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Federal Register / Vol. 86, No. 205 / Wednesday, October 27, 2021 / Rules and Regulations
credit unions, the Board believes it would be inappropriate for the Board to attempt to restrain competition. The Board also believes that in the longterm, the benefits to the entire credit union system through this enhanced authority and competition will exceed costs associated with disruption to existing credit union-dealer relationships. Indeed, these costs are not certain or inevitable to occur.

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Impact Analysis Several commenters who were opposed to the proposed rule requested that the NCUA conduct an independent economic analysis to weigh the advantages and disadvantages of the proposal. Other commenters recommended an impact analysis specifically to determine the impact on small credit unions.
The Board is aware of the challenges that face small credit unions. As discussed previously regarding growth and competition, the Board does not believe it is prudent or necessary to adopt rules that prevent market-based competition. In response to this specific recommendation for an impact study, the Board also notes that the Administrative Procedure Act does not require agencies to engage in studies before adopting regulatory changes.51
The Board also believes an impact analysis is unnecessary. The Board believes the final rule will likely benefit credit unions. In the Boards experience, CUSOs generally benefit credit unions through additional capital and the sale of CUSO-originated loans to credit unions. For these reasons, the Board will proceed with the proposed changes without delaying them further to conduct a general impact study. As a separate reason to decline taking this step now, the Board observes that the commenters did not provide any specific studies of their own that would give the Board empirical evidence to support delaying these regulatory changes now.
Loan Pools, Aggregation, and Securitization A few commenters discussed the issue of securitization and whether the proposed rule would facilitate credit union securitizations. A few commenters asked for the NCUA to specifically permit CUSOs to aggregate credit union loans and issue securities on the secondary market as many credit 51 Fed. Commcns Commn et al. v. Prometheus Radio Project et al., No. 191231 Apr. 1, 2021, slip op. at 12 holding that the Administrative Procedure Act imposes no general obligation on agencies to conduct or commission their own empirical or statistical studies.

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unions do not have the available resources and volume necessary to originate the requisite amount of loans to securitize assets on their own. The Board will take this comment into consideration for future action.
Another commenter expressed concerns about CUSOs aggregating loans for sale to credit unions. The commenter stated that CUSO-generated loan pools may increase short-term operational efficiency; however, it also transfers the credit risk to smaller credit unions while the ancillary income is generated and retained by the CUSO. This commenter stated that the low margin and credit risk would be passed to the credit union with the higher margin income retained at the CUSO and ultimately benefit the largest credit union equity partners of the CUSO. This commenter added that historically, when there is market disintermediation, risk and credit losses are passed back to the passive participants with a disproportionate impact. The Board does not believe it is good policymaking to restrict credit union authorities on the potential for credit unions to enter unfavorable business deals. The Board does not believe that a few examples of unfavorable contracts with CUSOs sufficiently justify reducing the flexibilities afforded to the credit union system as a whole. Each credit union is responsible for its own due diligence prior to purchasing assets and entering into a contractual arrangement. Credit unions should exercise business judgment before making purchases and entering any contractual arrangement, even for counterparties that are part of the credit union industry. As part of good governance, credit unions with ownership in a CUSO are encouraged to monitor the length of time all loans remain on the books of the CUSO.
Accordingly, for the reasons discussed in the proposed rule and this final rule, the final rule is adopting the proposed rule without substantive change. Under the final rule, CUSOs are permitted to originate, purchase, sell, and hold any type of loan permissible for FCUs to originate, purchase, sell, and hold. CUSOs, therefore, could originate types of loans previously prohibited by the CUSO rule, including general consumer loans, direct auto loans, and unsecured loans and lines of credit. CUSOs could also purchase vehicle-secured retail installment sales contracts RICs from vehicle dealers.
Under the final rule, CUSO originated loans are not subject to the same restrictions as loans originated by FCUs.
For example, part 701 of the NCUAs regulations imposes conditions on FCU
lending relating to loan terms such as
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interest rate, maturity, and prepayment.52 These restrictions would not apply to CUSO-originated loans because CUSOs, even wholly owned CUSOs, are separate entities from FCUs and are not subject to direct NCUA
supervision. However, an FCU may not purchase a loan from a CUSO unless the loan meets the requirements of the NCUAs eligible obligations rule.53
Similarly, an FCU may not purchase a loan participation from a CUSO unless it complies with the NCUAs loan participations rule.54
Loan Participations Besides specifically permitting CUSOs to engage in consumer mortgage, business, and student loan origination, the current CUSO rule also permits CUSOs to buy and sell participation interests in such loans. The inclusion of this authority to buy and sell participation interests in such loans stems from the FCU Act and the NCUAs loan participation rule, which classifies a CUSO as a credit union organization authorized to engage in the purchase and sale of loan participations.55 The NCUAs loan participation rule, however, does not permit the sale to FCUs of participation interests in open-end, revolving credit.56 Therefore, the current CUSO
rule only permits CUSOs to originate credit card loans, but not the authority to buy and sell participation interests in credit card loans. To remain consistent with the NCUAs loan participation rule, this final rule grants CUSOs the authority to only purchase and sell participation interests that are permissible for FCUs to purchase and sell. There were no comments specifically objecting to this provision, and the Board adopts it without change.
CUSO Registry Under the current CUSO rule, a FICU
must obtain a written agreement from a CUSO the FCU loans to or invests in that the CUSO will annually submit to the NCUA a report containing basic registration information for inclusion in the NCUAs CUSO registry CUSO
Registry.57 CUSOs that are engaged in complex or high-risk activities have additional obligations with respect to the CUSO Registry.58 Under the current 52 12

CFR part 701.
12 CFR 701.23b.
54 12 CFR 701.22.
55 12 U.S.C. 17575E; 12 CFR 701.22a.
56 73 FR 79307 Dec. 29, 2008.
57 12 CFR 712.3d.
58 Id. Complex or high-risk CUSOs must agree to include in their report: 1 A list of services provided to certain credit unions, and 2 the investment amount, loan amount, or level of 53 See,
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