The following is an excerpt from an article published in the March 11, 2009 Credit Union Times.

These unprecedented times create an opportunity for credit unions to flourish in the coming decades – IF we harness the power of collaboration and pair that with innovation. 

 
In the last period of unprecedented economic times, credit unions were formed as cooperative alternatives to the banking industry. But this isn’t the 1930s. Our competitive challenges increase daily. 

We need to find new methods of collaboration to create financial solutions for more Americans. 

 
Credit union service organizations (CUSOs) have been a key driver of innovation in the past two decades, particularly in credit union payment systems and in operational efficiencies. Yet CUSOs are hampered by restrictive rules limiting the ability of credit unions to work together to bring new products, services and business models to the market.

Current NCUA rules only allow for a specifically enumerated list of services for credit union investment and lending. These include many well known services such as card processing and loan support services.

However, this list is not inclusive of many new services that could be developed for the benefit of members.

In recent months, two services were proposed to help credit unions compete in the marketplace: 1) credit card loan origination services; and 2) payroll processing.

I was personally involved in advocating for the addition of credit card loan origination to the CUSO rule, and the process to add this took 17 months. This is not to suggest a delay by the NCUA; that’s just the nature of the rulemaking process. 

 
Our competitors are not hampered by regulations that require specific approval for new types of services to be brought to an industry. Many banks use holding companies to own operating companies not specifically related to banking.

 
I propose that the NCUA adopt a pilot program provision for CUSOs. The NCUA currently allows for an investment pilot program. The investment regulation specifies the capital, expertise and supervision requirements for a company to participate in a pilot. No such provision is available for CUSOs, despite a clear need.

As new products and services are proposed that are not listed in the current guidelines, each CUSO is required to go through a lengthy and formal process to change the NCUA rule. 

  
This pilot program would allow for the NCUA to approve a new type of service conditionally for one or more CUSOs that agree to come under a specific set of supervisory guidelines.

 
It would have specific safety and soundness guidelines that would be agreed to by the NCUA and the CUSOs, which would likely include minimum capitalization and risk management performance metrics.

The CUSO would then take their service to the marketplace operating under these rules. If the pilot was successful in meeting the performance guidelines within a defined period of time, the NCUA would then move to an expedited rule-making process allowing others to enter the marketplace and make the new service category permanent.

A pilot provision to the federal CUSO rule would stimulate a new wave of innovation and collaboration, while balancing the needs of our industry for safety and soundness.