NEWPORT BEACH, Calif. (5/14/08)--Credit unions should improve strategic planning, ensure balance in third-party contracts and perform due diligence. This message was delivered by Gigi Hyland, National Credit Union Administration (NCUA) board member, at the National Association of Credit Union Service Organizations (NACUSO) Annual Conference April 29 in Las Vegas. The NCUA recently published a letter on third-party relationship evaluation, and Hyland spoke about the key regulatory issues involved. Credit union service organizations (CUSOs) should create a working process of knowledge for regulators to understand what CUSOs do and do not do for credit unions, she said. Guy Messick, NACUSO general counsel and attorney at Messick and Weber in Media, Pa., presented information on complying with NCUA’s letter. He also noted that NACUSO President Thomas Davis serves on the Credit Union National Association committee on the issue. “NCUA’s admonitions to credit unions regarding their relationships with third parties are a good thing, for safety and soundness reasons and the effective management of credit unions,” Messick said. “The norm is for credit unions to have ad hoc relationships with numerous vendors, and with no person in the credit union knowing all of the contractual terms or even how many vendors serve the credit union.” One credit union that recently took inventory of its third-party relationships found that it had over 200, Messick noted. NCUA also is asking credit unions three questions, Messick said:
* Does outsourcing fit with the credit union’s strategy and risk tolerance? * Is the proposed vendor a credible and effective provider? and * How will the credit union monitor the relationship and manage the risk?
CUSOs need to be ready to help credit unions meet their duty in evaluating and monitoring the relationship. They should have due diligence packages to hand to credit unions. CUSOS also should provide credit unions with performance reports, and non-CUSOs should do the same, Messick added. It is critical for credit unions to reorganize their management structure to manage the new credit union outsource-rich model. “It is not your father’s credit union anymore, where the vast majority of key services are provided by employees,” Messick said. “Credit unions outsource a multitude of key functions, and this trend will continue as credit unions look for greater expertise and lower operating costs. “There should be a service-provider policy approved by the credit union’s board and implemented by staff. Each credit union needs to have a senior management position whose job is to manage and monitor third-party relationships and implement the board’s service provider policy. Accountability is crucial.”