Credit Union Community Divided Over CUSO Expansion Plan

A proposal to expand lending by CUSOs has divided the credit union community, with some financial institutions warning that the plan could be disastrous for some credit unions.

On the other hand, CUSOs and other credit unions that favor the expansion said the proposal represents an effort to take advantage of new technology and will help expand services.

In January, the NCUA board approved, 2-1, a proposal that would expand the types of activities that CUSOs can engage in. The proposed rule would allow CUSOs to originate any type of loan that a federal credit union may originate and would provide the agency board with more flexibility in determining the legal activities of CUSOs.

In his final meeting as a board member in January, Todd Harper, who is now chairman, was the dissenting vote, saying that expanding CUSO loan options was risky.

Comments on the rule were due Monday, but on Friday, the agency agreed to extend the comment period for an additional 30 days. An agency spokesperson said the board agreed to extend the comment period, given the interest in the proposal and its significance.

The American Bankers Association and at least one credit union requested an extension.

“A 30-day comment period does not provide sufficient time for analysis of such an important change,” Steven Stapp, president/CEO of Unitus Community Credit Union in Portland, Ore., said.

“While providing lending services to auto dealer sales organizations would definitely be beneficial to some credit unions, this CUSO expansion rule would allow those same lending services to compete [with] established credit unions, which have been thriving in this [place] for many years,” Stapp wrote in a letter commenting on the rule.

He warned that the proposal has the potential to erode a credit union’s local presence in working with auto dealers and borrowers.

Dave Echtle, chief lending officer at O Bee Credit Union in Lacey, Wash., agreed.

He said that his credit union is state chartered and has an investment in a local CUSO and other smaller credit unions. He said the ability of a larger credit union to expand a CUSO will create an uneven playing field.

“Smaller credit unions will not be able to keep up with their buying power and will eliminate or greatly reduce our market share as well as the ability to service local and regional customers or members,” he added.

However, NACUSO President Jack Antonini said that credit unions must innovate to survive. He said by joining forces in a CUSO, credit unions gain scale and expertise that allows them to help their members.

“Lending CUSOs create a more vibrant industry, provide more quality loans and allow credit unions to better serve their members’ needs,” he wrote. He said that the financial services industry has evolved, and cited care-buying services as an example of that evolution. He said that those national services will not establish relationships with thousands of credit unions across the country.

Antonini added that if CUSOs were permitted to be the lender in that relationship, the loan would stay in the credit union industry.

“This proposed rule is a welcome modernization of the CUSO regulations, which will allow credit unions to remain innovative and give credit unions the ability to adapt to changing lending markets,” he said.

If CUSOs are permitted to make auto and unsecured loans, credit unions would have parity with state-chartered credit unions, as well as banks and fintech companies, said Tony Boutelle, president/CEO of CU Direct, which serves more than 1,100 financial institutions and more than 14,000 auto dealers.

“The change will help credit unions — regardless of size — make more loans, improve their efficiencies, and increase their ability to [mitigate] risk and fraud,” he told the NCUA.