Credit Union Service Organizations
A CUSO, as defined by NCUA regulation § 712.1(d), is any entity in which a federally insured credit union has an ownership interest or to which a FICU has extended a loan and that entity:
- Is engaged primarily in providing products or services to credit unions or credit union members; or
- In the case of checking and currency services, including cashing checks and money orders for a fee, and selling negotiable checks, including travelers checks, money orders, and other similar money transfer instruments (including international and domestic electronic fund transfers and remittance transfers, as defined in § 919 of the Electronic Fund Transfer Act, 15 U.S.C. 1693o-1), to persons eligible for membership in any credit union having a loan, investment or contract with the entity.
As defined in the regulation, a CUSO also includes any entity in which another CUSO has an ownership interest of any amount, if that entity is engaged primarily in providing products or services to credit unions or credit union members. These entities are frequently referred to as CUSO subsidiaries.
A CUSO is not a credit union. It is a separately formed, legal entity created under applicable federal or state law. Federal credit unions may only invest in a CUSO that is organized and operated as a corporation, an LLC, or as a limited partnership. CUSOs must comply with all applicable state or federal laws under which they have been established. These include state or federal licensing laws, as well as laws that govern which services a CUSO may offer. (See NCUA regulations § 712.3(a), § 712.3(e) and § 741.222 .)
CUSOs are unique from other entities that provide products and services to credit unions, and may be wholly owned by a single credit union or may be owned by multiple, mixed organizations such as credit unions, trade organizations, individuals, or other CUSOs.
In accordance with NCUA regulation § 712.3(b), a FCU may only invest in or lend to a CUSO that primarily serves credit unions and their members, as opposed to the general population. While the NCUA does not define “primarily serves,” it has been the agency’s longstanding position that the determination as to whether a CUSO complies with the customer base requirement be made on a case-by-case basis using a totality of the circumstances test.
As such, when determining if a CUSO meets the customer base requirement, a FCU should review several variables, including:
- The number of affiliated members served
- Gross or net revenues derived from members
- Members’ assets under management
- The number of policies sold to members
- The number of services sold to members, and
- The availability or accessibility of services to members
For additional discussion, see the preamble to the 1998 Final Rule (63 Federal Register 10743, 10747, March 5, 1998) and NCUA legal opinions Investment in Insurance Agency as Credit Union Service Organization (CUSO) (June 3, 2011) and Credit Union Service Organization (CUSO) Leasing Activity (August 3, 2011).
This does not mean, however, that all CUSOs exclusively serve the credit union industry. Some CUSOs actively and intentionally serve a segment of the general population along with primarily serving credit unions and their members.
CUSOs enable credit unions to share the risks and costs of providing services to members. Many CUSOs have a collaborative business model that fosters cooperation and shared innovation for credit unions.1 This can help credit unions to achieve economies of scale, retain expertise, and better serve their members. However, CUSOs, simply by definition, are not necessarily an extension of a particular credit union. A CUSO is a for-profit entity, and is legally separate from a credit union. As such, a CUSO’s incentives may not always align with the credit unions it serves.
CUSOs themselves are not directly subject to NCUA regulation or examination. They are neither chartered nor insured by the NCUA, nor does the NCUA have the authority to examine third-party vendors (“vendor authority”). Nevertheless, the NCUA has a vested interest in credit unions’ relationships with CUSOs. This relationship, if not properly managed, can pose both systemic risk to the credit union industry and direct risk to an individual credit union’s financial or operational condition.
NCUA regulation § 712.3(d)(3) requires any federally insured credit union with a loan to, or investment in, a CUSO to (among other things) enter into a written agreement with that CUSO that it will provide the NCUA with complete access to any books and records of the CUSO and the ability to review the CUSO's internal controls. When the NCUA performs reviews in this regard, the activity is referred to as a CUSO review.
The NCUA conducts onsite reviews in CUSOs presenting either potential systemic or individual credit union risk. Several factors, including the CUSO’s geographic footprint and types of services offered, are considered when deciding which CUSOs will receive an onsite review. The NSPM provides more specific information about the CUSO review process.
This section of the Examiner's Guide addresses the following topics:
- CUSO Relationships
- Investment and Loan Limits
- Maintaining Legal Separation
- CUSO Services
- CUSO Registry
- Primary Risks
- Impact on Earnings and Net Worth
- Risk Management
- CUSO Reviews
- Workpapers and Resources
Last updated August 9, 2018