Compliance Blog

Written by JiJi Bahhur, Director of Regulatory Compliance

Over the last several months, NAFCU’s compliance team has received a number of questions from our members who have experienced some confusion with the CUSO rule.  Today, I’d like to share a real-life question we’ve received over a dozen of times, the response we’ve been providing to our members, and the clarification provided late last week by the National Credit Union Administration (NCUA).  The purpose of sharing our members’ question is to illustrate why the confusion arose.  I’ve also provided the response from NAFCU’s compliance team to our members, and although it is accurate, you’ll want to use and rely on NCUA’s clarification which is located in NCUA Letter to Credit Unions 14-CU-07 (discussed further below).

Real-Life Question:

We do not invest in or lend to a CUSO, but we do have a CUSO that we do other business with.  Do we have to amend our written agreement with this CUSO?  NCUA Letter to Credit Unions 13-CU-13 states that credit unions are required “to ensure that the CUSOs with which they do business agree to provide certain information directly to NCUA and the state supervisory authority, as applicable, on an annual basis.”  This statement seems to include all CUSOs with which a credit union does business and not just those that the credit union invests in or lends to.

NAFCU’s Response (Prior to 14-CU-07):

NCUA’s Letter to Credit Unions 13-CU-13 appears to have caused confusion amongst credit unions by including language that is broader than that required by the regulatory text.  NAFCU has received a number of inquiries from our members on this issue and we are looking into it. 

In the meantime, although 13-CU-13 seems to indicate broader coverage of the requirement to amend written agreements between credit unions and CUSOs, the regulatory text of the CUSO rule is limited to those CUSOs with which the credit union lends to or invests in.  Usually, the regulatory text prevails which would mean that the requirement to amend agreements applies only to those CUSOs the credit union invests in or lends to; however, we hope to see further clarification from NCUA in the near future to clear up some of this confusion.

NCUA’s Clarification:

Late last week, the NCUA released 14-CU-07 which clarifies whether a credit union must amend written agreements with all CUSOs it does business with or just those with which it lends to or invests in.  From the Letter:

“[T]here has been some confusion as to which credit unions must enter into a written agreement requiring a CUSO to submit annual reports. This letter clarifies that only those FICUs investing in or lending to a CUSO are subject to this part of the CUSO rule.

A FICU that only receives products or services from a CUSO—but does not have an investment in or a loan outstanding to a CUSO—is not subject to the requirement.“

NCUA further clarifies this issue in Legal Opinion Letter 14-0502. 

“You have asked for clarification of a provision in NCUA’s newly amended credit union service organization (CUSO) regulation. Specifically, you have asked if a federally insured credit union (FICU) receiving products or services from a CUSO must enter into a written agreement in which the CUSO is obligated to submit an annual report to NCUA even if the FICU does not have an investment in or loan outstanding to the CUSO. The answer is no. The amended CUSO rule requires only those FICUs investing in or lending to a CUSO to obtain a written agreement requiring the CUSO to submit annual reports.

The NCUA Board amended the CUSO rule on November 21, 2013. The new rule requires, among other things, a FICU to contractually bind a CUSO to submit an annual report to NCUA. Specifically, new §712.3(d)(4) states: “A FICU must obtain a written agreement from a CUSO before investing in or lending to the CUSO” that the CUSO will “annually submit . . . a report directly to NCUA and the appropriate state supervisory authority, if applicable.” (Emphasis added).

Accordingly, it is clear that a FICU that invests in or lends to a CUSO must comply with the new §712.3(d)(4) annual reporting requirement. However, §712.3(d)(3) of the CUSO rule, which addresses access to CUSO books and records, makes reference to FISCUs with an investment in, loan to, or “contractual agreement for products or services with the CUSO.” You have asked if the contractual agreement language in §712.3(d)(3) infers that FICUs with only a service contract with a CUSO must also obtain a written agreement for the CUSO to submit an annual report under new §712.3(d)(4). No, it does not.” 

In short, the confusion (regarding the above question) has come to an end.  A credit union does not need to amend written agreements with all CUSOs with which it does business; rather, it must amend written agreements with those CUSOs it invests in or lends to. 

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First Vacation with the Family.  Last weekend, my husband, children and I took our first vacation together as a family.  We went to Virginia Beach and had a fabulous time.  Here are some photos of the fun we had!