NCUA Requirements - 6 - Credit Union Service Organizations (CUSOs)

Question 1

Why does NCUA feel it is extremely important that a federal credit union maintain “corporate separateness” from its CUSO by setting it up as a separate entity?

Answer 1

NCUA wants to limit the credit union’s liability of the credit union for any problems that may arise with the CUSO’s operation. (Page 6-5)

Question 2

If the credit union plans to wholly own the CUSO, it does not have to set up a separate company but can run the CUSO as a department of the credit union. True or False

Answer 2

False, the credit union must set up the CUSO as a separate legal entity. (Page 6-5)

Question 3

The Federal Credit Union Act states that a CUSO must “primarily serve” the needs of its member credit unions. What is meant by “primarily serve”?

Answer 3

This means that the CUSO’s primary business must be with the credit unions that invest in or loan to the CUSO and the individual members of those credit unions. There is no strict rule, but NCUA examiners generally use a 50% or
greater standard to determine primarily serves. (Page 6-8)

Question 4

How does NCUA regulate CUSOs?

Answer 4

NCUA indirectly regulates CUSOs by limiting the activities they can become involved in. (Page 6-8)

Question 5

Although the most common service provided by CUSOs is insurance, NCUA provides a specific list of categories with an illustrative list of activities under each category that CUSOs may be involved in. Name four of these activities.

Answer 5

Allowable CUSO activities:
(1) checking and currency services
(2) clerical, professional, and management services
(3) consumer mortgage loan services
(4) electronic transaction services
(5) financial counseling services
(6) fixed asset services
(7) insurance brokerage or agency
(8) leasing
(9) loan support services
(10) record retention, security, and disaster recovery services
(11) securities brokerage services
(12) shared credit union branch operations
(13) student loan origination
(14) travel agency services
(15) trust and trust-related
services; (16) real estate brokerage services; and (17) investment in non-CUSO
service providers. (Page 6-9 to 6-10)

Question 6

NCUA rules do not dictate how much overlap can occur between the CUSO and the credit union. What are some of the good judgment rules the credit union can establish to maintain the separate entity requirement?

Answer 6

Good judgment rules:
(1) credit union board members should make up only a minority of the CUSO board
(2) the CUSO board and the credit union board should meet at different times
(3) shared employees should have different job descriptions from each organization with time spent working for the CUSO well documented
(4) CUSO use of credit union facilities and support structure should be governed by a written agreement and paid at market rates. (Pages 6-12)