Permissible Credit Union Service Organization CUSO Activities

Sharon H. Sjostrom, Attorney at Law
Blalack & Williams
One Mockingbird Plaza
1420 W. Mockingbird, Suite 640
Dallas, Texas 75247-4932

Re: Permissible Credit Union Service Organization (CUSO) Activities.

Dear Ms. Sjostrom:

You have asked whether referral of credit union members who do not qualify for credit union loans to noncredit union lenders and the processing of these loans are permissible CUSO activities. As explained below, the answer is yes.

Section 712.5(i) permits a CUSO to engage in loan support services. Although the activities you propose don’t specifically fall within the examples listed under loan support services, the Board recently clarified that the examples under the broad categories are for illustrative purposes only and are not intended to be exhaustive. 12 C.F.R. §712.5.

The issue is whether the activities you propose fall within the broad category of loan support services and relate to the routine, daily operations of credit unions. 12 C.F.R. §712.5. We believe they do. There is no question that loan referral and loan processing fall within loan support services. The more difficult question is whether providing this service to credit union members for noncredit union loans relates to the routine, daily operations of credit unions. One of a federal credit union’s (FCU’s) express powers and routine operations is to provide loans to its members. 12 U.S.C. §1757(5). In the event an FCU cannot make a loan to its member because of loan policies or other constraints, you have proposed that the CUSO refer the member to other sources of credit. We conclude that the CUSO would be assisting the FCU in its routine operations by referring the FCU’s members to other sources of credit.

You indicate the CUSO would also be providing these services to nonmembers and ask whether those individuals must join an FCU. The CUSO rule requires a CUSO to primarily serve credit unions and their members. 12 C.F.R. §712.3(b).

Although a CUSO is permitted to serve some nonmembers, the majority of its business must be serving credit unions and their members.