NCUA Approves Dramatic Expansion of CUSO Lending Authority

In a two-to-one vote today, a deeply divided National Credit Union Administration board approved an American Bankers Association-opposed proposal that would expand the range of permissible lending activity for credit union service organizations, or CUSOs. Under the rule, CUSOs will be allowed to originate any type of loan a federal credit union may originate, including auto and payday loans. The final rule also broadens federal credit unions’ investment authority in CUSOs.

During a board meeting today, NCUA Chairman Todd Harper expressed significant criticism of the final rule. Harper noted that it makes “a blind spot worse,” given that NCUA lacks the authority to supervise or examine CUSOs and warned that it will likely “open the door to predatory scams” and could lead to further losses in the credit union insurance fund. Calling it “the wrong rule at the wrong time,” Harper added that it would benefit large credit unions at the expense of smaller ones.

As CUSOs may serve people who are not members of a credit union, the expanded authority would further undermine credit union field-of membership restrictions, which is one of the central justifications for their tax-exempt status, ABA pointed out in previous comments opposing the rule. The association also echoed Harper’s concerns about safety and soundness and consumer protection issues that could arise.