Credit union service organizations (CUSOs) are corporate entities in the United States that are owned by federally chartered or federally insured, state chartered
credit unions
A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provision ...
.
Under US federal law and the
National Credit Union Administration
The National Credit Union Administration (NCUA) is a government-backed insurer of credit unions in the United States, one of two agencies that provide deposit insurance to depositors in U.S. depository institutions, the other being the Federa ...
regulations Part 712, federal credit unions may make an investment in or a loan to a CUSO. Aggregate investments in CUSOs by federal credit unions may not exceed 1% of paid in and unimpaired capital, and aggregate loans to CUSOs may not exceed 1% of paid in and unimpaired capital. (State chartered credit unions will follow state law and in some instances, these limitations may be different.)
Every CUSO must be subject to a
legal opinion to ensure the proposed structure is permissible and does not engage in unauthorized activities and to ensure that potential
liabilities are limited to the funds invested or loaned to it. Furthermore, every CUSO must explicitly allow the National Credit Union Administration the right to review its books and records, which must be maintained according to
GAAP
Gaap (also ''Tap'', ''Coap'', ''Taob'', ''Goap'') is a demon that is described in demonological grimoires such as ''the Lesser Key of Solomon'', Johann Weyer's ''Pseudomonarchia Daemonum'', and the Munich Manual of Demonic Magic, as well as Jacq ...
.
Permitted services
Credit unions may only invest or make a loan to CUSOs that primarily serve credit unions and credit union members and that perform a permitted service. The permitted services fall into several categories which are delineated in the regulation and include checking and currency services, clerical, professional and management services, business
loan origination
Loan origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds (or declining the application ...
, consumer
mortgage
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...
origination, electronic transaction services,
financial counseling services,
fixed asset
A fixed asset, also known as long-lived assets or property, plant and equipment (PP&E), is a term used in accounting for assets and property that may not easily be converted into cash. Fixed assets are different from current assets, such as cash ...
services, insurance
brokerage
A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be con ...
or agency, leasing, loan support services, record retention, security and disaster recovery services,
securities brokerage
A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Neither role should be con ...
services, student loan origination, trust agency services,
real estate
Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
brokerage services, credit card loan origination, and
payroll
A payroll is the list of employees of some company that is entitled to receive payments as well as other work benefits and the amounts that each should receive. Along with the amounts that each employee should receive for time worked or tasks pe ...
processing services.
A CUSO in the US may be organized as a
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
, a
limited liability corporation (LLC) or as a
limited partnership (LP), where the credit union participating as a limited partner only. Credit unions are not authorized to be
general partner. No matter which organizational form is used, the liability of the credit union owners must be limited to their investment. Due to the flexibility and favorable tax treatment, LLCs are the most common organizational entity.
Risk management
The usual method of splitting profits and loss is based on the percentage of ownership. However, many credit unions, using an old co-operative tradition, reward the users of the CUSO services by providing incentives to the owners to use them. CUSOs providing operational services use a tiered pricing structure that rewards heavy usage. In CUSOs providing financial services, return is sometimes based on the volume of business that is generated by members. There can be a pay or play component where a credit union that is a heavy user of the CUSO services contributes less capital or lower fees.
Purpose
CUSOs are formed for all sorts of reasons. They can provide avenues for innovation and creativity that would not typically occur within the confines of a credit union. They can provide a
revenue stream
A revenue stream is a source (or category of sources) of revenue of a company, other organization, or regional or national economy.
In business, a revenue stream is generally made up of either recurring revenue, transaction-based revenue, project ...
for credit unions that would not be available within the confines of a credit union. They can reduce service costs incurred within the traditional credit union. Some may do all three. Generally, these outcomes are the result of collaboration and the cooperative spirit that is inherent in the credit union industry.
Collaborating in CUSOs allows credit unions to capitalize on these outcomes and provide good member services. It gives the ability to provide better service, cheaper service, and new services that credit unions may not be able to provide. For example, not all credit unions have the capital to gain the expertise to originate business and
commercial real estate
Commercial property, also called commercial real estate, investment property or income property, is real estate (buildings or land) intended to generate a profit, either from capital gains or rental income. Commercial property includes office b ...
loans. But, if several credit unions pool their resources they can afford to hire the right individuals and in turn provide a valuable service to their members.
See also
*
Corporate credit union
*
Credit union league
References
{{Reflist
External links
National Credit Union AdministrationNACUSO
Supraorganizations