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Now that CUSOs Have Registered with NCUA, What’s Next?

LAS VEGAS – The National Credit Union Administration required all credit union service organizations to register by March 31, and while the process went mostly smoothly, some CUSOs now worry what will happen with the information they have provided the regulator.

That was the message from attendees at the Annual Conference of the National Association of Credit Union Service Organizations (NACUSO), which took place here in early April.

Brian Lauer, a partner in the Philadelphia law firm Messick & Lauer, which had several attorneys at the conference, said there were a number of concerns that emerged during the registration period of Feb. 1 to March 31.

“Most of these were technical, the actual submission process was mostly smooth,” Lauer told Credit Union Journal.

Perhaps the biggest issue was what happened at the end of the electronic submission process. Lauer said the first CUSOs to register had to check a box stating they agreed to an acknowledgement that CUSOs were subject to rules that, in fact, related to regulated credit unions, not their CUSOs.

“After we heard about this from one of our clients, Messick & Lauer thought the acknowledgement was not appropriate and asked NCUA to make changes,” Lauer said. “It took about a week, but then NCUA changed the acknowledgement.”

After the wording of the acknowledgement was changed, CUSO executives “calmed down” about the registration process, according to Lauer, adding that is not necessarily a sign all is well.

“In one sense, it seems they are simply numb about giving the information NCUA is requesting,” he said. “The next concern is what happens when NCUA comes in to review a CUSO, because the agency does not appear to have the expertise to examine a for-profit entity. Then there is the information gathered by examiners during reviews and what happens to that.”

There is concern about competitors obtaining CUSO trade secrets by making Freedom of Information Act (FOIA) requests in the future, according to Lauer. The biggest worries involve disclosing customer lists, financial statements and in some cases, details of their actual business practices.

“NCUA says it only will make general information available, but I am not sure they have that down,” said Lauer. “It is not clear what will or will not be available under FOIA. We think NCUA should get a legal opinion to define what will be accessible. NCUA currently is seeking feedback.”

Identify and Understand

Lisa Dolin, program officer for NCUA’s Office of Examination and Insurance, led a highly popular breakout session on the first full day of NACUSO’s conference. She was described as the “point person” for CUSO registry process.

According to Dolin, NCUA’s goal in creating the registry was to “identify and understand” CUSOs and the services they provide to credit unions. Preliminary figures show approximately 850 CUSOs registered, most of which were wholly owned. The number of registrants immediately raised a question as to completeness, as Dolin said NCUA had information on 1,200 Employer Identifications Numbers (EINs) connected to CUSOs.

“We know this is a new process and we want to make sure the information is accurate,” Dolin told attendees. “It is a new system, and there will be improvements.”

NCUA will be following up with CUSOs the regulator is aware of that are not in the registry, Dolin said. CUSOs that did not register will receive a letter requesting registration and giving a deadline. If the deadline is not met, NCUA will follow up with the CUSO and the credit union connected with the CUSO. If the CUSO still does not register, federally insured CUs no longer will be able to invest funds in the CUSO.

“The same goes for CUSOs that did not complete registration: they must register completely or no additional funds from the credit union will be allowed to go to the CUSO,” she said.

Several questions came up during the registration process, Dolin noted. Because of the wording of one question, many CUSOs incorrectly indicated they were a corporate CUSO. “They equated being a corporation with being a corporate CUSO,” she explained.

A similar area of confusion concerned the investment and loan fields on the customer and owner pages. Dolin said credit unions were advised to list the dollar amount they actually invested in the CUSO, not, as happened with some responses, the loan volume generated by a lending CUSO.

Another frequently asked question came from CUs with a small investment in a CUSO. They wondered if they needed to register the CUSO. The answer: CUSOs need to register themselves. In the case of a wholly owned CUSO that only serves the CU that owns it, some wondered what to enter in the credit union customer section? Answer: just that CU’s name.

Some shell CUSOs that currently are inactive asked if they need to register and were told “no,” Dolin continued.

“Several CUSOs said they were unable to upload their schemas, usually due to formatting issues. We had a very specific format they needed to follow,” Dolin said.

Texas and California had the most CUSOs, and there were nine states that had 30 or more CUSOs.

Public Search Starts June 1

The CUSO registry is scheduled to have a public search function that will be available on June 1.

“The search function is being tested now,” said Dolin. “Users will be able to search by city, state, ZIP Code or type of services offered by the CUSO. Current registry information can be changed at any time. Only some fields will be released in a public search.”

The next CUSO registration period is scheduled for February/March 2017.

“NCUA will use this process as a tool to identify CUSOs that pose a potential risk from a loan or investment perspective to a credit union,” Dolin said. “All in all, it seems implementation was not as onerous as CUSOs were fearing. It went pretty well.”

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