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Federal Register / Vol. 86, No. 205 / Wednesday, October 27, 2021 / Rules and Regulations
loan that an FCU may originate and grants the Board additional flexibility to approve permissible CUSO activities and services outside of notice and comment rulemaking.12 The final rule and a discussion of the Boards responses to the comments are discussed in detail subsequently. First, however, the Board explains the general principles and approach it has taken to examine and reconcile the competing viewpoints of commenters as well as past statements by the NCUA and individual Board Members on risks relating to CUSO activity.
As detailed in response to commenters different points, which are grouped by subject matter in the following sections, the Board has reexamined several key statutory and policy principles to engage in a thorough, balanced review of the comments. These points include the following:
1. The Boards views regarding safety and soundness and risk to the NCUSIF.
On this critical issue, the Board has considered key reference points, including the statutory definition of a material loss to the NCUSIF and requirements for NCUA insurance of member accounts. These authorities do not define all losses as material or involving undue risk to the NCUSIF.
This preamble elaborates on these reference points in considering the degree of risk the rule may pose.
2. The need to balance predicted risks against predicted benefits. Many commenters opposing the proposed rule made, for the most part, generalized predictions of harm to the NCUSIF, to consumers, or to the reputation of credit unions. While the Board recognizes the need to consider these concerns, it also finds that they do not account for the potential benefits that the regulatory changes may bring to FCUs by enhancing efficiency and supporting innovation, and to consumers by expanding lending options and access through credit union-affiliated lenders.
The Board also finds this expansion in FCU authority appropriate for parity purposes because the Board currently does not restrict the activity of CUSOs in which only FISCUs lend or invest.
3. Some of the policy concerns invoked by commenters, as well as the Board at times in the past, have been both qualified and conditional. Most notably, some commenters and the Board in past CUSO rulemakings have considered the potential for FCUs 12 Originate
means to fund or make loans. This is separate from the already permissible activity for FCUs to lend to or invest in CUSOs that engage in loan support services that include loan processing and servicing under 712.5j.

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lending to or investing in CUSOs with expanded authorities to dilute the FCU
common bond and introduce more competition to small credit unions. The Board continues to recognize that these issues raise concerns for some parties, but has found that neither rests on clear statutory authority in the FCU Act. That is to say, nothing in the FCU Act binds CUSOs to FCU field of membership common bond provisions, and the Board itself has invoked this concern only conditionally in past rulemakings, allowing it to yield to the needs of credit unions to avail themselves of expanded CUSO lending activity. Further, the FCU
Act does not require a CUSO to serve credit unions and members exclusively, but rather primarily, which balances a focus on credit union members while expressly authorizing CUSOs to serve others. Similarly, the Board does not believe it is prudent to allow concerns over legitimate competition in the marketplace to restrain regulatory changes that may benefit many credit unions and the system as a whole.
Accordingly, to the extent these factors are appropriate regulatory considerations, the Board believes they must yield to the benefits of expanded FCU authority about CUSO activity and other factors.
4. Application of the Boards judgment to reconcile differing viewpoints. Commenters opposing the rule raised several concerns, and in a few cases, cited past examples or incidents. But the Board does not believe that commenters opposing the rule provided substantial evidence to support their predictions that adopting the proposed rule would result in various harm. Commenters supporting the rule provided reasons they believe the rule would be beneficial. In considering these competing viewpoints, the vast majority of which are general policy views, the Board has applied its own judgment to make the best conclusions it can about the potential benefits and risks of the proposed rule. Throughout this review, the Board has concluded that limiting expansion and innovation indefinitely based only on generalized concerns would result in regulatory stagnation, which may harm the credit union system in the long term.
After considering the mixed viewpoints, the Board has determined that the overall weight of the factors in the record favor moving forward to enhance opportunities for FCUs CUSOs to engage in all types of lending permitted for FCUs.

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Expansion of Permissible FCU Lending and Investment in CUSOs Engaged in Lending Activity The Board has reconsidered its 2008
position on permitting FCUs to invest in or lend to CUSOs that engage in all types of lending. The Board now believes that permitting FCUs to invest in or lend to CUSOs that originate any type of loan that an FCU may originate may better enable FCUs to compete effectively in todays marketplace and better serve their members.
As discussed in the preceding section, the FCU Act permits an FCU to lend to or invest in a CUSO that provides services associated with the routine and daily operations of credit unions. The NCUA has interpreted this statutory authority broadly to permit an FCU to lend to, and invest in, a CUSO that does most of the same activities and services permissible for an FCU.13 To date, however, FCUs have not been permitted to invest in, or lend to, CUSOs that originate certain kinds of loans.14
As discussed in the proposed rule, the NCUA historically has been reluctant to grant FCUs authority to invest in or lend to CUSOs with broad lending authority.
First, the NCUA has been hesitant because CUSOs may serve those who are not members of a member credit union. The NCUA has been concerned about FCUs benefiting from CUSO
profits generated from non-members.15
Second, the NCUA has also expressed concern that if member loans were being made by CUSOs, the NCUA would have a duty to examine such loans and that would necessitate greater NCUA
examination authority over CUSOs.16
Finally, the NCUA has also had concerns that permitting CUSOs to engage in a core credit union function could negatively affect affiliated credit union services.17
Due to these concerns, the NCUA has previously found compelling justification for permitting FCUs to invest in or lend to CUSOs engaged in only four types of loans: 1 Business;
2 consumer mortgage; 3 student; and 4 credit cards.18 In permitting these types of lending, the NCUA has considered factors specific to each type of lending, such as whether these activities require specialized staff or economies of scale, and, as discussed subsequently, whether loan aggregation 13 12

CFR 712.5.
62 FR 11779 Mar. 13, 1997.

14 See, 15 Id.
16 Id.
17 68
18 Id.

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FR 16450 Apr. 4, 2003.
See also, 73 FR 79307 Dec. 29, 2008.

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