GRAND RAPIDS, Mich.–In response to a proposal by the NCUA board during its December meeting to modernize regulations covering loan participations, eligible obligations and notes of liquidating credit unions, NACUSO has filed a comment letter saying the proposals will allow credit unions to remain innovative and to change lending markets.
NACUSO praised NCUA for what it called a “sensible and well thought out approach” with the proposed amendments to Part 701.21,
701.22 and 701.23 of the NCUA Rules and Regulations, saying they are “exactly what the credit union industry needs to thrive in the current lending environment.”
“Over the last decade or so, financial innovators have sought to disrupt the lending landscape. Their actions are not with the intention to put credit unions out of business,” NACUSO told NCUA. “Instead, like all innovators throughout the course of history, these financial technology companies are working to make the financial lives of Americans easier.”
The letter says CUSOs have played and can play a critical role in expanding the lending ecosystem for credit unions, especially in indirect auto lending.
A Market Shift
“However, the market is shifting again, and merely connecting credit unions with dealers is not enough. Members are no longer exclusively going to the dealership to buy a car,” NACUSO continued. “There are a multitude of car buying services and applications springing into the market. From the consumer perspective, this is good. Most people do not like the process of buying a car. They would rather enlist someone else to do it for them. In a way, these new players are looking to disintermediate the dealerships.
“What happens when a member doesn’t go to the dealership or the credit union first to purchase that dream new car? How do credit unions continue to be the trusted financing partner with their member on this life achievement?” NACUSO added. Credit unions must adapt again and develop relationships with these new car buying services…Once again, this is an opportunity for CUSOs.”
CUSOs can and will help credit unions gain access to more unsecured member loans, NACUSO said, adding, “The types of loans that can often be lifesaving.
The Question Now
The questions now, said NACUSO, is what tools do CUSOs and credit unions need to make sure these loans can make their way to credit union balance sheets where these members can be properly served?
“The proposed amendments to Parts 701.21, 701.22 and 701.23 will be instrumental in answering this question. NACUSO is very much in favor of the proposed changes and believes once finalized these adaptations of the lending rules will make CUSOs stronger partners for credit unions,” NACUSO said. “Ultimately, it will also make credit unions more successful in the changing lending environment giving them the proper tools to obtain member loans from non-credit union originators. Allowing credit unions to adapt to the new lending environment just like indirect lending adaptations in the past.”
The Specifics
Specifically, NACUSO said the proposal will:
- Through the amendments to the 5% limitation on purchasing eligible obligations under Part 701.23, credit unions will be able, possibly through CUSOs and other collaborations, to build strong relationships with financial technology companies.
- Through the amendments to the purchasing exception for inter-credit union transactions under Part 701.23(b)(2), there will be an efficient and valuable way to make sure small to midsized credit unions can also gain access to these loans. “This change will create a healthy credit union system and not just create advantages for the largest credit unions,” NACUSO said.
- Provide for a more robust and defined indirect lending program.