In a 2-1 vote by the NCUA board of directors, the agency approved a final rule allowing CUSOs to create any type of loan issued by a federal credit union.
During Thursday’s meeting, board member Rodney Hood, who has been in favor of this rule and issue since joining the board, led the discussion. Hood’s view is that the final rule will allow CUSOs to make loans and expand their capabilities for consumers to help create competition inside and outside the co-op space. credit – much like fintech organizations have done with the auto loan market.
“Be clear, I certainly believe that credit union service organizations are what will help credit unions, and especially medium to small credit unions, remain relevant in the years to come as they continue to grow. in a cooperative spirit, while ensuring that the industry responds to the rapidly changing landscape, ”said Hood.
While the agency received a record number of comments on the final rule, more than 1,000 according to the NCUA, Hood said the majority of comments supported the measure. He took a moment to respond to those comments critical of the rule and those who responded to concerns that the rule could result in CUSOs becoming payday lenders.
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“More specifically, some have said that this rule would allow them [CUSOs] Become Payday Lenders – Pernicious payday lenders go against the “people help people” philosophy. And I think those concerns are just plain unfounded, ”Hood said.
President Todd Harper, the only no to vote on the rule, opposed advancing the rule because without proper oversight from CUSOs or third-party vendors, the NCUA would have to wait until the agency has that authority; and that can only be given by Congress.
“There is a classic philosophical difference on this rule. On the one hand, my colleagues believe that the changes contained in this final rule will help small credit unions to be competitive and to remain viable. On the other hand, I believe that triggering such competition within the credit union system will result in lower income for small credit unions due to the revenue that CUSOs will divert from the top of participating credit unions. This will then reduce loan yields and credit union yields on average assets. As a result, this long-term rule will likely lead to further industry consolidation, ”said Harper.
Vice President Kyle Hauptman and Hood both voted in favor of the final rule for a number of reasons, one being that the board will have “additional flexibility to approve permitted activities and services outside of the regulation of opinions and comments “. Another reason seems to be the competition.
“This rule gives credit unions the tools to compete more effectively in the digital market,” Hauptman said. “It also gives members another choice when shopping online. This is a good thing. As always, we will be monitoring the impact of this rule on consumers and credit unions. “
Hauptman said the NCUA would keep tabs on any consumer issues and whether CUSOs properly provide these loans to consumers. He added: “These rules that we make are sometimes more art than science … so if this rule needs to be changed in the future, we will change it.”
CAMEL to CAMEL
In a 3-0 vote, the board approved a final rule updating the CAMEL scoring system to the CAMELS scoring system. In the final rule, the “S” has been added to signify the sensitivity to market risk in the component. The board also approved the redefinition of the “L” in the liquidity risk component of the system.
According to the NCUA, the benefits of adding the “S” component are “to improve transparency and allow the NCUA and federally insured consumer credit unions and businesses to better distinguish between between liquidity risk (L) and sensitivity to market risk (S) ”.
The addition of “S” also strengthens the consistency between the supervision of credit unions and financial institutions supervised by other bank branches.
“The NCUA’s adoption of the CAMELS system is good public policy and is long overdue,” said Harper. “Separating the elements of liquidity and market sensitivity will allow NCUA to better monitor these risks within the credit union system, better communicate specific concerns to individual credit unions, and better allocate resources. “
The implementation of the revised CAMELS scoring system is scheduled for April 1, 2022.
In a press release published on ThursdayJim Nussle, President / CEO of CUNA, said of the two votes of the NCUA Board of Directors: “We thank the Board for finalizing these two rules, which will both improve l operating environment for credit unions to help them better serve their members. The CUSO rule will help credit unions pool their resources when needed to continue to meet demand for loans. The CAMELS Final Rule will provide greater clarity and transparency regarding the sensitivity of credit unions to market and liquidity risk. “