CUSOs as a whole do not pose a systemic risk to the credit union system or overall concerns to the NCUSIF, Dunn said, adding one of the major concerns with the proposal is that the NCUA has not provided data or analysis regarding current problems that could be used to substantiate the need for the proposal.

"That does not mean, of course, that certain CUSOs have not had some issues," Dunn said. "CUNA is aware that a small number of CUSOs, including ones mentioned in the press in recent months, have had serious problems, primarily with lending operations."

CUNA has asked the NCUA to target its amendments to demonstrated problem areas rather than issue a new proposed regulation that is tailored to address only identified problem areas.

As other critics have pointed out, CUNA questioned whether the NCUA has sufficient legal basis for several provisions in the proposal. For instance, Dunn said Congress provided the regulator authority for purposes of Y2K to examine CUSOs but allowed those provisions that were included in the Federal Credit Union Act to expire in December 2001.

"In our view, the fact that the authority was not made permanent is a clear expression from Congress that it did not intend the agency to regulate CUSOs directly as the proposal would do. NCUA should not require by regulation what Congress does not permit it to do by statute," Dunn said.

CUNA also addressed a comment letter from the American Bankers Association on the proposal. "It is well known that the ABA's primary concern regarding any credit union issue is limiting competition from not-for-profit, member-owned cooperatives," Dunn said. "The ABA sees in the proposal what credit unions fear–an unneeded layer of regulatory involvement that will prevent CUSOs from helping credit unions serve their members' needs."

Federal credit unions that are less than adequately capitalized cannot invest in a CUSO if the investment would require a total cash outlay of more than 1% of the credit union's paid in and unimpaired capital and surplus, unless prior written approval is received from a NCUA regional director. The agency wants to extend this requirement to undercapitalized state credit unions.

Dunn said it is an appropriate requirement, however, there should be a procedure for making the request and a reasonable time frame in the final amendment for when the NCUA must respond to the credit union to let it know whether its request to continue participating with a CUSO has been approved. CUNA also said the criteria that the NCUA will use to make its determination should be addressed and credit unions should be able to appeal a regional office's decision if their request is denied.

CUNA is also supporting enhanced transparency for credit unions, including more information from CUSOs to participating credit unions and allowing state regulators to seek an exemption from provisions of the rule. The trade group is not supporting the proposal applying to subsidiary CUSOs, Dunn said.