Last week, in a letter written to Congress, NACUSO urged Capitol Hill not to grant the NCUA authority over third parties, including credit unions service organizations. The letter, penned by NACUSO President and CEO Ronaldo Hardy and addressed to members of the financial services committees in the House and Senate, was a response to another letter, in this case submitted by four former chairs of the NCUA.

Per Hardy and NACUSO, “Such expansive, new authorities would grant the NCUA virtually unlimited and unrestricted authority to regulate and examine any business that does business with a credit union. Labeled innocuously as ‘Third-Party Vendor Authority’ by NCUA, this unprecedented expansion of the agency’s authority is of concern to CUSOs because of the potential impact upon the collaborative model we represent among credit unions that have chosen the CUSO structure to share the risk associated with costly innovation and to enhance the delivery of credit union services to more members from all walks of life.”

The prior letter, signed by former NCUA chairs Michael Fryzel, Debbie Matz, Mark McWatters, and Rick Metsger, backed the calls by current Chairman Todd Harper to provide NCUA with oversight powers.

NCUA has historically had such powers, albeit temporarily and with set expirations. Opponents of the move argue that NCUA has all the authority it needs to oversee vendors, CUSOs, and credit unions. The change requires action from Congress as such a change would have to come in the Federal Credit Union Act.

“Given the increasing reliance of credit unions on third-party vendors for critical functions such as data processing, deposit taking, payment services, loan servicing, and mobile and online member services, it is imperative that the NCUA be granted the authority to oversee these vendors effectively,” they wrote. “Without proper oversight of these service providers, credit unions may be exposed to greater chances of operational disruptions, financial losses, reputational damage, and, most importantly, threats to the security and privacy of their members’ information.”

NACUSO, however, argues that due to the diversity of CUSO products and services, many of which are already highly regulated by other agencies (e.g. FINRA, the Securities and Exchange Commission, the Department of Labor, etc.), NCUA’s involvement might prove “unnecessary and arguably inappropriate.”

To attain the appropriate level of expertise would require a significant investment of agency resources, the result being a dramatically increased budget, one which has already come under fire for its rapid inflation over the past decade.

One reason, beyond the concern for the safety and soundness of the insurance fund, is a desire to match other regulators, suggested Hardy. “NCUA concedes in past testimony before the committee that one justification for their expanded authority request to have unlimited regulatory and supervisory authority over all credit union vendors stems at least partly from a case of regulator envy with their banking counterparts, such as the FDIC and OCC, that have been allowed some self-limited vendor authority by Congress.”