Board to consider final rule for expanding lending, services role for credit union service organizations

Finalizing a proposed – and contentious – rule on expanded lending and services provided by federal credit union (FCU) credit union service organizations (CUSOs) highlights the scheduled agenda for next week’s meeting of the federal credit union regulator.

In other action, the National Credit Union Administration (NCUA) Board will consider finalizing a rule that would add an “S” (Sensitivity to Market Risk) component to the existing CAMEL rating system and redefine the “L” (Liquidity Risk) component, thus updating the rating system from CAMEL to CAMELS.

The CUSO rule was proposed at the beginning of the year. It would deem as permissible for CUSOs the origination of any type of loan that an FCU may originate; and grant the NCUA Board additional flexibility to approve permissible CUSO activities and services. The agency also sought comments on broadening FCUs’ authority to invest in CUSOs.

But from the beginning, the proposal has been controversial. It was released Jan. 14 on a 2-1 vote of the NCUA Board, with then-Board Member (now Chairman) Todd Harper dissenting. Harper, making his objection, noted the NCUA’s lack of direct supervisory authority over CUSOs and indicated the proposal raised potential consumer protection concerns. He said such a rule “will create a Wild West within the credit union space,” affording “little accountability for consumer protection” as CUSOs could exceed the restrictions applied to FCU lending in areas such as interest rate, loan term, and repayment.

Shortly after that board meeting, Harper was named chairman of the three-member board by the newly inaugurated President Joe Biden (D). He replaced current Board Member Rodney Hood in the position.

Since then, the proposal stalled. It was originally issued with a March 29 comment deadline (about 60 days after its proposal). The agency then extended the comment period another 30 days.

Last month, the board agreed to consider finalizing the rule (along with two other outstanding proposals) in upcoming board meetings over three months; the CUSO rule was the first on the list. However, controversy again dogged the proposed CUSO rule, as it (and the other two rules, to be considered in November and December) were approved for future, final consideration on a vote of 2-1, with Harper again dissenting. In doing so, he reiterated his concerns about the potential of the proposed CUSO rule for growing an “already unregulated space within the credit union system, with little accountability for protecting consumers and credit unions.”

The CAMELS proposal was put forth in January (during the same meeting at which the CUSO proposal was issued) and was approved for public comment on a unanimous vote by the board. The proposal would bring the NCUA’s rating system up to date with a change that banking regulators incorporated decades ago and satisfy a recommendation the agency’s inspector general has been recommending for about the past five years.

Also on the agenda for Thursday’s meeting is a board briefing on cybersecurity.

The NCUA Board meeting is scheduled to get underway at 10 a.m. and to be live-streamed via the Internet.

Board Agenda for the October 21, 2021 Meeting