Letter outlines concern over CUSO reporting requirements

(May 7, 2021) Possible, additional reporting requirements for state credit unions because of a proposed new rule on credit union service organizations (CUSOs) is a key concern outlined by the state system in its comment letter submitted to NCUA late last week on the proposal.

Overall, the proposal would expand the list of permissible activities for a federal credit union (FCU) CUSO and reserve authority for the NCUA Board to approve additional activities without the traditional notice and comment. Typically, NASCUS wrote, the association does not weigh in on proposals that affect, directly at least, only federal credit unions. However, because this proposal could influence state credit unions considering collaborating with FCU investors in the formation and ownership of a CUSO, the association was prompted to comment.

In some states, NASCUS pointed out, CUSOs owned by state credit unions already hold expanded lending power. The association noted, however, that the NCUA proposal could end up requiring additional reporting requirements that don’t today exist for SCUs. “NASCUS opposes extension of any additional reporting requirements to SCU CUSOs resulting from an expansion of FCU powers,” the association wrote.

NASCUS reminded the agency that SCU CUSOs may now provide many products and services authorized under state law free of restrictions in place for FCU CUSOs – and, in some cases, states already have the authority NCUA is proposing now for FCU CUSOs.

“To date, NCUA, the (National Credit Union) share insurance fund, and the credit union system have been able to manage any risk presented by SCU CUSOs within the existing reporting framework pursuant to existing Part 741.12” of NCUA regulations, NASCUS wrote. The association wrote that nothing in the proposal identifies a pressing need to include SCU CUSOs in any new reporting requirements and “we expect that should NCUA seek to include ALL CUSOs in any reporting requirements the agency would consult with the state regulators and subject proposed SCU CUSO reporting requirements to notice and comment.”

In other comments, NASCUS recommended that the agency:

  • allow a limited amount of FCU investment in an SCU CUSO without triggering agency limitations on the state CUSO;
  • continue to evaluate prudent changes that enhance a credit union’s ability to serve members and meaningfully engage in the marketplace, after asserting that “collaborating with a CUSO should not be a necessity in order for a credit union to remain vibrant and healthy.”
  • permit FCUs to invest with banks, which would be consistent with the state system’s view of the need for greater flexibility for credit union investment.
  • continue to work with NASCUS and state regulators to leverage state supervisory oversight of CUSOs and third-party service providers as needed to address any supervisory uncertainty NCUA may have related to any SCU CUSO or other third-party entity.

Comment: Proposed Rule, Credit Union Service Organizations (CUSOs) – RIN 3133–AE95