NCUA Gets Serious About Credit Union Third Party Vendor Management

November 20, 2019

The National Credit Union Administration, based in Washington, was an early advocate for vendor management policies.  As early as 2001, the NCUA issued a guideline suggesting that credit unions manage third party service provider risk carefully. The suggestion had no real weight however.

After the CFPB issued its Bulletin 2012-3 bringing third party vendor management much more into the compliance forefront, the NCUA  supported the effort but had no real power to enforce similar rules.  I had the pleasure of meeting with NCUA officials in Spring 2012 to discuss the topic and explain what I was creating to help the industry manage closing table risk from third party settlement professionals. While they liked what they saw they could not do much other than wish me luck.

Today news broke in the Credit Union Times that the NCUA’s Inspector General is investigating the issue of vendor risk to credit unions.  The IG indicated that “the agency faces “unique challenges” because it is the only banking regulator without power to supervise.”

Of course many credit unions outsource more than closing table functions to vendors.  The use of CUSOs, credit union service organizations, to act as the “back office” for credit union lending establishes a significant reliance on third parties for a great deal of the mortgage lending process.

The IG told Congress that, “credit unions regularly hire vendors and these relationships pose various potential risks to credit unions, as they must relinquish a certain level of control over products and services to the third party vendor as an inherent part of the relationship.”  The NCUA is seeking authority from Congress for the power to regulate and supervise third-party vendors.  Not everyone agrees, however.

Some in the credit union community do not want additional oversight, which is a common reaction when an unregulated business practice suddenly is caught in the cross hairs of regulatory scrutiny. As we found when we started Secure Insight back in 2012 as the first closing table vendor management tool, change does not come easily.  People who have had unfettered access to the mortgage process without any regulation, or with little regulation, understandably balk at being the subject of risk management scrutiny.

In the end what is best for consumers is best for business.  It is therefore very likely the credit union industry will see enhanced scrutiny of third party vendor relationships in the near future, coming into line with existing regulations governing banks and mortgage lenders generally.

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