What Harper Got Wrong with the CUSO Rule Vote

What Harper Got Wrong with the CUSO Rule Vote


I wasn’t sure what I heard Chairman Todd Harper say at the September Board meeting was really said by him, so I waited until I could check it out when the meeting video was posted, and damned if I didn’t hear him right.

A bit of context first: on Thursday, October 21, the NCUA board voted 2-1 in favor of a new CUSO rule that will allow said organizations to originate any loan that a federal credit union might. Harper was vehemently against the rule, which fellow board members Kyle Hauptman and Rodney Hood had to force onto the agenda.

Let me say this first, I really like Todd. He was extremely generous with his time when, last year, he set up two calls to meet with both our CUSO’s executive team and a collection of CEOs from our partner credit unions. I think he’s a really smart guy and a patient listener. I also greatly enjoyed our time sharing stories from our common background as products of the gritty blue collar neighborhoods of Northwest Indiana, so count me flabbergasted by what he has said about the consequences of expanding the lending authorities of CUSOs.

Does he really believe that “this CUSO rule will be more likely to harm small credit unions, in the long run, than it is to help them”? Just exactly how does he think that small or de novo credit unions will ever reach a sustainable scale without the benefit of collaborative lending strategies? The very essence of the credit union philosophy isn’t just about members helping members, but extends to credit unions and their CUSOs helping each other as well.

How can a small or even larger credit union hope to sustain their goals for member service if they ever have to say no to a member loan request because of liquidity limitations, when we know that there are available funding alternatives within our sizable national collaborative system of fellow believers? This is the very objective of CUSOs who have formed to support participation and shared funding strategies and subsequently also built teams of experts in specialized lending that all credit unions, except for the very largest, would ever hope to build or afford as internal staff. This is one of our truest collaborative advantages over commercial banks and it needs to be leveraged to a greater degree, not fall victim to senseless regulatory restrictions.

Or as my colleague Randy Karnes suggests in his blog, “Ninety percent of all credit union opportunities that will be sourced to credit union balance sheets and income statements will come from indirect outlets in the future—why not start with CUSOs as the major player in sourcing opportunities to credit unions?”

The Chairman says that this new CUSO rule is “the wrong rule at the wrong time.” He says that it will create a “Wild West of lending.” Where is the proof? What data can he share that collaborative lending strategies in any asset class, have ever created systemic risk to the deposit insurance fund? A fund that today protects a network of credit unions with record setting low levels of Camel 3 and below institutions and record level highs of capital and reserves?

I hope I can talk to him soon about why he has said these things about expanded CUSO lending authority. I hope that he knows that he already has all the oversight authority he needs to examine and evaluate these lending strategies when staff visits the credit unions who not only own these CUSOs but fund and participate in this vital strategy that allows all credit unions to not only better meet their members’ needs, but to survive in today’s competitive lending marketplace.

To borrow another phrase from Randy, I really don’t think he can convincingly tell me why I’m wrong.


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