As Prepared for Delivery on October 21, 2021
To not leave anyone in suspense, let me be clear that I believe that credit union service organizations are what will help credit unions, and in particular mid-size and smaller credit unions, stay relevant in the years ahead by continuing to grow and scale in the cooperative spirit while insuring the industry is responding to the rapidly changing landscape. I am urging my fellow colleagues to support this proposal.
Ten years ago, you rarely heard of anyone buying a car online. Today, buying a car online is more common. For me, it’s hard to believe you have more and more consumers never stepping foot into the automobile dealership. Indirect auto lending is so critical for credit unions, so we need to give credit unions the tools to scale and compete in the online marketplace. We can’t sit back and watch the automobile market evolve without doing anything about it.
Most credit unions supported today’s rule in their comment letters. There was small opposition in the comment letters we received, when you take out all of the identical form letters, and I’d like to address some of the individual concerns raised. Specifically, some have said that this rule would allow credit unions to become payday lenders. Pernicious payday lenders run counter to the “people helping people” credit union mantra, and I believe these concerns are unfounded. Greater competition in the consumer loan market from federal credit union-owned entities is likely to introduce better consumer options and greater choice. If the Board decided to limit innovation and expansion out of concern for potential consumer harm, it may perpetuate a lack of consumer choice and access. Regardless of what action the Board takes today, other parties will continue to lend in the marketplace and may lack the same grounding in the credit union mission and industry that would tend to mitigate the risk of abusive lending practices. Confronted with this choice, it is clear that CUSOs will be more likely than other lenders to offer only reasonable terms to consumers and be held accountable by the NCUA, other federal agencies, or state authorities.
Some have raised concerns that this rule would create a “wild west” within the credit union space with little accountability for consumers. CUSOs can already engage in lending for mortgages, student loans, business loans, and credit cards. Again, these types of lending are already carried out by CUSOs without unnecessarily impacting safety and soundness. And it hasn’t created a so-called “wild west” within the credit union system.
But let’s explore this further:
- Does the NCUA charter CUSOs? Or are they chartered as in the state they are domiciled under existing state law?
- Therefore, we can infer that the NCUA charters credit unions but not CUSOs, correct?
- When a CUSO is chartered in a state it must abide by the laws of that state, correct?
- That would include state usury laws and state consumer protection laws?
- A CUSO does not get a pass from usury laws or consumer protection laws, isn’t that correct?
Saying this would create a “wild west” is an assault on all of our fellow state regulators. And I believe this industry is best served by a strong dual system of regulation, with mutual respect between federal and state regulators.
Mr. Chairman, I would like to point out that the extent of permissible CUSO lending has been considered and reconsidered by the NCUA Board for many years now. The Board has been considering today’s specific action since 2018. I’ll repeat: since 2018. In specific, the concept for this rule was issued in a December 2018 Regulatory Reform Task Force report that said this rule would require a low effort in terms of staff’s time to produce this rule and have a high impact.
In today’s marketplace, credit unions need to increasingly rely on pulling their resources to fund CUSOs, to build the infrastructure consumers are demanding and to compete with captive auto lenders. Today’s rule is a natural evolution and allows CUSOs to compete in a marketplace that is very important for credit unions. I certainly believe that now is the right time to reconsider the types of lending that are permissible for CUSOs and whether additional opportunities for collaboration will help credit unions, especially our smaller credit unions, our MDIs, our low-income designated and our CDFI credit unions. In total, it’s going to help them all remain competitive in a rapidly changing and dynamic financial landscape.
Today’s CUSO rule also enhances competition in the automobile marketplace without undermining credit unions who already competing in this space. Regardless, I am a believer in the marketplace and in my view more competition is always better for consumers.
Some may say that it’s not appropriate to do this rule at this time until the NCUA has vendor authority. But I disagree with that assessment because waiting for vendor authority will then prevent credit unions from having all the tools, they need to serve their member owners. Additionally, vendor authority is a decision for Congress. An although I have publicly gone on the record requesting vendor authority once the pandemic subsides, granting the NCUA vendor authority is not a decision for the NCUA Board. It’s a decision for Congress.
And, in closing, and perhaps most importantly, today’s rule requested comments on investments. The reality is the Federal Credit Union Act gives CUSOs the authority to invest and the authority to lend. These are two separate authorities, using two separate terms in the statue. The law says that CUSO lending primarily must serve credit unions. The law doesn’t prescribe this requirement for CUSO investments. In the 1970s, the agency determined CUSOs should be viewed as one entity—not as two separate entities as allowed by law. I believe in 2021 this approach is far too restrictive and should be reconsidered.
In today’s rule, we asked if we should separate our view of CUSOs into CUSO investing and CUSO lending. Credit unions, and not just banks, should be able to invest in fintechs offering routine and daily operations for financial institutions with the proper safety and soundness guardrails without regard to the serving credit union requirement.
Let me be clear. Today’s rule is significant, but the rule does not go far enough. I would like to see CUSOs be allowed to invest in fintechs with the property safety and soundness guardrails. In 2021, this requirement is overly prescriptive. In fact, many commenters supported us reconsidering our view. Several commenters stated that federal credit unions can get left out of the development of fintech because of the requirement to primary serve members. Several commenters stated that additional investment authority would ensure the industry has better leverage, control, and influence in the development of new technology. We don’t need to watch credit unions get left behind because of fintechs. And that is happening right now since CUSOs cannot invest in fintechs unless they become a CUSO—something that isn’t workable for a lot of fintech companies.
CUSOs—and the credit unions and their members who own them—can and should be on the forefront of fintech investments. I believe these investments are critical to keep the credit union system safe and sound in the long term as credit unions should be at the table working with fintechs. Without investments in fintechs, the credit union system runs the risk of becoming stagnant in the years ahead as the cooperative system must respond to changing dynamics. And so too should the industry’s regulator. I will repeat that we should move forward in granting this investment authority with the proper safety and soundless guardrails. I view todays rule as a significant milestone for CUSOs, but our work here is not done with regard to CUSO investments, and I’ll be calling on my colleagues to address this during my remaining tenure on this board.
I do have a few of questions:
- How many losses have been directly attributed to CUSOs to the share insurance fund? In specific, what were these losses?
- What is the intention of collecting additional information from CUSOs engaged in activities such as lending for NCUA’s CUSO Registry?
- Can you explain how the NCUA believes the incremental risk to the share insurance fund posed by this expansion of CUSO authority is mitigated?