The FCU Act §§ 1757(5)(D) and 1757(7)(I) authorizes FCUs to invest up to one percent of the total paid-in and unimpaired capital and surplus of the credit union in CUSOs (in aggregate), and to also lend up to one percent of the total paid-in and unimpaired capital and surplus of the credit union to CUSOs (in aggregate). Investments in, and loans to, CUSOs must be approved by a credit union’s board of directors.
NCUA regulation § 712.2, How much can an FCU invest in or loan to CUSOs, and what parties may participate? further defines the limits on the amount of investments in and loans to CUSOs by FCUs based on the credit union’s last calendar year-end financial report. Additionally, the loan and investment limits are based on the credit union’s financial data at the time the loan or investment was made. In some instances, the value of the investment could increase over time. This could result in the ratio of the credit union’s investment as a percentage of total paid in and unimpaired capital and surplus to exceed one percent over time. This is not a violation, as long as the credit union only invested one percent of paid in and unimpaired capital at the time of the investment.
Limits on investments in and loans to CUSOs from FISCUs can vary from state to state. Examiners should refer to applicable state law when reviewing FISCUs’ relationships with CUSOs.
A federally insured credit union may be further restricted in its ability to invest in or make a loan to a CUSO if:
- The NCUA (or any applicable SSA) has identified safety and soundness concerns with the credit union and placed restrictions on CUSO activity through the examination process; or
- The credit union is less than adequately capitalized as determined under Prompt Corrective Action (NCUA regulation Part 702), which restricts the credit union’s transactions with a CUSO or requires the credit union to divest of its ownership interest in a CUSO.
A FCU may not invest in or loan to a CUSO that offers an activity or service that has not been approved by the NCUA.
Last updated August 9, 2018
