Section 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

To limit the CUs liability for any problems that may arise with the CUSO’s operation.

Question 2

T or F: If the CU plans to wholly own the CUSO, it does not have to set up a separate company, and can run the CUSO as a department of the credit union?

Answer 2

False, the CU must set up the CUSO as a separate legal entity.

Question 3

The FCU Act states that a CUSO must primarily serve the needs of its member CUs. What is meant by ‘primarily serve’?

Answer 3

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.

Question 4

How is ‘primarily serves’ measured?

Answer 4

There is no strict rule, but NCUA examiners generally use a 50% or greater standard to determine this.

Question 5

Under the FCU Act, what are the three tests that limit the possible range of CUSO activities?

Answer 5

1. A CUSO must primarily serve the needs of its member credit unions.
2. Its services must relate to the daily operations of the credit unions they serve.
3. Its service must be associated with the routine operations of credit unions.

Question 6

What is the amount of resources credit unions are limited to committing to one or more CUSOs?

Answer 6

No more than 1% in loans and 1% in investments, as measured as a percentage of FCU’s “paid-in capital and surplus. (All CUSOs, not per CUSO)

Question 7

NCUA regulations require that a
CUSO be structured in one of three
ways:

Answer 7

1. Corporation
2. Limited Partnership
3. Limited Liability Company