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CUNA Regulatory Comment Call

March 23, 2005

EXECUTIVE SUMMARY

• The NCUA Board issued a proposal to amend its credit union service organization (CUSO) regulation to allow a wholly owned CUSO to avoid the requirement to obtain a separate financial statement audit from a certified public accountant (CPA), as long as the CUSO’s statement is included in the consolidated financial statement of the parent federal credit union. NCUA said the proposal would conform its rule to agency practice.

• Consolidated financial statements show the results of operations, financial position, and cash flows from a parent and its subsidiaries as if the group were a single enterprise.

• NCUA’s current rule states that prior to investing in or lending to a CUSO, an FCU must obtain a written commitment from the CUSO that the CUSO will secure an annual opinion audit of its financial statements from a CPA in accordance with generally accepted accounting principles (GAAP).

• Although NCUA does not directly regulate CUSOs, it has full access to CUSO financial information due to its oversight of the parent federal credit union (FCU).

• While GAAP would also allow a credit union that is the majority owner of a CUSO to procure a consolidated audit, NCUA is limiting the proposed amendment to wholly-owned CUSOs. Its reasoning is that this step will help ensure that full disclosure of potential risks is available to prospective minority investors in the CUSO. As of the June 30, 2004 Call Report, there are 588 wholly-owned CUSOs.

• Comments are due to NCUA by May 23, 2005. Please send your comments to CUNA by May 6, 2005. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the proposed rule, or you may access it here.

1. NCUA indicates that the changes in this proposal are consistent with the agency’s ongoing efforts to reduce regulatory burden. Do you agree that this proposal would result in a significant reduction in burden for most CUSOs?
   
   Yes ______ No ______
   
   If not, why not? If so, could you quantify the reduction in burden?
   
   

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2. Do you feel that NCUA’s CUSO rule should allow for a consolidated audit where an FCU owns only the majority share of the CUSO?
   
   Yes ______ No ______
   
   If yes, please explain why?
   
   

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3. Are there other ways in which the proposal could be changed to further lessen the regulatory burden for CUSOs with regard to financial statements?
   
   Yes ______ No ______
   
   If yes, what are your suggestions?
   
   

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4. Other comments?
   
   

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