NCUA Board's approval of final CUSO rule good for CUs, members and movement

MEDIA, Pa. – The hand vote is in, and based on interviews Credit Union Times has done with CUSO and trade association sources, the consensus is that the NCUA Board’s unanimous decision at its July 26 meeting to expand federal credit unions’ incidental powers and allow CUSOs broader powers go hand-in-hand and will mutually benefit members and the movement as a whole. Guy Messick, general counsel for NACUSO and an attorney with the law firm of Lastowka & Messick, P.C., Media, Pa. said, “NACUSO was very supportive and excited about the NCUA Board’s actions, both the changes in CUSO regulations and the expansion of incidental powers for credit unions.” Messick also serves as NACUSO’s liaison with NCUA. He offered that the board’s unanimous decision “demonstrates that all three members of the NCUA Board are receptive to doing what is necessary to allow credit unions to compete in the financial marketplace.” Messick applauded the board’s decision to clarify that the list of permissible activities for CUSOs is intended to be illustrative, not exhaustive. “This is a more dynamic process than just having a regulation change every three years,” said Messick. “As the world changes and members come to expect more services, the dynamic regulation has procedures in it that will allow CUSOs and credit unions to evolve and meet members’ needs,” he added. That includes, Messick said, the NCUA Board’s expansion of credit unions’ incidental powers. Messick referred to this in his Feb. 23-comment letter to NCUA concerning the proposed changes to federal credit union insurance and group purchasing activities. “With the expansion of the incidental powers definition as described in the Request for Proposal, credit unions may be able to expand the income opportunities in some group purchasing type activities. The incidental powers definition expansion would also empower credit unions to be more responsive to changes that are the `logical outgrowth’ of the credit union’s business of delivering financial services to members,” Messick wrote. “The board’s approval to expand credit unions’ incidental power doesn’t mean CUSOs will lose their niche,” said Messick. “CUSOs will still be needed strategically, they’ll be looked on more as an alternative delivery source. But unlike with vendors, CUSOs will give credit unions more control over the delivery of services to members.” Besides, said Messick, CUSOs still provide a way for credit unions to serve non-members, they can raise outside capital, and supply that extra layer of safety for credit unions against risk. “Credit unions and CUSOs are two sides of the same coin,” said Messick. “It’s not important which side is providing the service as long as it’s being provided to members.” Dan Balagna, president/CEO, Service Centers Corp., Southfield, Mich. and chairman of NACUSO agreed with Messick’s assessment. “CUSOs came into existence as a way to let credit unions get into service areas they couldn’t get into themselves. If the expansion of credit unions’ incidental powers adds to the success of credit unions, then that’s better for members and the credit union industry as a whole.” Balagna said he sees the expansion of credit unions’ incidental powers as “more opportunity and flexibility for credit unions to determine how to do business,” and not the demise of CUSOs. “CUSOs are still an important part of a credit union’s product mix, they exist to support credit unions,” Balagna said. He pointed to the increase in the number of CUSOs owned by multiple credit unions to underscore his point that CUSOs offer credit unions the economies of scale to provide services to members they couldn’t otherwise provide themselves. In his comment letter to NCUA Secretary Becky Baker concerning the then-proposed regulation to change 12 CFR Part 712, NACUSO President Bob Dorsa went even further and suggested additional changes to the regulation: * Add a provision in section 712.5 that would permit CUSOs to engage in any activity that credit unions are allowed to participate in as an incidental power under the proposed Section 721, except for those powers that involve depository activity. * Amend Section 712.5 to permit the origination of member business loans. * Modify Section 712.5 to include the ability of CUSOs to originate consumer loans. CUSOs can serve as a vehicle to manage the higher risks and asset liability models associated with those risks, Dorsa stated. * Amend Section 712.8 by adding, “This provision does not prohibit the credit union from considering the CUSO’s performance when implementing employee compensation plans for credit union employees.” CUNA too has some provisions of the regulation it would still like to see the NCUA Board address, said CUNA Associate General Counsel Mary Dunn. CUNA, she said, would like to put on the table a proposal to further open up federal credit unions’ incidental powers to allow all services to be done directly by credit unions. CUNA would also like to see NCUA allow federal credit unions to do government check cashing for non-members. She applauded the “good job” NCUA did with providing a “strong legal rationale and foundation for why it took the action it did.” Dunn noted that there are many “detractors,” like the bankers’ associations that have questioned whether credit unions should have expanded incidental powers. “NCUA has demonstrated its authority by the way it responded to their questions. It will serve the NCUA and credit unions well,” said Dunn. “Federal credit unions’ expanded incidental power won’t change CUSOs’ activities that much,” Dunn said. “The NCUA Board through its actions, has given credit unions strong options on how to provide services to members. This is not a CUSO negative, it’s a more positive move for credit unions and the movement as a whole.” – [email protected]