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Board Member Todd M. Harper Statement on Credit Union Service Organizations Proposed Rule

January 2021
Board Member Todd M. Harper Statement on Credit Union Service Organizations Proposed Rule

As Prepared for Delivery on January 14, 2021

Rachel, thank you for your work and your presentation on the Credit Union Service Organizations proposed rule and request for comment. It is good to hear your voice back at the Board table. I hope that everyone in your house is adjusting well to the addition to your family.

This proposal, if finalized, would give CUSOs the ability to become indirect auto lenders and payday lenders. Advocates would agree that these two consumer financial products carry considerable compliance and reputation risk. At the same time, the NCUA has no authority to supervise CUSOs for compliance with federal consumer financial protection law, because we lack the third-party vendor authority that the other federal banking agencies and the Consumer Financial Protection Bureau have. For these reasons alone, I cannot—with good conscience—support this proposal.

But, there is much more to dislike about this rulemaking. It would dilute the common bond of a federal credit union. What is more, the proposal would create a Wild West within the credit union space with little accountability for protecting consumers.

In fact, CUSOs making loans under this proposal would not be subject to the same loan restrictions as federal credit unions. As a result, they could exceed the limits on maturity, interest rates, and prepayments that federal credit unions must follow. That creates real reputational risk for the entire credit union system. Instead of passing this proposed rule today, we should have just passed “Get Out of Jail Free” cards.

In the recent past, some have suggested that the NCUA should address vendor authority after the COVID-19 pandemic is behind us, and instead, the agency would focus on providing credit unions and their members the relief and support they need to weather the pandemic-induced economic crisis. This proposed rule and associated request for comment do nothing to provide relief for those impacted by the economic upheaval.

As such, I would like to examine why we are even considering this proposal today. It is certainly not COVID related. There is no economic analysis to make the business case for expanding this unfettered lending authority. While the increased competition seems likely to marginally lower prices for some consumers with good credit, other consumers may end up paying much more for their loans. We would also likely see tighter margins and a more concentrated system as small credit unions close their doors because of an inability to compete created by this proposal. And, although the proposal seems to try to explain that it is a reexamination of CUSO authority, there is no information about why the reexamination of the NCUA’s 2008 position on CUSO lending is necessary or appropriate.

Rachel, I do not have any questions for you about this proposal. My only real question, which I have about a number of the items being considered today, is a rhetorical one. Why are we spending our time and valuable staff time on another proposal that is not ready for prime time? Mr. Chairman, I will not further belabor these points, except to say that I will vote against this proposal. That concludes my remarks.

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