FR 2021-01398

The document in question from the Federal Register presents a proposed rule by the National Credit Union Administration (NCUA) to amend the regulations governing Credit Union Service Organizations (CUSOs). It aims to broaden the range of activities and services that CUSOs can engage in by allowing them to originate any loan that a Federal Credit Union (FCU) is permitted to originate. Additionally, it seeks to provide the NCUA Board with more flexibility in approving activities and services for CUSOs, along with expanding FCU investment authority in CUSOs to potentially include a wider range of financial service organizations.

General Summary

At a high level, the proposed rule is a significant step towards granting more operational flexibility to credit unions. The change would enable CUSOs to match FCU capabilities by originating various loan types, potentially increasing competitive standing in the marketplace. At the same time, it proposes revisiting the regulations that restrict FCUs from investing in organizations outside of their immediate credit union and member service realm.

Significant Issues and Concerns

The proposal raises several concerns and questions that require careful consideration:

1. Complex Legal Language: The document is dense with legal terminology, which may be challenging for readers without a legal or financial background to fully grasp.

2. Potential Risks to FCUs: The expansion of permissible activities for CUSOs could lead to increased risks for FCUs. If not managed properly, these risks might affect the stability and soundness of credit unions.

3. Ambiguity in Loan Terminology: There is a lack of clarity around the term “any type of loan,” which could lead to compliance issues if specific loan categories or associated risks are not well-defined.

4. Competitive Pressure on Smaller Credit Unions: Smaller FCUs might face increased competition without assurances or structures in place to safeguard their interests, potentially affecting their sustainability.

5. Reputational Risks: If CUSOs engage in lending activities without adhering to the same consumer protections that regulate FCUs, credit unions could face reputational damage.

6. Implementation and Data Collection: There is inadequate detail on how new CUSO activities will be tracked or assessed. This lack of clarity extends to the processes for approving new activity categories.

Impact on the General Public

For the general public, especially credit union members, this proposed rule could lead to more diversified financial products and potentially more competitive loan rates and services. However, there is the risk that these changes could also lead to negative outcomes if not managed carefully—such as less rigorous consumer protections or diminished member-focus due to expanded operational scopes.

Impact on Stakeholders

Positive Impacts

• Federal Credit Unions: The proposed changes could empower FCUs to collaborate more effectively through CUSOs, allowing them to offer services they might not otherwise be able to support independently.
• CUSOs: By broadening their permissible activities, CUSOs could expand their service offerings and potentially improve their profitability and efficiency.

Negative Impacts

• Small Credit Unions: They may face increased competition from well-resourced CUSOs and larger credit unions, potentially squeezing their market share.
• Consumers: While expansion could mean greater loan availability, there might also be risks if consumer protection is not sufficiently enforced at the CUSO level.

The proposed rule by NCUA represents a potential pivot towards increased flexibility and competitiveness for credit unions, but it raises significant concerns about risk management and adequate oversight. As the NCUA gathers comments on this proposal, stakeholders from various sectors are encouraged to voice their insights to ensure a balanced approach that protects the interests of both credit unions and their members.

The proposed rule under consideration by the National Credit Union Administration (NCUA) seeks to amend its Credit Union Service Organization (CUSO) regulation. Throughout this document, there are several critical mentions and implications related to financial aspects, especially concerning the expansion of CUSO activities. The financial considerations in the document involve the potential for generating revenue and managing expenses within credit unions and CUSOs.

Expansion of CUSO Lending Authorities

The proposed rule prominently features an anticipated expansion of CUSO lending authorities, which is a significant financial aspect. This would allow CUSOs to engage in additional types of lending activities, including automobile loans and small dollar consumer loans. Such an expansion implies new potential revenue streams for CUSOs. However, it also raises several issues such as how these new activities might lead to increased competition for smaller Federal Credit Unions (FCUs), which may not possess the same resources or capabilities as larger institutions to compete effectively in these areas.

Additionally, the expansion could expose FCUs to increased safety and soundness risks. There is a lack of defined measures on how FCUs can mitigate these risks when engaging with CUSOs under this expanded lending authority. These financial implications necessitate careful consideration of the balance between opportunity and risk.

Reporting Requirements and Financial Oversight

CUSOs involved in credit and lending services are required to maintain detailed financial records. They must report the total dollar amount of loans outstanding, the total number of loans outstanding, the total dollar amount of loans granted year-to-date, and the total number of loans granted year-to-date. These rigorous reporting requirements reflect the necessity for careful financial oversight and accountability. Such data can be integral in assessing the financial health and impact of CUSOs relative to regulatory compliance and strategic financial planning.

Regulatory Flexibility and Small Entities

The proposal asserts that the rule should not have a significant economic impact on a substantial number of small entities. The assumption here is that expanding the list of permissible activities will not impose additional compliance costs on smaller credit unions with assets less than $100 million. Nonetheless, this aspect warrants further scrutiny as even minor adjustments in regulations can translate to significant financial burdens depending on an entity's size and operational scale.

Ambiguities in Financial Definitions and Risks

An identified issue concerns the ambiguity of the term "any type of loan." This lack of specificity could lead to confusion over what financial products CUSOs might offer and thus affect compliance. Clear definitions are imperative to ensure that all parties involved have a solid understanding of financial products permissible under the new rule, avoiding potential compliance costs or legal challenges.

Technology Costs and Financial Implications

The proposed rule also alludes to potential uses of technology in lending services, which could carry significant development or acquisition costs. There's an absence of data concerning these costs, presenting a potential gap in understanding the full financial implications of adopting such technology. The ability of CUSOs and FCUs to absorb these costs without impacting their financial stability is critical to successful implementation.

Overall, while the proposed rule opens up opportunities for growth and revenue through expanded lending capabilities, it simultaneously introduces a gamut of financial considerations and potential risks for CUSOs and FCUs. These aspects underscore the necessity for clear financial guidance and risk management protocols to accompany the regulatory changes.