WASHNGTON — A credit union can use a CUSO to screen applications and process member business loans, as long as the arrangement is structured to avoid a conflict of interest, according to an NCUA opinion.
The credit union must see to it that the CUSO "is independent as to each transaction," NCUA Associate General Counsel Sheila A. Albin wrote in a May 1 letter to James E. Forney, the superintendent of the credit union division of the Iowa Department of Commerce.
Albin noted that the financial arrangement between the two organizations should not be one in which the CUSO is paid for each loan that is approved.
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"This situation creates an inherent conflict of interest, as the CUSO has a direct interesting in recommending that the loan be funded and not denied," she wrote.
Albin suggested that Forney address questions about the specifics of an arrangement to the appropriate regional director of NCUA.
Federal regulations require that when a credit union makes a business loan to one of its members, the application must be reviewed by someone with two or more years of experience in this area. Sometimes smaller credit unions don't have such a person on staff so they make an arrangement with a CUSO.
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