NCUA CUSO rule changes poised to go into effect

At its October 2021 meeting, the NCUA Board finalized a rule that provides credit union service organizations (CUSOs) with more flexibility to offer loan products. Part 712 of NCUA’s regulations govern “when a federal credit union (FCU) can invest in and make loans to CUSOs.” Section 712.5 sets forth a variety of preapproved activities for CUSOs. This rule previously only allowed specific kinds of lending the agency considered complicated enough such that there would be a benefit in leveraging CUSO relationships rather than a FCU trying to set up that kind of lending program on its own. Those kinds of loans were mortgages, student loans, credit cards and commercial loans.

Effective November 26, 2021, CUSOs will be able to offer any kind of loan a FCU can offer. Current rule text specific to business loan, consumer mortgage loan, student loan, and credit card origination, found in sections 712.5(c), (d), (n) and (s) will be removed. The rule will be reorganized to account for these deletions and new section 712.5(q) will contain the language on CUSO lending authority:

(q) Loan origination, including originating, purchasing, selling, and holding any type of loan permissible for Federal credit unions to originate, purchase, sell, and hold, including the authority to purchase and sell participation interests that are permissible for Federal credit unions to purchase and sell…

While credit unions and others in the industry had varied opinions about this rule, from the Board’s perspective, allowing CUSOs to engage in the same kinds of lending activities as FCUs “may better enable FCUs to compete effectively in today’s marketplace and better serve their members.” One line of thinking is that by pooling resources through a CUSO, some FCUs may be able to take advantage of innovation and technology that could not be achieved by the FCU individually.


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