Credit Union Service Organization

Credit union service organizations (CUSOs) are corporate entities owned by federally chartered or federally insured, state chartered credit unions. Under United States federal law and the National Credit Union Administration 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. One of the top affiliations of CUSOs is the National Association of Credit Union Service Organizations. NACUSO (www.nacuso.org) is a membership based advocacy organization that provide members a shared collaborative platform to work together on innovation and improving the success of CUSOs and their credit unions.

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, consumer mortgage origination, electronic transaction services, financial counseling services, fixed asset services, insurance brokerage or agency, leasing, loan support services, record retention, security and disaster recovery services, securities brokerage services, student loan origination, trust agency services, real estate brokerage services, credit card loan origination, and payroll processing services.

A CUSO in the US may be organized as a corporation, 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.

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 reward 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.

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