NCUA Inspector General Investigating Third-Party Vendor Risk
NCUA board members have called on Congress to grant the agency power over third-party vendors.
The NCUA’s Inspector General is investigating the risks third-party vendors pose to the credit union system, contending that the agency faces “unique challenges” because it is the only banking regulator without power to supervise the companies.
Credit unions regularly hire vendors and “these relationships pose various potential risks to credit unions, as they must relinquish a certain level of control over products and services to the third party vendor as an inherent part of the relationship,” the IG said, in its semi-annual report to Congress.
The three NCUA board members have called on Congress to grant the agency power over third-party vendors, but credit union trade groups have argued that the agency does not need it.
“The potential for vendor systemic risk is significant given the interconnectedness of the credit union industry and credit unions’ common use of vendors and CUSOs for services,” the IG said.
In the report, the IG also said that several of its recommendations made as a result of the taxi loan debacle remain open, as the agency works toward a Dec. 31, 2020 target for new policies to address the risks posed by credit unions having a high concentration of one type of loan.
Melrose Credit Union and LOMTO Federal Credit Union failed because a high concentration of their loans were made to taxi drivers. The agency has said that the credit unions failed because the value of taxi medallions plunged as a result of competition by ride-sharing services such as Uber and Lyft.
However, the New York Times reported earlier this year that lenders and taxi brokers had convinced drivers, many of whom were recent immigrants with a limited knowledge of banking, to take out loans they could not afford.
In the report, the IG said that the agency’s Enterprise Risk Management Council is working on ways to enhance agency policies and that a Concentration Risk Working Group has been formed.
The IG also said it is working on an evaluation of the State Supervisory Authority, which regulates federally insured-state chartered credit unions. The evaluation is intended to determine how well shared oversight with the NCUA operates.