In a 2: 1 vote by the NCUA board, the agency approved a final rule that allows CUSOs to issue any type of loan issued by a federal credit union.
During Thursday’s meeting, board member Rodney Hood, who has endorsed and prioritized this rule and issue since serving on the board, led the discussion. Hood’s view is that the ultimate rule will allow CUSOs to lend and expand their options for consumers to create competition in and out of the credit union space – much like fintech companies have done with the auto loan market.
“Let me be clear, I certainly believe that it is credit unions that will help credit unions, and especially medium to smaller credit unions, remain relevant in the years to come by continuing to grow in size in a collaborative spirit while ensuring that the industry is safe responds to the rapidly changing landscape, ”Hood said.
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 the comments supported the measure. He took a moment to address the rule’s critical comments, and those who raised concerns could lead CUSOs to become payday lenders.
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“In particular, some have said that this rule will allow them [CUSOs] Becoming Payday Lenders – Harmful payday lenders contradict the “people help people” philosophy. And I think these concerns are just unfounded, ”Hood said.
Chairman Todd Harper, the only no-vote on the rule, was against advancing the rule, as the NCUA should wait for the agency to have that authority without proper oversight of CUSOs or third-party vendors; and that can only be given by Congress.
“There is a classic philosophical difference to this rule. On the one hand, my colleagues believe that the changes made in this final rule will help small credit unions remain competitive and remain viable. On the other hand, I believe that unleashing such competition within the credit union system will result in lower revenues for smaller credit unions as the CUSOs will skim off the revenues of the participating credit unions. This will then lower the returns on loans and the returns of the credit unions on average wealth. As a result, this rule is likely to lead to further industry consolidation in the long run, ”said Harper.
Vice Chairman Kyle Hauptman and Hood voted in favor of the final rule for a number of reasons. One of these is that the board “will have additional flexibility to approve permitted activities and services outside of the messaging and commentary policy”. Another reason seemed to be 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. It’s good. As always, we’ll see how this rule affects consumers and credit unions. “
Hauptman said the NCUA will be on the lookout for consumer issues and whether the CUSOs are properly passing these loans on to consumers. He added, “These rules that we make are sometimes more art than science … so if this rule needs to be adjusted in the future, we will adjust it.”
CAMEL to CAMEL
In a 3-0 vote, the board approved a final rule that updates the CAMEL rating system to the CAMEL rating system. In the last rule, the “S” was added to indicate the sensitivity to market risk in the component. The Board of Directors 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 “increase transparency and enable the NCUA and the state-insured consumer and corporate credit unions to better balance liquidity risk (L) and sensitivity to market risk (S). to distinguish ”.
The addition of “S” also improves consistency between supervision of credit unions and financial institutions supervised by the other banks.
“The NCUA’s introduction of the CAMELS system is good public order and long overdue,” said Harper. “The separation of the liquidity and market sensitivity components will enable the NCUA to better monitor these risks within the credit union system, better communicate specific concerns to individual credit unions, and better allocate resources.”
The revised CAMELS rating system will be implemented on April 1, 2022.
In a statement released on Thursdaysaid CUNA President / CEO Jim Nussle of both NCUA board votes: “We thank the board for finalizing these two rules, both of which will improve the operating environment for credit unions to better serve their members. The CUSO rule will help credit unions pool resources if necessary to continue to meet credit demand. The final regulation by CAMELS will create more clarity and transparency with regard to the sensitivity of credit unions to market and liquidity risks. “