(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.”

LINKS:

Final Rule, Part 712, Credit Union Service Organizations

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

(Sept. 24, 2021) Earlier in the meeting, the NCUA Board voted – 2-1, with Harper the “no” vote – to act on three outstanding proposed rules over the span of the final three months of the year. Under the board’s vote, an expanded list of permissible activities and services of CUSOs would be considered for final action at the board’s Oct. 21 meeting

Action on two other outstanding proposals – on FOM shared service facility requirements, and mortgage servicing – were also scheduled for action at upcoming board meetings (Nov. 18 and Dec. 16, respectively). All three rules have been awaiting final action since this spring, following the close of their comment periods.

The CUSO proposal would allow the origination by a service organization of any type of loan that a federal credit union may originate, and grant the NCUA Board additional flexibility to approve permissible CUSO activities and services. In the comment request, the agency also sought comments on broadening federal credit unions’ authority to invest in CUSOs.

The proposal was issued by the NCUA Board Jan. 14, also on a vote of 2-1, with then-Board Member Harper dissenting (he became chairman later that month). Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns.

He essentially repeated those objections at Thursday’s meeting, calling the proposal the “wrong rule at the wrong time.” He asserted that the rule is not related to COVID-19 pandemic relief, and more likely to cause harm to small credit unions rather than help them. “It will grow an already unregulated space within the credit union system with little accountability to consumers and credit unions,” Harper said.

He also reiterated a call (which he has made before Congress) for NCUA to have oversight authority of CUSOs and other third-party vendors.

Regarding the FOM shared service facility requirements and mortgage servicing proposals, the NCUA chairman voiced continued opposition to both, but also aired some optimism about “a path forward” for each.

Under the FOM shared service facility requirements, any federal credit union shared branch, ATM, or electronic facility would meet the definition of “service facility” for membership requirements in multiple-common-bond FCU that participates in a shared branching network, thus expanding membership reach of federal credit unions. Under the mortgage servicing proposal, the agency’s investment regulation would be amended to permit FCUs to purchase mortgage servicing rights from other federally insured credit unions subject to certain conditions.

Those two proposals were issued for comment in December, on a vote of 2-1 for both with Harper dissenting on both.

Thursday’s action on the three proposals was advanced jointly by Vice Chairman Kyle Hauptman and Board Member Rodney Hood. They presented a joint memo to the board for approval that set the meeting dates, specifically meant to force action on the three outstanding proposals. “The items put forth by this Board Action Memorandum shall be brought before the Board as final rules in the timeframe set by this action. Nothing in this action should be construed to alter NCUA’s obligations under the Government in the Sunshine Act,” their memo stated.

LINK:

Board action memorandum: Action on NCUA Board Agenda Items for 2021

(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.

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

(April 2, 2021) If you couldn’t meet the deadline for filing your comment letter on a proposed rule affecting credit union service organizations (CUSOs), you’ve got more time: late last week, NCUA extended the comment period 30 days, to April 30.

The proposed rule would expand the list of permissible activities of CUSOs, deeming as permissible for the service organizations the origination of any type of loan that a federal credit union may originate. The proposal would also grant the NCUA Board additional flexibility to approve permissible CUSO activities and services.

Comments are also sought on broadening federal credit unions’ authority to invest in CUSOs.

The proposal originally held a March 29 comment deadline. Late last week, the agency said it was extending the deadline 30 days (on a unanimous notation vote by the NCUA Board); the notice of extension was published Wednesday in the Federal Register. It was ssued Jan. 14 on a vote of 2-1 of the NCUA Board, with then-Board Member Todd Harper dissenting (Harper was elevated to the chairman’s post later that month). Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns.

LINK:
NCUA Board Extends Comment Period for Proposed CUSO Rule