As discussed at the NACUSO Annual Conference in May, NCUA reviews one third of its regulations every three years. There is a list of those regulations that will be reviewed this coming year. That can be viewed on NCUA’s website www.ncua.gov. Included in this year’s review will be the regulations governing, CUSOs, Incidental Powers, Privacy and Member Business Loans. If you have any thoughts on how these Regulations can be improved, please send them to NCUA by August 1st at firstname.lastname@example.org . We ask that you copy our General Counsel Guy Messick at email@example.com so that NACUSO can advocate on your behalf. Note that you will have the ability to comment on any proposed changes but this is your chance to help define the issues.
News & Highlights
The Securities and Exchange Commission (SEC) has issued a proposed rule (“Regulation B”) that would grant credit unions some of the exemptions from the broker-dealer registration requirements that banks currently receive and provide new exemptions for banks. These exceptions are provided under the Securities Exchange Act of 1934 “Exchange Act,” as amended by the Gramm-Leach-Bliley Act (“GLBA”). These exceptions and how the SEC proposes to treat credit unions under Regulation B are described below:
- First, the proposal would allow credit unions to enter into the same networking arrangements with broker-dealers that banks can. Currently, credit unions may enter into networking arrangements with broker-dealers under the conditions set forth in an SEC opinion letter (“Chubb letter”). However, banks can network with broker-dealers under the terms of the Exchange Act bank exception for third-party brokerage arrangements. This proposal extends that Exchange Act exception to include credit unions, and would thereby supercede the Chubb letter.
- Second, the proposal would permit credit unions to sweep deposit accounts into no-load money market funds under the same terms as banks can under the bank exception in the Exchange Act. The SEC states that the statutory exception is limited and should place financial institutions offering similar services on a more level playing field.
- Third, the proposal permits credit unions to buy and sell securities for investment purposes for themselves, or for accounts for which they act as trustee or fiduciary under the terms of the investments transaction exception in the Exchange Act.
The proposal would permit all credit unions, including federal- and state-chartered credit unions, as well as federally insured and privately insured credit unions to utilize the exemptions that are described above. Although the proposal would grant credit unions these three exceptions, it would not automatically give them any associated exemptions given to banks in the future. Moreover, the proposal does not grant credit unions all the exceptions that banks currently have. The SEC requests comments on whether all credit unions should be included in the current proposal, and asks for information on the regulatory oversight given all types of credit unions.
The proposal does not extend to credit unions an exemption to conduct safekeeping and custody activities because the SEC claims it did not find that credit unions engage in activities included in the safekeeping and custody exemption. Under this exception, a bank does not have to register as a broker, if it engages in certain specified types of safekeeping and custody services with respect to securities on behalf of its customers. The SEC invites comment on whether credit unions engage in these types of activities and what legal authority they use to do so. CUNA asked in its comment letter that credit unions be given this authority.
SEC has issued Regulation B and it amends a previous proposal (“Interim Rules”) that provided guidance on the bank exceptions for banks and thrifts under the Exchange Act.
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.
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 regulatio
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.
Jack M. Antonini
President & CEO
NACUSO Working For You
Legislative & Regulatory Advocacy Update
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.
Jack M. Antonini
President & CEO
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…)
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:
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…)
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…)
As part of the launch of the CUSO Registry, NCUA is hosting a free webinar on how to use the system on Thursday, February 11, beginning at 2:30 p.m. Eastern. Participants can Register Here for 2/11/16 Webinar