Industry professionals are left scratching their heads, wondering how possible new credit union service organization (CUSOs) regulations could be helpful to the industry or members.
Proposed regulations would require each credit union CUSO to submit regular financial reports to the National Credit Union Association (NCUA) in an effort to maintain protection of the insurance fund.
In March NCUA Chairwoman Debbie Matz told The Washington Post that the tentative economic environment prompted investigation into numerous situations that could threaten the insurance fund.
“As a result of the economic crisis, we’re very attuned to situations that pose risk to our shared insurance fund, and CUSOs fall into that category,” she said. “CUSOs can pose systemic risk because of how large some of them are, some of the risky activities they’re involved in and how intertwined they are with credit unions throughout the nation.”
Matz told the Post that several credit unions were placed in conservatorship due to CUSO losses, which left these credit unions under capitalized.
Credit unions can invest no more than 1% of their total assets and under capitalized federal credit unions cannot participate. Currently the NCUA can only impose regulations on the credit unions that invest in CUSOs. The NCUA would like to expand the capitalization restriction to include federally insured state-chartered credit unions.
The thought of more regulations coming down the pike has left many credit unions and credit union associations feeling a little beaten down.
William J. Mellin, President/CEO of the Credit Union Association of New York says that his organization’s position is that another regulation is unnecessary. “There are already rules and regulations that govern any corporation in the US. When a credit union selects a business partner, the NCUA already requires the credit union to perform due diligence to demonstrate how they selected the business partner to perform the service.” He believes that an additional regulation on top of the current regulations could be counter productive.
However Mary Dunn, SVP/Deputy General Counsel at the Credit Union National Association (CUNA) believes that while CUSOs provide numerous opportunities, a new regulation would be one more way for the NCUA to ensure the industry is protected.
“We don’t want the NCUA to turn a blind eye to any impropriety, but we don’t want the NCUA to stymie outlets for innovation, and that’s exactly what CUSOs are,” she said.
Additional Regulations Are A Growing Concern for Small Credit Unions
Mellin says that he is especially worried about what will happen to smaller credit unions should this additional regulation be imposed.
“For a small credit union the number one problem is regulatory burden,” he says. “It may get to a point, where most small credit unions will have to close down or merge with a larger credit union because they can no longer deal with regulatory requirements…it’s just one more burden they can no longer shoulder.”
Recent press has pointed to the plight of the small credit union and how many are turning to larger credit unions for a merger or have simply had to close their doors.
Earlier this month the CEO of Hartford Postal Employees Credit Union ($10 million, Hartford, CT) talked about being pushed to the limit; unable to tackle the onslaught of regulatory changes. CEO Barton Werner told a local Hartford newspaper that, “We are too tiny with all the regulations. We looked at getting out before it got too overwhelming.” His three-person credit union is in the process of merging with a larger credit union.
Credit Unions Online talked to William Myers, Director of Office of Small Credit Union Initiatives at the NCUA about how small credit unions appear to be at risk. Myers said that his goal was to ensure that small credit unions had the tools and resources to continue to operate.
“The role of our office is to make sure small credit unions survive and thrive,” he said. “We are constantly looking at the field and the statistics. We’re also examining business models to see how small credit unions grow and provide training, consulting and online resources to assist small credit unions.”
Before a credit union faced trouble, Myers stressed that credit union managers should contact his office for assistance. “We typically run into two issues,” he says. “In some instances the credit union waits too long to ask for help and it becomes more difficult to provide assistance in order to turn the situation around. Perhaps if the credit union saw the rising tide sooner to request assistance, it would not be in a troubled position.”
NCUA Is Listening to Credit Union Concerns
Although new CUSO regulations may ultimately materialize, Matz says that she has taken letters and concerns into consideration when devising how CUSOs will be regulated.
Originally, the plan was to request more frequent reporting from CUSOs--possibly monthly or quarterly. Instead NCUA is now considering a yearly report. Plus Matz says that new CUSOs will have 60 instead of 30 days to register with the agency so the CUSO has time to settle in at the credit union.
“We want this to be minimally invasive because we are concerned about the burden,” she said. “We want to make sure that this proposal wasn’t so sweeping that it has an adverse impact on CUSOs that don’t pose a threat to the system.”
Mellin says that when he polled the 400 plus credit unions in his state the message came through loud and clear: “We don’t need more regulations.” Period.
He says that credit unions are worried that if the regulation went into effect it could impact the size and offerings of the CUSO down the road. “If the CUSOs were less likely to move forward due to regulatory burden, in the long run the members could lose because the credit union may not have the same products and services or have to offer them at a higher cost.” He adds that what could end up happening is that employees would be overwhelmed with the burden of having to prepare for additional exams and that extra focus could compromise their position to help the member.
“However, I give them (NCUA) credit for taking their time on this regulation and I’m optimistic they are listening to state associations and credit unions by moving cautiously. I’m hoping they come up with a real compromise. Perhaps they may feel the need to do this, but not the full regulatory burden.”