WASHINGTON–The Independent Community Bankers of America (ICBA) wants NCUA to withdraw a proposal made at its January board meeting that would expand the lending authority of CUSOs.
In a press release accompanying its comment letter, the ICBA said NCUA is proposing to “dramatically deregulate corporate entities the regulator is not authorized to supervise.”
Proposed Rule, Part 712, Credit Union Service Organizations, would expand the powers of CUSOs to originate any kind of loan a federal credit union can make and provides the board additional flexibility in setting related policies.
Currently, CUSOs can only engage in four types of loans: Business, consumer mortgage, student loans and credit cards. The NCUA board has since 2008 been considering whether to expand the categories of permissible lending, according to agency staff.
"While community banks have led the pandemic response in local communities, the National Credit Union Administration is once again showing that federal laws and regulations governing the credit union industry are fundamentally flawed," ICBA President and CEO Rebeca Romero Rainey said. "Instead of expanding the lending powers of privately owned companies it is not authorized to regulate, the NCUA should focus on promoting consumer protections and a safe and sound financial sector."
‘Shadow Credit Unions’
In its statement, the ICBA said CUSOs are “owned by credit unions but do not follow these institutions' business model—they are not mutually owned, member owned, required to serve credit union members, overseen by credit union laws and regulations, or required to follow even the credit union industry's limited prudential safeguards. Instead, CUSOs are privately owned and often for-profit businesses.”
The ICBA called CUSOs “shadow credit unions.”
In its letter, the ICBA urged NCUA to withdraw the proposal to avoid “further eroding the credit union industry's tax-exempt mission while expanding risks to consumers, the fund insuring credit union member shares, and credit unions themselves."
Should NCUA move ahead with the proposal, the bankers group said it plans to urge the Financial Stability Oversight Council to study CUSOs to determine their risk to credit unions and whether prudential oversight is warranted.
An Interesting Question
How NCUA might move forward with the proposal is an interesting question. The board voted in favor of putting the proposal out for comment with a 2-1 vote, with then NCUA Board Member Todd Harper dissenting. Harper has since been named chairman, and while the two board members who supported the proposal, Rodney Hood and Kyle Hauptman, remain on the board, the NCUA chairman controls the agenda for board votes.