Third Party Vendors Remain a Regulatory Blind Spot

In an August 6 letter to nine consumer groups that requested that National Credit Union Administration (NCUA) investigate credit unions and credit union service organizations that participated in predatory student loans with ITT Educational Services, NCUA Chairman Matz wrote that NCUA does not have enforcement authority over credit union service organizations or third party vendors. (See the following blog post here)

As background, 7 credit unions purchased loans from ITT Education Services, the Rochdale Group, and Student CU Connect. A majority these loans ended in default. The seven credit unions that had participated in a lending program ceased purchasing these loans in 2012 after a three-year contract expired at NCUA's instigation.

This inability of NCUA to examine third party vendors remains a regulatory blind spot. As this letter to the nine consumer groups highlights, third party vendors pose a potential risk to credit unions.

While NCUA is seeking authority to supervise third party vendors, the Credit Union National Association (CUNA) is actively opposing this authority.

The latest example of CUNA's opposition is an August 5 letter to Senate Majority Leader Mitch McConnell (R-KY) and Minority Leader Harry Reid (D-NV) opposing an amendment introduced by Senator Warren to the Cybersecurity Information Sharing Act (CISA), which would grant NCUA additional authority to supervise third party vendors. The Warren amendment was not included in the list of amendments that will be debated by the Senate, when it considers CISA.

The failure to include this amendment maintains a regulatory blind spot regarding third party vendors that solely serve credit unions.

Perhaps the Consumer Financial Protection Bureau should step in, where NCUA cannot, to fill this regulatory void and begin to examine these third party vendors to credit unions.