One of the marks for a growing and successful financial services industry, like any other industry, is the consistent search for forward-thinking innovation and the financial tools to keep credit unions top-of-mind while expanding membership.
Every once in a while, though, our fellow industry friends and colleagues have different ideas, philosophies, or concerns for how to go about agreeing to and implementing those innovations in moving the proud credit union movement forward.
The time for credit union innovation is now
During the National Credit Union Administration’s (NCUA) monthly Board meeting in January 2021, the Board approved a proposed rule with a 30-day comment period that would amend the NCUA’s credit union service organization (CUSO) regulation by giving them the authority to work with federal credit unions (FCUs) to originate the kinds of loans an FCU may themselves originate.
This proposed rule would accomplish two primary objectives: 1) expand the list of approved activities and services for CUSOs to incorporate any type of loan an FCU may originate, and 2) grant the Board additional flexibility to approve permissible activities and services. The NCUA is also soliciting commentary on expanding FCU investment authorities in CUSOs.
Credit union family and friends have their reservations
Not everyone in the movement, however, shares the same enthusiasm with these advancements in expanding CUSOs’ influence and access to FCUs. In an April letter of response to the proposal addressed to the NCUA, greatly-respected and well-intentioned industry members from two credit unions and two advocacy organizations — Self Help Federal Credit Union, Self Help Credit Union, the Center For Responsible Lending (CRL), and the National Consumer Law Center (NCLC) — wrote to oppose the proposal.
Together, the four organizations claim the proposal would make possible the advancement of predatory lending practices by participating credit unions, thereby shackling member security in a period when improved security is sorely needed. The executives’ concerns for allowing these expanded CUSO services include the following:
- They believe the proposal would do substantial damage by allowing high interest rate lending to credit union members at rates disallowed by federal credit unions; essentially, by using CUSOs credit unions would be engaging in predatory lending practices
- They think the proposal would disproportionately hurt communities of color and the financially-vulnerable while exacerbating financial inclusion, the very mission to which CUSOs are committed
- They believe the proposal is not necessary to accomplish CUSOs’ goals, as they are already able to facilitate collective investment in technology without broadening lending powers
The hardest-hitting rebuke to the NCUA’s CUSO proposal was expressed in January, when the NCUA’s own esteemed Chairman and Board member Todd Harper expressed similar opinions to those stated above — “This proposal — if finalized — would give CUSOs the ability to become indirect auto lenders and payday lenders.”
Well, that certainly doesn’t feel good. We can’t help but empathize, however, with their commitment to the financial security, safety, and health of those trusting members we put under our wing as credit unions and CUSOs. That’s our very purpose; our mission, to help communities get the tools and financial literacy measures necessary to achieve great things by getting members back on the path to financial inclusion and wellness.
Photo: CJ Dayrit
CUSOs are the hero, not the villain, of this story
CUSOs, QCash Financial included, believe that despite the reservations held by our friends and fellow colleagues in the credit union movement, this NCUA proposal, in solidarity with the National Association of Credit Union Service Organizations (NACUSO), serves to help innovate accessibility, affordability, and improved financial health for millions of the financially-vulnerable who remain underbanked and unbanked throughout the United States.
One of the main benefits CUSOs bring to their credit union communities is focus on collaboration, adaptability, and innovation. As we mentioned the concerns from industry executives above, they are afraid that if CUSOs were given the power to make unsecured loans, they would naturally become payday lenders. There is simply no reason to knee-jerk assume the philosophy of serving our nation’s members disappears when credit unions partner with or form CUSOs. Allowing CUSOs the platform to offer unsecured loans will assist credit unions in actually defeating payday lending.
Some states, like QCash Financial’s own Washington state, permit CUSOs owned by state-chartered credit unions to provide unsecured loans. The CUSO model of small dollar lending was used to enable credit unions to offer payday lending alternatives to help members escape the financially-unhealthy lure of predatory payday lenders. By utilizing fintech developed by the CUSO, credit unions could then offer consumers and members more accessible life event loans and a financially-supportive environment in which to build and establish their financial health goals.
The credit union and CUSO movements were built on serving the underserved and financially-vulnerable, and on bonding the credit union to members with a drive to share their values and build relationships; literally the opposite of those doubting the NCUA proposal.
When “life happens” for your credit union members, the QCash easy-to-implement CUSO life event lending platform offers your financial institution the capacity to offer short-term, small dollar loans that can transform your members’ lives in six clicks and 60 seconds; the amount of time it takes to apply, decision, and deposit the amount in the member’s account.
With our life event loan platform, we can coordinate and work with partner credit unions to help members practice financial inclusion and improve their financial health in part by utilizing our patented relational underwriting that allows your credit union to say “yes!” more often since the platform doesn’t employ a credit score as part of its decisioning program. If you would like more info on how QCash can help your credit union, try our demo here.
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