CUNA Regulatory Comment Call

April 21, 2008

EXECUTIVE SUMMARY

NCUA is proposing to amend its credit union service organization (CUSO) regulations by expanding and clarifying permissible CUSO activities. In addition, the proposed rule would give NCUA access to the books and records of CUSOs that are owned by federally-insured, state-chartered credit unions (FISCUs); require FISCUs to maintain a separate corporate identity from their CUSOs; and would limit the ability of undercapitalized federal credit unions (FCUs) to recapitalize a CUSO. Comments are due to NCUA by June 30, 2008. Please submit your comments to CUNA by June 7, 2008.

• NCUA proposes to expand the scope of the CUSO rule to permit CUSOs to provide money transfer services to non-members who are within an FCU’s field of membership. This proposed CUSO regulation expansion would parallel the expanded FCU non-member money transfer service powers provided by the Reg Relief Act of 2006.
• NCUA proposes to permit CUSOs to originate and hold credit card loans as a principal on its own behalf or on behalf of credit unions. The NCUA Board believes that credit card origination and administration should be pre-approved CUSO activities.
• NCUA proposes extending two safety and soundness provisions of the CUSO regulations to apply to CUSOs owned by FISCUs as well as to CUSOs owned by FCUs. The provisions that NCUA proposes to expand to cover both FCU-CUSOs and FISCU-CUSOs are: (1) the requirement that CUSOs agree to permit NCUA to have access to their books and records; and (2) the requirement that credit unions investing in CUSOs maintain corporate separateness. NCUA proposes to give FISCUs and their CUSOs at least six-months to comply with these new requirements.
• The proposed rule would require less than adequately capitalized (for Prompt Corrective Action rating purposes) FCUs to acquire approval from NCUA before recapitalizing an insolvent CUSO.
• NCUA proposes to eliminate the regulation codified at 12 C.F.R. § 712.7 that permits credit unions to petition the NCUA Board to approve a non-approved CUSO activity because the provision is redundant with another regulation, 12 C.F.R. § 791.8(c), that permits the public to petition NCUA for the issuance, amendment, or repeal of any regulation.
• NCUA proposes to make providing payroll processing services directly to members a pre-approved CUSO activity.
• CUSO activities that NCUA has previously approved through legal opinion letters and that the agency now proposes to add to the CUSO regulations include: (1) providing all aspects of real estate settlement services for credit union mortgage loans to members; (2) employee leasing services and support; (3) purchase and servicing of non-performing loans; (4) business consulting and related services for credit union business members; and (5) referral and processing of loan applications for members turned down by the credit union.
• NCUA proposes adding the phrase “including the authority to buy and sell participations in such loans” to the CUSO regulation in order to clarify that CUSOs have the authority to buy and sell as well as to originate loan participations.
• NCUA is soliciting comment on the issue of permitting consolidated opinion audits for CUSOs that are majority owned by a single FCU. Specifically, NCUA is soliciting comments on whether to revise its regulations to permit a CUSO majority owner to obtain only a consolidated audit and, if so, how the interests of minority CUSO investors could be protected.

• NCUA requests comment on possible approaches to defining what types of FISCU-CUSOs should and should not be subject to the CUSO regulations on corporate separateness and NCUA access to books and records.
  
  

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• NCUA requests comment on ways to isolate and address CUSO credit risk and similar risks (e.g., from CUSOs that originate mortgages or business loans) from the credit union system without unduly burdening the industry or unnecessarily covering all CUSO relationships.
  
  

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• NCUA requests comment on ways to address a FISCU relationship with a CUSO where the FISCU is required to maintain an investment in an entity to receive services at optimal terms and rates but in which the FISCU’s share of the overall business of the CUSO is minor. One possible solution would be to create a minimum investment threshold for the regulation to apply.
  
  

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• NCUA requests comment as to whether FISCU-CUSOs that are already subject to state laws requiring corporate separateness and/or examination of books and records should be exempt from the NCUA regulation on FISCU-CUSOs.
  
  

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• NCUA requests comment on the issue of permitting consolidated opinion audits for CUSOs that are majority owned by a single FCU. Specifically, NCUA requests comment on whether to revise its regulations to permit a CUSO majority owner to obtain only a consolidated audit and, if so, how the interests of minority CUSO investors could be protected.
  
  

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