty-gritty of the relationship. This is not romance. That moment has passed. This is the down and dirty side of determining how this relationship will be structured. Typically, the CUSO will be a limited liability company and the provisions governing the relationship will be contained in the operating agreement. The following is a sample of some of the more critical questions that have to be asked and thoughts on how to deal with them.

Ownership

Are there any limitations on who can be an owner (called members) of the LLC? Will the CUSO be limited to natural person credit unions? Could a League be an owner? Can a non-credit union entity be an owner? Can natural persons be owners? Depending on the strategic goals of the organizers, there could be limitation on who can be an owner. I will note that any time a credit union partners with a non-credit union entity or person, there is the strong potential that there will be different goals among the owners. For example, credit unions are often more concerned with the service function of the CUSO to support the credit union and/or enhance their relationship with their members than they are on the profit motive. Non-credit union owners will most likely be primarily interested in the profit or growth of equity goals. These differences can lead to disputes in the relationship. This is one reason why the exit strategy for owners is very important. How will new owners be admitted and on what terms? Typically, this is an item that requires the unanimous consent of the owners. The owners can establish the admission cost for the new owners at the time of their admission to the LLC. There is no need to try and predict the future. The owners can decide what is appropriate at the time the decision is made. Absent a strong need to bring in new owners for capital or business reasons, there should be a premium for new owners to join above the cost of the original owners who took the bigger investment risk of investing in a start-up business.

Management

How will the board of managers be selected? Credit unions want a say in who manages the CUSO. That is normal and expected. Typically, each owner will be able to appoint at least one manager to the Board. It is common that the person appointed by the credit union is required to be a member of the credit union’s senior management. This will insure a high level of representation and integration between the CUSO and the respective owners. Generally, the appointing owner can remove a manager it has appointed at any time. If the board is limited to a specific number of seats and there are more owners than seats, it is common to have a rotation system where all owners have representation on the board over time. Sometimes there is a desire to establish Class B ownership rights for credit unions making a smaller investment in the CUSO. I call them Associate Members. They have all the rights of owners with some limitations such as in the selection of board members. Associate Members may have a board seat that will represent them as a collective unit or be limited to appointing persons to an advisory board that has no management powers. There are other solutions that can be worked out depending on the goals of the parties. What types of decisions will be required by the owners and not the board? This is not an issue if all the owners have equal representation on the board of managers, as all credit unions will be represented. If that is not the case, some of the very important decisions usually require the concurrence of all the owners.

What types of decisions will require unanimous consent, super majority consent and majority consent? The state LLC statutes usually mandate that some decisions must have the unanimous consent of all members, such as changing the certificate of organization or the operating agreement. There are other significant decisions that CUSOs can elect to require unanimous consent or a super majority to approve. The more routine day-to-day management decisions only require a simple majority. A super majority can be defined as desired. Usually it is two-thirds, 75% or 80% of the owners or board, as the case may be. The advantage of a super majority is that one or two credit unions in a CUSO owned by many credit unions could not block a near consensus of the other owners. The disadvantage is that your credit union might be the credit union that is on the short end of the stick. In CUSOs owned by five or less credit unions, unanimous consent is the norm for the important decisions.

Will the LLC have officers? Officers, such as president and secretary, are not required in LLCs. LLCs are run by managers. However, credit unions like the familiarity of officers and most LLC CUSOs have officers who do not have to be managers.

Services

Will non-owners be served? I recommend that non-owners be served only after the owners are receiving the service they expect. The advantage of serving owners is that owners have a stake in the success of the CUSO and are more likely to be good customers and supporters of the CUSO. This is why CUSOs often permit smaller credit unions to buy into the CUSO as Associate Member. Should the operating agreement limit the services provided? I recommend defining the purposes of the CUSO broadly to permit the greatest flexibility in what services the CUSO can offer the credit unions and their members. However, if there are a lot of owners, it will be more difficult to have multiple services in the CUSO, as it is unlikely that all owners will want all the services. For example, if not all credit union owners participate in all the services how will profits and losses be allocated among the credit union owners? Therefore, we often see credit unions in multiple CUSO relationships with varied credit union partners.

Will there be geographic limitations on the services? This is a strategic question that is tied to the business plan.

DIVORCE

Voluntary Withdrawal

How will an owner withdraw from the LLC? Some LLC operating agreements do not permit withdraw. We think that is a mistake for CUSOs, as most credit unions do not want to stay with a partner that is not supportive. We recommend that a credit union be permitted to withdraw and that the withdrawing credit union receives its net capital account back less any sums due the CUSO. To avoid a financial hardship to the CUSO, the CUSO can be given an election to pay the capital account over time with a stated interest rate. It is not typical that a credit union is paid for equity growth of its ownership interest in this situation.

Involuntary Withdrawal

Will you kick an owner out for non-payment of its obligations or failing to support the CUSO? Many credit unions do not want a credit union as a co-owner unless the credit union is committed to supporting the CUSO. Otherwise, the economies and efficiencies are reduced. Other credit unions don’t mind if credit unions just want to be non-active investors. If credit unions want to remove a credit union for non-support, you should be very specific in the operating agreement on what is meant by non-support. The non-support should be subject to objective measurements. If non-support occurs, we recommend that the non-supporting credit union be given a written notice with a right to cure before the forced divestiture occurs. The amount paid is usually the same as for voluntary withdrawals. We have seen situations where a non-credit union owner is brought on for its expertise, such as an insurance agency that runs the CUSO. The credit union owners have the right to replace the insurance agency, and if they do, the insurance agency would be paid for the growth in equity as an incentive to grow the equity in the CUSO for the benefit of all the owners. Another common reason to cause an involuntary withdraw is if the credit union owner converts to a savings and loan or savings bank. Right of First Refusal In the event that an owner desires to sell its ownership interest to a ready willing and able buyer, it is typical to require the selling owner to first offer its ownership interest to the CUSO and/or the other owners. This provision helps keep the ownership “in the family.”

Profit and Loss

What is the basis for the allocation of profits and losses among the owners? The usual method of splitting profit and loss is based on the percentage of ownership. However, many credit unions want to reward the users of the CUSO services and provide incentives to the owners to use the services. In CUSOs providing operational services, this can be done through a tiered pricing structure that reward heavy usage. The profit and loss model does not have to be adjusted. In CUSOs providing financial services, all or part of the return is sometimes based on the volume of business that is generated by the credit union owners. Caution should be taken to make sure that this method does not violate laws such as RESPA or the state insurance laws. There can be a pay or play component where a credit union that is a more frequent user of the CUSO services does not have to contribute as much in capital or expenses as credit unions who are less frequent users of the service.

Parting Advice

If a credit union finds that a CUSO partnership with other credit unions makes strategic sense, if there is personal trust between the participants and if there is passion for the enterprise, then the dating phase is successful. If the credit union partners can address and agree upon the nitty-gritty details of the marriage at the outset, then they have the organizational basis for a successful relationship. If the CUSO does not work out for a credit union, the operating agreement will serve as a pre-nuptial agreement that will permit the credit union to breakaway gracefully. Breaking up will not be hard to do.

(This story was originally published by The Credit Union Journal.)

Crisis at the Door – America's Retirement Realities Deliver Criticism and Lawsuits

by Dalbar, Inc.

The U.S. has been struggling with a frightening truth: Americans are not saving enough for their retirement. This fact holds enormous and potentially disastrous consequences, and the country has begun pointing fingers.

Who is responsible for this ticking bomb? And more importantly to a litigious society, who is liable? Current events have brought this question to the forefront, and the response from employees and their attorneys, and even U.S. legislators, is that the plan sponsor holds much of the blame.

Who exactly is responsible for ensuring that U.S. employees sufficiently fund and prepare for their retirement? While employees in participant-directed 401(k) plans are responsible for the selection of their own individual investment choices, The Employee Retirement Income Security Act of 1974 (ERISA) outlines the fiduciary responsibilities of plan sponsors in offering a plan to help participants achieve their retirement goals. According to ERISA, the plan fiduciary (which can include any or all of the individuals from the plan sponsor’s investment committee, board of directors, plan trustees, benefits managers, etc.) must:

     

  1. Operate the plan in the sole interest of the participants and beneficiaries benefits to the participant
  2. Exercise care
  3. Exercise skill
  4. Act prudently
  5. Apply knowledge available at the time
  6. Rely on experts for available knowledge
  7. Prudently select experts
  8. Use defined processes
  9. Document the process
     

  Under the law, every individual who has fiduciary authority for the retirement plan is personally responsible to the full extent of his or her wealth to manage the plan in accordance with these principles. While these guidelines can be used to determine if a fiduciary has acted properly, their lack of specificity presents a scenario for the plan sponsor (and the lawyers who sue them) in which there is no specific list of requirements that absolve the fiduciary from the risk of loss of personal assets. In fact, a plan sponsor’s fiduciary obligations to employees outweigh even the firm’s fiduciary obligations to its shareholders!

Defining What is Prudent
  What exactly does it mean for a plan sponsor to be prudent? Herein lies the fodder for potential courtroom debates. Consider, for example, how a prudent plan sponsor would be expected to behave when developing and administering a retirement plan for a group of employees with little or no understanding of investment or retirement principles. Would an enrollment meeting and the ability of participants to change investment options via a Web site be sufficient to satisfy the fiduciary responsibility of a prudent plan sponsor? Law firms across the country are preparing to argue “no” as their clients, unprepared for retirement, claim that they were ill-informed and/or misguided by their employer when investing in their retirement plans.

In essence, someone must take the blame for the fact that the average plan participant holds only $42,000 in his or her retirement account. Two pre-eminent Washington DC attorneys who specialize in class action litigation predict that the ones to hold the blame will be plan sponsors. They offer plan sponsors this wake-up call:

“We are nearly completed with litigation against tobacco companies. We are just beginning the major litigation against gun companies, and the next big area for litigation-after guns-is going to be suing 401(k) and 403(b) plan sponsors.”

Why Now?
  Until recently, a couple of circumstances have delayed from scrutiny the effectiveness of 401(k) plans (as currently administered) to fund citizens’ retirement. To begin with, the first generation of 401(k) self-directed plan participants is only now reaching the retirement stage, so there has not been enough time to detect any problems with 401(k) plan effectiveness or breaches in fiduciary responsibility by plan sponsors. In addition, the U.S. most recent bull market worked to hide flaws with participant-directed 401(k) plans, since double-digit returns had many people believing they might retire early and with ease. In both circumstances, however, today’s reality has changed drastically. Not only has the bull market turned into a prolonged bear market, widespread breaches in fiduciary responsibility by plan sponsors have been uncovered. Both turns of event have ignited fear and eventually litigation by U.S. hopeful pre-retirees. Most noteworthy have been the lawsuits ⢠led against the companies Enron and WorldCom. By the time the courts will have settled his case, Enron’s former CEO Kenneth Lay is expected to lose his personal assets for his breach of fiduciary responsibility to employees in his company plan. Sadly, both highly publicized cases have rendered the “prudent” person of today’s world to expect unethical and fraudulent actions from companies and individuals across the spectrum. But even more significantly, perhaps, is the impact of this attention on the majority of this country’s plan sponsors who are not in fact acting unethically, but with neglect.

Facing Today’s Realities
  Plan sponsors would argue that they are simply not in the business of managing 401(k) plans; they are in the business of running their business. This attitude and neglect have inadvertently created an ineffective retirement savings process for employees, and plan sponsors will likely feel the backlash when their employees are literally unable to retire at age 65. In the majority of cases, plan sponsors are breaking their fiduciary responsibility by shelving the problem of poor or ineffective employee participation in their retirement plans. For example, once the Ken Lays of the world have been tried, the more likely case seen in court will be that of a baby boomer who wants to retire but cannot for lack of sufficient retirement funds. Employees like this may sue their employer, not because the sponsor imprudently and unethically forced company stock on the employee (as in the case of Enron and WorldCom and others), but because the employer did not prudently develop a retirement plan that succeeded in helping employees reach retirement goals. Can Plan Sponsors Protect Everyone? First and foremost, today’s employers need to accept their vital role in helping employees to retire, by embracing their responsibility as 401(k) plan sponsors and plan fiduciaries. Employers seem to have forgotten that employers’ responsibility to plan for employees’ retirement is not a concept that has just recently been thrown upon this generation of business owners. In fact, today’s 401(k) plan (which relies on employee contributions) is less costly than its predecessor, the defined benefit plan that relies on contributions from the company to fund employees’ retirement. Not only is the 401(k) plan less costly to employers, it provides a critical benefit to employees that is vital to attracting and retaining high-quality staff. Plan sponsors, who acknowledge the seriousness and importance of their role as plan sponsor, can take comfort in knowing there are prudent steps to administering the plan that will help to manage fiduciary risk. Specifically, faced with today’s realities of corporate malfeasance and the inability of the average citizen to save appropriately for retirement, the prudent plan sponsor will best minimize fiduciary risk by:

     

  1. Providing employees with access to unbiased, qualified retirement advice.
  2. Performing due diligence on all experts involved with the plan.
     

Providing Advice
  It has finally come time to acknowledge that current and past practices of educating employees to fund for their retirement have not succeeded. Plan participants are making poor investment decisions and are simply not on track to be financially prepared for their retirement by the end of their working years.

Traditionally, fear of fiduciary responsibility has kept plan sponsors from correcting this problem by offering advice to their employees. Yet recent media, legal, and governmental attention on, and documentation of, participants’ inability to prepare for their own retirement is literally changing this risk equation for employers. Now, one could argue that offering participants access to unbiased, qualified advice is not risky, but a form of risk mitigation: “If plan fiduciaries know-or even strongly suspect-that their participants need help, including investment advice, the responsibility for acting is not avoided by not making a decision. From a legal perspective, the greater risk may be to fail to offer investment advice where it is needed. It is far more likely that fiduciaries will be viewed as having fulfilled their responsibilities where participants are advised by reputable investment organizations to create balanced long-term portfolios.”

So far, the U.S. legislature has come out to support the role of advice in 401(k) retirement plans. Already new legislation supporting advice delivery has been proposed, and is on the path to becoming law. Specifically, bill HR1000, which has been passed by Congress and awaits approval by the Senate, permits investment managers to provide advice to plan participants for a fee. Additionally, the SunAmerica opinion letter has paved the way for plan providers to offer advice to plan participants by using models from 3rd parties to ensure that advice is in best interest of participants.

Performing Due Diligence on Experts
  In addition to offering participants access to advice, a prudent plan sponsor will ensure that all parties responsible for managing, administering, contributing, or providing advice to the plan, are acting in the best interest of the plan participant. In the post-Enron era, a prudent person must reasonably expect unethical and fraudulent actions from companies and individuals. The usual practice of narrowly applying due diligence only to investment performance falls short of protecting assets from foreseeable risks-plan sponsors must also perform due diligence to mitigate risk from potential threats such as rogue brokers, inexperienced or sanctioned advisors and the unethical practices of any plan co-fiduciary.

Risk management therefore requires verifying the ethical, unbiased and knowledgeable practices of all experts used by the plan, including but not limited to: investment consultants, fiduciary advisors, third-party administrators, enrollees, and call centers that support plan participants. The most prudent of plan sponsors will best mitigate fiduciary risk by performing due diligence of these experts in areas such as the expert’s regulatory history, ethical practices, quality of customer service, and knowledge of 401(k) principles.

In Conclusion
  The inability of millions of Americans to prepare for their own retirement has developed into a nationwide crisis that is at once political, social and economic. Plan sponsors that accept their share of responsibility in righting this crisis by acting prudently, diligently, and in the best interest of their employees will in return gain the loyalty of their employees, while mitigating the risks facing them in a post-Enron world.

Footnotes: “The Retirement Plan Bomb for Non-Profits” by Mark B Manin; LaRhette Manin Benefits Service Group; Wellesley, MA. Fred Reish; Reish Luftman McDaniel & Reicher law firm; Los Angeles, CA.

This article was originally published by Dalbar, Inc in July 2003. (Used by permission.)

Crisis at the Door – America’s Retirement Realities Deliver Criticism and Lawsuits

by Dalbar, Inc.

The U.S. has been struggling with a frightening truth: Americans are not saving enough for their retirement. This fact holds enormous and potentially disastrous consequences, and the country has begun pointing fingers.

Who is responsible for this ticking bomb? And more importantly to a litigious society, who is liable? Current events have brought this question to the forefront, and the response from employees and their attorneys, and even U.S. legislators, is that the plan sponsor holds much of the blame.

Who exactly is responsible for ensuring that U.S. employees sufficiently fund and prepare for their retirement? While employees in participant-directed 401(k) plans are responsible for the selection of their own individual investment choices, The Employee Retirement Income Security Act of 1974 (ERISA) outlines the fiduciary responsibilities of plan sponsors in offering a plan to help participants achieve their retirement goals. According to ERISA, the plan fiduciary (which can include any or all of the individuals from the plan sponsor’s investment committee, board of directors, plan trustees, benefits managers, etc.) must:

     

  1. Operate the plan in the sole interest of the participants and beneficiaries benefits to the participant
  2. Exercise care
  3. Exercise skill
  4. Act prudently
  5. Apply knowledge available at the time
  6. Rely on experts for available knowledge
  7. Prudently select experts
  8. Use defined processes
  9. Document the process
     

  Under the law, every individual who has fiduciary authority for the retirement plan is personally responsible to the full extent of his or her wealth to manage the plan in accordance with these principles. While these guidelines can be used to determine if a fiduciary has acted properly, their lack of specificity presents a scenario for the plan sponsor (and the lawyers who sue them) in which there is no specific list of requirements that absolve the fiduciary from the risk of loss of personal assets. In fact, a plan sponsor’s fiduciary obligations to employees outweigh even the firm’s fiduciary obligations to its shareholders!

Defining What is Prudent
  What exactly does it mean for a plan sponsor to be prudent? Herein lies the fodder for potential courtroom debates. Consider, for example, how a prudent plan sponsor would be expected to behave when developing and administering a retirement plan for a group of employees with little or no understanding of investment or retirement principles. Would an enrollment meeting and the ability of participants to change investment options via a Web site be sufficient to satisfy the fiduciary responsibility of a prudent plan sponsor? Law firms across the country are preparing to argue “no” as their clients, unprepared for retirement, claim that they were ill-informed and/or misguided by their employer when investing in their retirement plans.

In essence, someone must take the blame for the fact that the average plan participant holds only $42,000 in his or her retirement account. Two pre-eminent Washington DC attorneys who specialize in class action litigation predict that the ones to hold the blame will be plan sponsors. They offer plan sponsors this wake-up call:

“We are nearly completed with litigation against tobacco companies. We are just beginning the major litigation against gun companies, and the next big area for litigation-after guns-is going to be suing 401(k) and 403(b) plan sponsors.”

Why Now?
  Until recently, a couple of circumstances have delayed from scrutiny the effectiveness of 401(k) plans (as currently administered) to fund citizens’ retirement. To begin with, the first generation of 401(k) self-directed plan participants is only now reaching the retirement stage, so there has not been enough time to detect any problems with 401(k) plan effectiveness or breaches in fiduciary responsibility by plan sponsors. In addition, the U.S. most recent bull market worked to hide flaws with participant-directed 401(k) plans, since double-digit returns had many people believing they might retire early and with ease. In both circumstances, however, today’s reality has changed drastically. Not only has the bull market turned into a prolonged bear market, widespread breaches in fiduciary responsibility by plan sponsors have been uncovered. Both turns of event have ignited fear and eventually litigation by U.S. hopeful pre-retirees. Most noteworthy have been the lawsuits ⢠led against the companies Enron and WorldCom. By the time the courts will have settled his case, Enron’s former CEO Kenneth Lay is expected to lose his personal assets for his breach of fiduciary responsibility to employees in his company plan. Sadly, both highly publicized cases have rendered the “prudent” person of today’s world to expect unethical and fraudulent actions from companies and individuals across the spectrum. But even more significantly, perhaps, is the impact of this attention on the majority of this country’s plan sponsors who are not in fact acting unethically, but with neglect.

Facing Today’s Realities
  Plan sponsors would argue that they are simply not in the business of managing 401(k) plans; they are in the business of running their business. This attitude and neglect have inadvertently created an ineffective retirement savings process for employees, and plan sponsors will likely feel the backlash when their employees are literally unable to retire at age 65. In the majority of cases, plan sponsors are breaking their fiduciary responsibility by shelving the problem of poor or ineffective employee participation in their retirement plans. For example, once the Ken Lays of the world have been tried, the more likely case seen in court will be that of a baby boomer who wants to retire but cannot for lack of sufficient retirement funds. Employees like this may sue their employer, not because the sponsor imprudently and unethically forced company stock on the employee (as in the case of Enron and WorldCom and others), but because the employer did not prudently develop a retirement plan that succeeded in helping employees reach retirement goals. Can Plan Sponsors Protect Everyone? First and foremost, today’s employers need to accept their vital role in helping employees to retire, by embracing their responsibility as 401(k) plan sponsors and plan fiduciaries. Employers seem to have forgotten that employers’ responsibility to plan for employees’ retirement is not a concept that has just recently been thrown upon this generation of business owners. In fact, today’s 401(k) plan (which relies on employee contributions) is less costly than its predecessor, the defined benefit plan that relies on contributions from the company to fund employees’ retirement. Not only is the 401(k) plan less costly to employers, it provides a critical benefit to employees that is vital to attracting and retaining high-quality staff. Plan sponsors, who acknowledge the seriousness and importance of their role as plan sponsor, can take comfort in knowing there are prudent steps to administering the plan that will help to manage fiduciary risk. Specifically, faced with today’s realities of corporate malfeasance and the inability of the average citizen to save appropriately for retirement, the prudent plan sponsor will best minimize fiduciary risk by:

     

  1. Providing employees with access to unbiased, qualified retirement advice.
  2. Performing due diligence on all experts involved with the plan.
     

Providing Advice
  It has finally come time to acknowledge that current and past practices of educating employees to fund for their retirement have not succeeded. Plan participants are making poor investment decisions and are simply not on track to be financially prepared for their retirement by the end of their working years.

Traditionally, fear of fiduciary responsibility has kept plan sponsors from correcting this problem by offering advice to their employees. Yet recent media, legal, and governmental attention on, and documentation of, participants’ inability to prepare for their own retirement is literally changing this risk equation for employers. Now, one could argue that offering participants access to unbiased, qualified advice is not risky, but a form of risk mitigation: “If plan fiduciaries know-or even strongly suspect-that their participants need help, including investment advice, the responsibility for acting is not avoided by not making a decision. From a legal perspective, the greater risk may be to fail to offer investment advice where it is needed. It is far more likely that fiduciaries will be viewed as having fulfilled their responsibilities where participants are advised by reputable investment organizations to create balanced long-term portfolios.”

So far, the U.S. legislature has come out to support the role of advice in 401(k) retirement plans. Already new legislation supporting advice delivery has been proposed, and is on the path to becoming law. Specifically, bill HR1000, which has been passed by Congress and awaits approval by the Senate, permits investment managers to provide advice to plan participants for a fee. Additionally, the SunAmerica opinion letter has paved the way for plan providers to offer advice to plan participants by using models from 3rd parties to ensure that advice is in best interest of participants.

Performing Due Diligence on Experts
  In addition to offering participants access to advice, a prudent plan sponsor will ensure that all parties responsible for managing, administering, contributing, or providing advice to the plan, are acting in the best interest of the plan participant. In the post-Enron era, a prudent person must reasonably expect unethical and fraudulent actions from companies and individuals. The usual practice of narrowly applying due diligence only to investment performance falls short of protecting assets from foreseeable risks-plan sponsors must also perform due diligence to mitigate risk from potential threats such as rogue brokers, inexperienced or sanctioned advisors and the unethical practices of any plan co-fiduciary.

Risk management therefore requires verifying the ethical, unbiased and knowledgeable practices of all experts used by the plan, including but not limited to: investment consultants, fiduciary advisors, third-party administrators, enrollees, and call centers that support plan participants. The most prudent of plan sponsors will best mitigate fiduciary risk by performing due diligence of these experts in areas such as the expert’s regulatory history, ethical practices, quality of customer service, and knowledge of 401(k) principles.

In Conclusion
  The inability of millions of Americans to prepare for their own retirement has developed into a nationwide crisis that is at once political, social and economic. Plan sponsors that accept their share of responsibility in righting this crisis by acting prudently, diligently, and in the best interest of their employees will in return gain the loyalty of their employees, while mitigating the risks facing them in a post-Enron world.

Footnotes: “The Retirement Plan Bomb for Non-Profits” by Mark B Manin; LaRhette Manin Benefits Service Group; Wellesley, MA. Fred Reish; Reish Luftman McDaniel & Reicher law firm; Los Angeles, CA.

This article was originally published by Dalbar, Inc in July 2003. (Used by permission.)

The CUSO Countdown: Reasons to Use a CUSO versus the Credit Union's Incidental Powers

by Guy Messick

The reasons for using a CUSO are:

  1. A CUSO is still needed to legally provide some services. For example, if a credit union desires to provide non-depository trust services or to be engaged as an active mortgage broker, these services require powers that credit unions do not have and therefore the services must be through a CUSO. This is also true for a credit union that wants to be an active property and casualty insurance agency. If the goal is to have direct appointments from insurance carriers and actively sell insurance, this is not an activity that credit unions are empowered to do, so an active insurance agency must be a CUSO. Note that the credit union is permitted to enter into an agreement with an insurance agency for the sole purpose of referring business to the insurance agency. If the credit union had an insurance license or is otherwise permitted to receive commissions under state insurance laws, the insurance agency could send a portion of the commissions to the credit union as a referral commission. This situation would not require the credit union to be an active insurance agency.
  2. There is a desire to leverage the advantages of scale by having other credit unions join in a cooperative model. CUSOs are the model for cooperative arrangements among peer credit unions. If you intend to bring in other credit unions as partners in the delivery of a service, the CUSO model should be used. Note that a credit union has the option of providing services to other credit unions without the need of a CUSO but the other credit unions would not be able to have an ownership interest without a CUSO. Sometimes the ownership interest is a necessary strategic step to attract and retain key credit unions as customers of the CUSO. These cooperative arrangements can be very powerful tools to create economies of scale and economic power in the marketplace.
  3. There is a need to raise capital outside of the credit union. Credit unions are limited by regulation as to the amount of capital that it can invest in its CUSOs. By having multiple investors, credit unions may draw upon the capital of others. These other investors could be other credit unions or even non-credit unions. Caution should be taken with non-credit union investors as their goals, especially on the importance of the profit margin, may ultimately conflict with the credit union investors. Also note that senior officials of the credit union may not own CUSO shares under the conflict of interest prohibitions.
  4. There is a desire to build equity that the credit union can sell in whole or in part at a future time. A successful CUSO will generate equity growth, which can be sold in whole or in part as other investors buy in. This can be very profitable to the credit union, as many credit unions have happily learned.
  5. There is a desire to create a for-profit, entrepreneurial sales culture that can attract and retain a talented and creative staff and complement the credit union’s mission. There are only so many opportunities to advance within the credit union. A CUSO provides alternate and additional career paths to attract and retain quality staff. A for-profit CUSO can attract a sales oriented staff that can assist the credit union compete in the highly competitive financial services marketplace.
  6. The target market includes significant non-member business. A CUSO may serve non-members as long as the majority of its business is with members. If your target sales market includes non-member business, a CUSO should be used. Note that the property and casualty business could have persons or companies clients who cannot qualify for membership in the credit union. Since Incidental Powers does not permit the sharing of revenue for non-member business with a credit union, the revenue from the non-member business can only be realized in a CUSO.
  7. There is a desire to isolate liability away from the credit union. If the credit union has liability risk concerns for these ancillary services, a CUSO can help manage the risk outside of the credit union.

The reasons to use the credit union’s Incidental Powers are:

  1. The credit union wants to receive a referral fee for offering the alternative financial services to its members without it actually providing the alternative financial services. Incidental Powers permits a Finders Activity fee that is paid by a third party vendor to a credit union for access to its members. Incidental Powers do not empower credit unions with the ability to provide any expanded financial services. Note that credit unions may be required to obtain appropriate licenses to receive income for some services, e.g. insurance commissions.
  2. The credit union thinks that the integration of alternative financial products can be better achieved by having the services “in the credit union”. As separate entities, CUSOs where often a structural hindrance in achieving full integration of the alternative financial services with the traditional credit union financial services. The removal of the CUSO is regarded as a plus by many credit unions in their quest for full integration. It removes some psychological barriers.
  3. If the credit union desires to provide some services to other credit unions as customers but does not want to take on partners, there is no need for a CUSO.
  4. The credit union is comfortable with the risk management issues of running the services within the credit union.
  5. The credit union’s target market is overwhelmingly member only business.
  6. Forming and running a CUSO is a distraction that the credit union desires to avoid.

Advocacy Updates

Report on Advocacy Fund spending… NACUSO Working for You

Through the support of our members and partners, NACUSO raised approximately $273,000 in contributions toward its Advocacy Fund (and predecessor Legal & Litigation Fund) over the past 3 years.  The goal of the two funds together are to enable NACUSO to conduct crucial advocacy work on behalf of CUSOs and their credit union owners / partners.

In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars (we provided detail of how the funds were spent from 2014-2015 last year, which is also included in the attached Report), we would like to provide you with the following information, which was provided in detail to each contributor in the first quarter of 2017.  NACUSO spent the following amounts from the Advocacy funds during 2016:

$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
$   718     Travel to Washington DC for meetings with Congress and NCUA
$48,718    Total amount spent influencing Congress and NCUA for favorable CUSO environment

The remaining funds, out of the total $273,000 in combined contributions, equal $110,323.  This represents the balance in Restricted Cash as of 12-31-16, as per the NACUSO Advocacy and Legal Fund Analysis report (click link below).

The NACUSO Board and its Legislative & 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 to accomplish 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.

Click to Contribute

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 (see below) 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:

  • Effectively opposing the costly extension of Vendor Authority to NCUA.
  • Worked with NCUA on the revised MBL Rule.
  • Advocating for the expansion of CUSO powers to originate loans credit unions are authorized to make, to help bring scale and expertise benefits to credit unions in all loan categories.
  • Encouraged NCUA to be transparent in its budget and rule making including the OTR calculation.
  • 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 in 2016, the agency’s acknowledgement form required CUSOs – when submitting their data – to accept responsibility under regulations that only apply to credit unions but were not intended to, apply to CUSOs.  These acknowledgments, if left unchallenged and signed by CUSO officials, could have exposed 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 and benefit from 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.  With a new Congress now in session, educating them on the benefits of credit unions and the collaborations that enable them to cost effectively serve their members, as well as invest in innovation, through CUSOs that help spread and minimize risk, is an important message we are delivering.  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.  Thank you for your support, and for giving NACUSO the opportunity to support you as you serve your members.  Please consider adding your support to our advocacy efforts by contributing today.

View NACUSO’s 2016-17 Advocacy Plan 

View NACUSO’s Advocacy & Legal Fund Analysis

 

Best Regards,

Jack M. Antonini
President & CEO
NACUSO
Jack@nacuso.org

NACUSO Working For You

Legislative & Regulatory Advocacy Update

Vendor Authority

Knowing that obtaining vendor authority was the number one legislative issue for NCUA in 2015-16, 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, Congress was not persuaded by their arguments.

We 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.

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, please contribute to NACUSO’s Advocacy Fund today – click here to contribute.

NCUA’s MBL Rule

NACUSO was supportive of the positive changes in NCUA’s revised 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, in consultation with our business lending CUSO members, recognized that the Conflict of Interest provisions in the new MBL Rule could be misconstrued by examiners, so we have engaged with NCUA Board members and senior NCUA staff about the issue, and sent a letter to explain our concern and our recommended solution (see NACUSO’s MBL Conflict of Interest Letter to NCUA ).

Expansion of CUSO Authorized Powers

NACUSO wrote to the NCUA Board in 2015 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 was 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 had 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).

NACUSO has since asked the NCUA Board to consider updating the CUSO powers to align CUSO loan support with the loans credit unions are authorized to provide to their members  (see NACUSO’s 2017 Expansion of CUSO Authorized Powers Letter to NCUA), so CUSOs can bring scale, risk mitigation and expertise benefits to credit unions in all loan categories, not just those listed in the regulations.  While we explained the reasons for updating the NCUA Rules and Regulations Part 712.5 defining the permissible pre-approved activities a CUSO may provide, we also referred to our advocacy efforts to have auto loans and consumer loans added to the list of CUSO activities over the past two years, and the support that NCUA has communicated regarding those efforts.  We respectfully submit that now is the time to update the CUSO regulations to clarify that CUSOs are authorized to assist credit unions with any loan type that credit unions are authorized to make.

Update on CUSO Rule Implementation

Pursuant to the CUSO Rule the NCUA adopted in November 2013, CUSOs have been required to report certain information directly to NCUA pursuant to the agreement with their investing credit unions.  NCUA built an on-line reporting system that went live in the first quarter of 2016, and CUSOs updated their CUSO Registry information in the first quarter of 2017.

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 Supported 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.  The extension of regulatory authority by NCUA comes with increased costs, costs that are paid for ultimately by credit union members.

NCUA takes money from the insurance fund to pay for its operations through the Overhead Transfer Rate (“OTR”).  The OTR currently funds approximately 70% 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.  Fortunately, under new leadership, NCUA has decided to be more transparent as part of its budget process and publish details of how it calculates the OTR.

NACUSO 2016-17 Legislative & Regulatory Advocacy Plan

As we explained when we announced the formation of the NACUSO Advocacy Fund two years 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 established an Advocacy Fund to supplement its efforts to promote and protect a collaboration/CUSO friendly regulatory climate.

At the 2016 NACUSO Annual Conference, we shared our 2016-17 NACUSO 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 collaborative 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 risks

The Advocacy Plan also identifies the key associational positions that NACUSO is focused on, for the benefit of CUSOs and their credit union owners, which are summarized as follows:

  • Supports the development of clear examination guidelines that recognizes that NCUA has review powers and not examination powers over CUSOs. Such guidelines would inhibit de facto regulatory creep that would treat CUSOs as regulated entities that would discourage innovation and collaboration. NACUSO will intervene with NCUA in the more egregious cases if the CUSO or the investing credit unions request NACUSO’s assistance.  NACUSO opposes any legislative efforts by NCUA to gain statutory authority to directly regulate and examine CUSOs through an unnecessary expansion of the agency’s examination authority over credit union vendors
  • NACUSO supports the modernization of the permitted CUSO Services list to include all loan types that credit unions can originate to help bring scale benefits as well as risk mitigation and expertise benefits to credit unions
  • NACUSO will encourage regulators to view innovation and collaboration as an essential part of a revitalized credit union model and adapt their regulations and supervision to encourage the responsible and prudent development of the collaborative model

Key strategies for accomplishing the NACUSO 2016-17 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.

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 NACUSOAdvocacy Fund FAQ’s.

Thank you very much for your support, and for giving NACUSO the opportunity to serve you as you serve your members.  It is a privilege that we truly appreciate.

Sincerely,

Jack M. Antonini
President & CEO
NACUSO
Jack@nacuso.org

Jack M Antonini
President & CEO – NACUSO
jantonini@aol.com  (713) 208-0989
NACUSO’s 2018 Network Conference April 16-19 at Disneyland Resort in Anaheim, CA
Learn more about NACUSO in this short video!


NCUA Meeting Provides CUSO Guidance 6/16/16

NACUSO Visits NCUA to Discuss the CUSO Registry and CUSO Reviews

On June 14, Jack Antonini, NACUSO President and Guy Messick, NACUSO General Counsel met with NCUA Staff on the results of the CUSO Registry and the thinking on how CUSO Reviews will be handled.

The CUSO Registry sign-up period and the follow-up by NCUA found there were approximately 900 CUSOs.   NCUA believes that there are more CUSOs that have not reported.  Under the NCUA Regulations (Part 712.1(d)), “A CUSO also includes an entity in which a CUSO has an ownership interest of any amount, if that entity is engaged primarily in providing products or services to credit unions or credit union members.”   So these subsidiary CUSOs are considered CUSOs and required to make annual reports to NCUA.   The NCUA staff believes that many CUSOs were not fully aware of this requirement and there are a number of subsidiary CUSOs that have not reported.   NCUA will be following up with CUSOs to obtain these filings.   NCUA is also scrubbing the data and asking for clarification if the data is indicating that there may have been a reporting error. (more…)

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:

(more…)

CUSO Registry Clean Up Period 4/22/16

As most of you know, all CUSOs are obligated under the NCUA Regulations to register certain information directly with NCUA on an annual basis.   Over 800 CUSOs did so in February and March.   NCUA is now in the process of making sure all CUSOs have registered.   Their new deadline is April 30.  They are taking CUSO information from the credit union 5300 call reports and sending out letters reminding “CUSOs” that they have to register.   Some credit unions may have incorrectly listed a company as a CUSO.  Other credit unions list their CUSO but use an acronym for the CUSO instead of the CUSO’s full name.   NCUA, not knowing better is sending letters to any and all companies listed on the call reports. (more…)

Regulatory Update 3/15/16

Letter to NCUA regarding CUSO Registry Acknowledgement: Yesterday, NACUSO informed you of a change we negotiated with our General Counsel (Messick & Lauer) with the NCUA regarding the CUSO Registry Acknowledgment each CUSO is required to agree to when submitting their CUSO registration in the NCUA’s CUSO Registry system.  As we pointed out in our Regulatory Alert yesterday, the acknowledgment required CUSOs to agree to be bound by statutes that only apply to credit unions and which imposed penalties that are not applicable to CUSOs.

(more…)

Change to the CUSO Registry Acknowledgement 3/14/16

During the process of assisting with CUSO Registry questions, it came to our attention that in order to complete the CUSO Registry, CUSOs were required to agree to be bound by statutes that apply to credit unions and which imposed penalties that are not applicable to a CUSO.  On behalf of NACUSO and the many CUSOs in this industry, Messick & Lauer (NACUSO’s General Counsel) have advocated and negotiated to revise this acknowledgement to more accurately describe the duty of CUSOs to respond to the CUSO Registry.  It is a contractual duty with the credit union and not a direct regulatory obligation to NCUA.   As NCUA continues to pay more attention to CUSOs, NACUSO will continue to take action to be the voice of CUSOs and to resist any attempts at regulatory overreach.  The NCUA has changed the acknowledgement text.  For your reference, the text of the previous and current CUSO Registry acknowledgments are below. (more…)

Regulatory Update 2/26/16

NCUA’s CUSO Registry Training & Demonstration webinar held on February 11 is now available to be viewed.  If you missed the webinar, or want to view it again, to help you in completing the CUSO Registry, you can watch it by clicking on the following link:  View 2/11/16 Webinar. You have until March 31, 2016 to complete your initial registration of all CUSOs.