ORLANDO—Of all the hot topics CUSOs need to be watching, from fintech bank charters to NCUA exams to the CFPB—there was debate and discussion here over which deserves the most attention.
A panel of experts from law firm Messick & Lauer shared that perspective during NACUSO’s 2017 Network Conference here.
Regarding the Office of the Comptroller of the Currency’s announcement that it will begin considering applications from fintechs to become special purpose national banks, Brian Lauer noted that most of the fintech applications flowing in—according to the OCC—have been for check paying and lending services.
The OCC’s objective, said Lauer is to foster innovation, with Laurer noting that fintechs currently rely on partnerships, often with financial institutions, to extend their reach, since they don’t have the FI charter needed to expand their offerings in the banking world.
“They don’t have same rights as FIs. This fintech charter just proposed has the OCC hot to trot on it,” said Lauer. “Even though the OCC has received some pushback on this, it is still blazing forward.”
Analysts are split as to the threat fintechs present, with some believing they will invade the banking space and become a real threat to credit union and CUSO revenue, while others say banks remain the real revenue threat and that fintechs only are forcing credit unions and their CUSOs to innovate and improve their service delivery.
But Lauer cautioned CUSO leaders in attendance to watch fintechs closely as they expand into banking under the national charter.
“Will the fintechs impact us like Uber did the taxi industry? That is an interesting question,” said Laurer. “This something we have to be concerned about—giving the fintechs access to the financial space with possibly not the same regulations we face. This is something to watch.”
NCUA Examinations of CUSOs
Turning to NCUA examinations, Mike Howard warned CUSO leaders that the agency is digging deeper and looking more closely into CUSO operations. He reminded that under current rules NCUA can examine CUSOs’ books.
“Examiners really want background information,” he said. “So board composition, board minutes, CUSO investment and customer lists, policies and procedures, lists of critical vendors . . . Be prepared to show the examiner the business plan and financial statement and also the disaster recovery and business continuity plan.”
Howard stressed that CUSOs should use the exam as an opportunity to highlight what the organization does and how it serves credit unions and their members.
“Drive the narrative of the CUSO,” he said. “You don’t want to be on the defensive throughout the exam.”
Howard also pointed out that NCUA’s reach into CUSOs now extends to their vendors, and that CUSOs should ensure they are taking several steps in this area.
“Make sure the vendor’s strategic goals align with yours and that their products truly align with your business,” Howard said. “You should also determine which vendors are critical vendors—one aspect of a critical vendor is if they handle CUSO proprietary and confidential information. Run a cost/benefit analysis on them. Perform a risk assessment with these vendors, have the appropriate staff to manage them, and develop and exit strategy, as one may be needed some day. Relationships do sour.”
Howard added that for all vendors CUSOs must annually review their own policies and procedures regarding these third parties. “And make sure they are living up to expectations. It’s best to be proactive and not reactive to stay ahead of the curve.”
The CFPB
Despite “water cooler” talk that the CFPB might be going away under the Trump administration, Amanda Smith said she believes the Bureau will remain up and operating.
Smith cautioned CUSOs to be on their toes as she believes the CFPB, with Congress focused on them, is now “trying to prove their worth, and are using examinations and enforcement actions to do that.”
She said the Bureau is now paying close attention to mortgage lending and debt collection.