(Oct. 22, 2021) In yet another split decision over the issue, a final rule giving CUSOs the power to originate any type of loan an FCU may originate – and give the NCUA Board more flexibility in approving permissible CUSO activities and services – was approved by the board at its meeting Thursday.
The rule will become effective 30 days after publication in the Federal Register.
On a 2-1 vote (with Chairman Todd Harper dissenting), the board finalized the rule that – from the start – has been contentious. In January, when the proposal was issued, the board voted 2-1 in favor of issuing it for comment. In September, the board voted 2-1 to bring the final rule up for consideration. Harper dissented on all three.
NCUA said that it made no substantive changes from the proposal in finalizing the rule. The agency said the final rule is intended to accomplish two things: expand the list of permissible activities and services for CUSOs to include the origination of any type of loan that an FCU may originate; and grant the NCUA Board additional flexibility to approve permissible activities and services.
By allowing CUSOs to originate any type of loan an FCU can, the list of permissible loans by CUSOs is expanded from only business loans, consumer mortgage loans, student loans, and credit cards. The list of new loans includes automobile and small-dollar (payday) loans – the two types NCUA has said would likely draw the newest involvement by CUSOs.
Harper scorned the rule, saying (as he has in the past) that its adoption will result in a “wild west” among credit unions of affording “little accountability for consumer protection.” Board Member Rodney Hood, in his comments, disregarded Harper’s concerns, asserting that CUSOs are already largely regulated under state laws. He also told the board that the new rule doesn’t go far enough: it should allow, he said, CUSOs to invest directly into financial technology companies (fintechs) without requiring the fintechs to become CUSOs. Hood said he intended to work toward that end, and other expansions of the rule, in the remaining tenure of his term.
Vice Chairman Kyle Hauptman, in his comments, suggested that the rule could be tweaked in the future, to address any emerging issues or developments.
However, both Hood and Harper stated their continued support for giving NCUA exam authority over third-party vendors to credit unions.
In its comment filed on the proposal in late April, NASCUS noted as a key concern with the proposal that possible, additional reporting requirements for state credit unions could be a result of a finalized rule. NASCUS noted that the proposal could influence state credit unions considering collaborating with FCU investors in the formation and ownership of a CUSO – a condition that prompted the association 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.
NCUA, however, in its commentary on the final rule, rejected that view saying that it “does not believe the effect of this rule on CUSOs in which only FISCUs have an ownership interest represents a policy change” from existing NCUA reporting requirements.
Following the meeting, NASCUS’ Ito reiterated the point the association made in its comment letter last spring that CUSOs owned by state credit unions already hold expanded lending powers with benefits accruing to members and participating credit unions alike, without raising safety and soundness nor consumer protection concerns. She said NASCUS views the final rule as a “natural evolution“ in a robust dual charter system.
“However, we note that, as finalized, the CUSO rule includes additional reporting requirements which could impact state-chartered credit unions in considering whether to collaborate with FCU investors in the formation and ownership of a CUSO. An additional concern is whether the rule adds new reporting requirements to state credit union CUSOs, because of expanding FCU CUSO powers. Is there something wrong with this picture? NASCUS will review the final rule closely and look forward to working with NCUA to resolve any unintended, negative impacts on state credit union CUSOs.”