ALEXANDRIA, Va.–NCUA’s Office of Inspector General has published a new report that suggests the agency should continue to see statutory authority for direct oversight of third party vendors, including CUSOs.
NCUA has long pushed for the expanded powers, arguing all other federal regulators have the authority, but there has been strong resistance from within credit unions.
The OIG, which said the review was “self-initiated,” said the Financial Stability Oversight Council (FSOC), created in response to the 2008 financial downturn, supports giving NCUA the authority.
The OIG report notes the agency does have some oversight of third-party vendors through regulations currently in place, including rules requiring any federally insured credit union with an investment in or a loan to a CUSO to agree in writing with the CUSO that it provide NCUA with full access to its books and records and the ability to review the CUSO’s internal controls.
What’s lacking, according to the Inspector General, is authority to enforce recommendations to vendors to address any issues that might lead to credit union losses and, as a result, losses to the NCUSIF.
For example, noted the OIG, between 2008-15 nine CUSOs caused more than $300 million in direct losses to the NCUSIF and further led to the failures of credit unions with more than $2 billion in aggregate assets. The report states one of the CUSOs caused losses in 24 credit unions, some of which failed. The ongoing absence of third-party vendor authority by NCUA could allow such losses to occur again, the report states.
Lapses Take Place
The OIG report also found there have been lapses in vendor reviews by NCUA, partially due to the fact leadership and direction of the vendor program was divided between the agency’s Office of Examination and Insurance and its Office of National Examinations and Supervision, with neither pursuing the reviews.
The OIG urges NCUA to pursue statutory examination and enforcement authority over credit unions’ third-party vendors “to the same extent as if they were an insured credit union.”
The OIG report can be found here: Audit of the NCUA’s Examination and Oversight Authority Over Credit Union Service Organizations and Vendors