NCUA Shares Reminders to CUSOs of 'Permissible Activities'

On Monday, the NCUA issued a Letter to Credit Unions to remind that of a final rule that went into effect more than a year ago that amended the agency’s regulation part 712 dealing with CUSOs. The rule expanded the “list of permissible activities and services for CUSOs to include originating any type of loan that a federal credit union may originate and grants the Board additional flexibility to approve permissible activities and services.”

The Letter, signed by NCUA Board Chairman Todd Harper, stated, “Given the new rule has been in effect for more than a year now, the agency has produced the enclosed guidance statement to remind credit unions of the expanded opportunities to work with CUSOs and to address some of the primary related risks. Based on a credit union’s relationship with a CUSO, whether sole owner, investor, lender or customer, the level and types of risk may vary. Credit unions also need to remain mindful of and properly address any consumer financial protection risks that CUSO-originated loans pose.”

Also on Monday, the NCUA updated a “Guidance Statement – Expansion of Permissible CUSO Activities and Associated Risks” on its website.

According to the Guidance Statement, credit unions may participate or engage with a CUSO in one or more of the following relationships:

1. Lender – A credit union that lends funds to a CUSO, creating a debt relationship.

2. Investor or owner – A credit union that invests in a CUSO. The credit union may own all or a portion of the CUSO, establishing an equity relationship. Depending on the structure of the relationship, the credit union may be a shareholder, member or partner.

3. Client or customer – A credit union that uses a CUSO’s services, or purchases products, including loans offered by a CUSO, constituting a vendor-client relationship.

The NCUA addressed some risk factors in the Guidance Statement that credit unions may be exposed to, depending on its relationship to the CUSO. The risk areas include:

• Credit Risk
• Strategic Risk
• Compliance Risk – Applicable Laws and Regulations
• Fair Lending
• Unfair, Deceptive, or Abusive Acts and Practices
• Reputation Risk

The NCUA asked credit union leaders to seek out additional guidance on managing any CUSO relationships by reviewing the Examiners Guide.