SAFE Credit Union cannot raise alternative capital from“outsiders” to build an indirect lending business but it cancapitalize that venture through a CUSO.

Henry Wirz, president/CEO of the $1.8 billion SAFE CU in NorthHighlands, Calif., shared that insight as the NCUA continues toweigh a proposed amendment to the CUSO rule.

Under the proposal, the agency would require CUSOs to filefinancial reports directly with the NCUA and the appropriate statesupervisory authority. The NCUA board also wants to limit aggregatecash outlays to CUSOs from federally insured, state-charteredcredit unions.

“CUSOs allow credit unions to act locally with the scale andefficiency of a national company,” Wirz said. “But CUSOs also allowcredit unions to do something quite unexpected – buildcapital.”

Besides community development CUs and corporate CUs, Wirz saidCUSOs are the only other means he knows of for CUs to createcapital other than through retained earnings.

“NCUA strongly supports community development credit unions andcorporates and allows them to raise alternative capital. Iconsider both high risk uses of capital compared to CUSOs,” Wirzsaid.

SAFE has several CUSO alliances and through those partnerships,Wirz said, the capital the CU has invested in these entities buildsnew capital either through direct returns such as the dividendsthat are paid on its stock, indirectly through lower operatingexpenses that increase the bottom line, or through higher revenuesthat flow to it.

“If the NCUA adds an additional regulatory burden to CUSOs itmay discourage investments in [them] and it will certainly increasecosts for CUSOs and reduce our return from the CUSO,” Wirz said.“The unintended consequence will be that NCUA's regulatory burdenwill limit the growth and success of the one means credit unionshave to raise alternative capital and increase efficiency and takeadvantage of the economies of scale.”