610-891-9000 or [email protected]

 Brian Lauer is a partner with Messick & Lauer P.C.

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610-891-9000 or [email protected]

This year has been an exciting and pivotal year for CUSOs as they continue to be an incredibly important part of the credit union industry.

The net income CUSOs generated, through alternative revenue sources and cost savings, helped many credit unions thrive in a lackluster traditional lending environment. The importance of CUSOs is evidenced by the fact that many of the most successful credit unions in the country use CUSOs extensively.

This notion is seconded by the spike in attendance at the 2014 NACUSO Annual Conference. About 30% more attendees had the opportunity to network and drive innovation and collaboration into the industry.

Of course, the benefit of collaboration and innovation may be lost on the NCUA because this past year has also brought with it additional regulatory burdens. In June, the amended CUSO regulation went into effect that will require CUSOs to submit information directly to the NCUA. There are grave concerns in the industry regarding the implications of this additional reporting.

What will the NCUA do with the information? Who else will have access to the information? Will this burden drive innovators and entrepreneurs away from seeking investments from credit unions?

Industry advocates, along with NACUSO, addressed many of these concerns to the NCUA in the form of 290 comment letters to the initial CUSO regulation proposal in 2011. Although the NCUA made changes to the final rule to address some of these concerns, the agency made the rule more burdensome in some ways and did not give anyone additional opportunity to comment.

While the full force of this rule will not be implemented until late 2015, we have seen a dramatic increase in direct CUSO reviews by NCUA. These reviews are de facto examinations with examiner findings and sometimes include demands to change business models, operations and the like.

This happens even though the NCUA admits that it does not have the authority under law to regulate CUSOs. The NCUA's relationship with CUSOs continues to evolve and we must stay diligent in our advocacy for CUSOs and their valuable place in this industry.

This advocacy is also needed with regard to the proposed risk-based capital regulation. Much has been written on this rule, and CUSOs are not on the sidelines. As with the CUSO rule, NACUSO was a major participant in the discussions with the NCUA. NACUSO members and CUSOs themselves submitted a significant portion of the 2000 plus comment letters.

NACUSO also pushed for a second comment period and pushed hard on the treatment of CUSO investments within the rule. The proposed assessment of CUSO investment risk at 250% seems to demonstrate a lack of appreciation of the benefits of CUSOs. We are encouraged that NCUA seems to be open to our arguments to reduce the CUSO investment risk rating.

It is not unexpected that, as CUSOs become more critical to the successful business model, the regulators want more transparency and insight into CUSO operations. Our goal at NACUSO for 2015 and beyond is to help develop a regulatory framework that will provide sufficient regulatory oversight without stifling the benefits of innovation and collaboration that CUSOs foster.

Therefore, NACUSO is establishing an advocacy fund to supplement its efforts to promote and protect a CUSO-friendly regulatory climate.

CUSOs offer credit unions the ability to experiment with new services and business models to overcome the limitations of the credit union business model in today's economic climate. We remain excited about the potential of CUSOs to help credit unions thrive in the 21st century.