NEWPORT BEACH, Calif.–In the wake of congressional testimony by NCUA Chairman Todd Harper calling for the agency to be given supervisory oversight authority over third-party vendors to credit unions, the National Association of Credit Union Service Organizations (NACUSO) is calling such a regulatory expansion a “concern” and saying the agency lacks the “expertise” to do so.
In a letter to the House Committee on Financial Services, NACUSO said the “unprecedented expansion” of the agency's authority is worrisome due to the “potential impact upon the collaborative model we represent among credit unions that have chosen the CUSO structure to share the risk associated with costly innovation and to enhance the delivery of credit union services to more members from all walks of life.”
“In our view, NCUA lacks the expertise to regulate and examine any and all businesses that interact with credit unions,” states the letter from NACUSO President Jack Antonini. “The necessary investment of agency resources to hire or contract with the broad level of expertise required to examine every technology service, communications contractor, statement processor, ATM servicer, check provider, building construction company, accounting firm, advertising agency, insurance agency, broker/dealer, lawn care company, etc. that enters into a contract with a credit union will bring about a dramatic and unnecessary increase in the size, budget and staffing of this federal agency. The average number of vendors for a single credit union can easily exceed one hundred, two hundred in the case of some larger credit unions.”
Credit Unions Will ‘Pay’
The letter questions how many NCUA employees will be needed to review those thousands of vendors, noting that staffing continues to increase at NCUA—while shrinking at the FDIC—even as the number of CUs and banks continues to decrease.
“NCUA is funded by assessments levied on the member-owned non-profit cooperative credit unions they regulate and insure,” NACUSO stated. “This means, simply, that it is the credit union members themselves who pay for the resources of NCUA- and any significant expansion of the agency. Prior to any such action dramatically expanding the scope of NCUA's regulatory power and imposing yet more costs on credit union members, the question from our perspective should be whether the expansion of the scope and the resultant increase in costs is necessary and justified.”
The NACUSO letter further states NCUA promulgated a CUSO rule in 2013 that essentially gives the agency "review" authority over all CUSOs, and that as a condition of the authority of a credit union to invest in a CUSO, a CUSO must provide NCUA with full access to its books and records.
‘De Facto FTC’
“NCUA has repeatedly exercised this power,” the letter states. “In addition to this established review process, the agency has at the same time developed and created a mandatory CUSO registry to require reporting of all CUSOs, including their individual credit union ownership, so that NCUA can gather necessary data on the performance of the CUSO through its (NCUA's) existing supervisory authority over the credit unions with ownership interest in the CUSOs.”
NACUSO said it believes NCUA already has the authority it needs to gather the data it is seeking. Expanded authorities would turn NCUA into a “de facto Federal Trade Commission of the credit union industry,” the letter states.
The letter goes on to state there is no reason to extend statutory authority that could go far beyond what is currently required to protect the safety and soundness of credit unions and to “essentially turn NCUA into a de facto Federal Trade Commission of the credit union industry.”
During his testimony, Harper told Congress that between 2008-15 CUSOs alone had contributed to more than $300 million in losses to the Share Insurance Fund. But NACUSO stated in its letter that CUSO losses to credit unions since 2013 are “virtually non-existent.”
In addition, NCUA has said it needs the oversight to protect credit unions from cybersecurity-related risks, which NACUSO said is a “recognized area of risk for all financial institutions (and, interestingly, there are CUSOs assisting credit unions in dealing with this area of risk),” the trade group said a better strategy would be a “more rifled approach to regulation and supervision without opening the floodgates of additional regulation and supervision of every other type of credit union vendor - many of which are CUSOs and most that are not.”
‘Regulator Envy’
NACUSO said Chairman Harper “concedes” in his testimony that “one justification for their expanded authority request to have unlimited regulatory and supervisory authority over all credit union vendors stems at least partly from a case of regulator envy with their banking counterparts, such as the FDIC and OCC that have been allowed some self-limited vendor authority by Congress.