ALEXANDRIA, Va. (11/22/13)--The National Credit Union Administration's final rule addressing credit union service organization (CUSO) supervision is revised from the agency's earlier proposal, but the Credit Union National Association remains concerned about the authority of the agency to exercise direct authority over CUSOs.
Under the proposal released in 2011, CUSOs and their subsidiaries would be required to directly file their financial statements with the NCUA, and to forward those reports to state supervisors. The final rule, approved during Thursday's open board meeting, keeps those controversial provisions.
However, the NCUA noted that the final rule is more limited in scope than the proposed rule: The final rule is targeted to CUSOs that engage in high-risk or complex activities such as credit lending, information technology and custody, safekeeping and investment management.
Special requirements for a credit union investing in, lending to, or receiving services from the CUSO include:
In addition, CUSOs engaging in credit and lending services will be required to report the following activity by loan type:
NCUA acknowledged that all federally-insured credit unions with loans to or investments in CUSOs will be required under the final rule to make changes in the agreements they currently have with their CUSOs.
The final rule also requires all subsidiary CUSOs to follow applicable laws and regulations and applies all of the regulation's requirements to subsidiary CUSOs. The final rule will become effective on June 30. A registry for CUSOs to file their documents with the NCUA will be finalized in late 2015.
CUNA has actively advocated for another approach since the CUSO rule was proposed and has said the NCUA should take care not to extend its reach beyond its statutory authority. CUNA maintains that the Federal Credit Union Act does not confer authority over CUSOs to the federal credit union regulator except through the oversight of credit unions.
"The NCUA should work with natural person credit unions that obtain services from the CUSOs to provide the financial information on CUSOs the agency needs," CUNA Deputy General Counsel Mary Dunn said following the November board meeting. The agency has said that this method is inefficient and restricts its ability to conduct offsite monitoring and evaluate systemic risks posed by CUSOs.
The NCUA has argued that enhancing the monitoring of CUSOs would protect consumers, credit unions and the National Credit Union Share Insurance Fund (NCUSIF). However, CUNA has said that while a small number of CUSOs have had issues, CUSOs as a whole do not pose a systemic risk to the credit union system or overall concerns to the NCUSIF, and therefore a targeted regulatory approach would be more appropriate.