Are CUSOs Friend or Foe?

January 25, 2021 at 9:39 am Leave a comment

Part of the deluge of regulations proposed by NCUA in recent weeks is, depending on your perspective, either a wolf in sheep’s clothing or a lamb in sheep’s clothing. Either way, it gets to a policy issue that all credit unions should have an opinion on.

What I am talking about is NCUA’s proposed rule that would permit CUSOs to originate any type of loan that a federal credit union may originate. It would also give NCUA the ability to expand the list of permissible CUSO activities without going through the notice and rulemaking procedure. On a practical level, the regulation would permit CUSOs to make car loans, purchase retail installment contracts and, in NCUA’s own words, “engage in payday lending.” A similar request was made in 2008 but rejected by the board.

So why does yours truly consider this such an important issue for the industry to debate? Because when I started learning the issues, I always thought of CUSOs as compliments to and not competitors against credit unions. As compliments to credit unions, they are a wonderful mechanism to pool resources and cost-effectively provide a broader range of services to their members that would not otherwise be available. Since my original indoctrination, I have grown increasingly perplexed and a little bit frustrated (albeit not anywhere near as frustrated as I am by my New York Giants) by the resistance of credit unions to engage in this type of activity. 

There’s a second, more practical reason for CUSOs which supporters of this proposal recognize: non-depository institutions are growing in significance and are only going to get larger. For example, if I predicted 15 years ago that non-depository institutions would originate the majority of mortgages in this country, you would have said I was nuts. Today, technology has fundamentally changed the way things are done. CUSOs provide the most practical mechanism for credit unions to at least try to compete in this new world. Not only can a CUSO invest in the resources necessary for smartphone lending, but they aren’t constrained by field of membership restrictions. 

I don’t know what side of the debate I come down on, but this is not an issue that the industry should decide without robust consideration of both the pros and the cons. 

Sorry, Bills fans!

I’m sorry the joyride came to an end, Bills mafia. On the bright side, you can look forward to years of high-level football with a great coach and one of the best young quarterbacks in football. Unfortunately for you folks, so can Kansas City Chiefs fans. 

Entry filed under: Regulatory, technology. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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