20 CSR 1100-2.085 - Credit Union Service Organization (CUSO)

PURPOSE: This rule outlines certain procedures and practices a credit union is to follow when investing in or lending to a credit union service organization.

(1) Definition. A credit union service organization (CUSO) is a legal entity established by or funded by one (1) or more credit unions (with or without participation of other parties) to meet the needs of its member credit union(s) by providing services and performing activities that are associated with credit union operations.

(2) Structure. A credit union can invest in a CUSO, only if the CUSO is structured as a corporation, a limited liability company, or a limited partnership with the credit union participating as a limited partner. The credit union must obtain legal advice as to whether the organization and operation of the CUSO is in a manner that meets the goal of limited liability. In general, the corporate form must be adequately capitalized and operated as a separate entity. The limited partnership form must not engage in activities that would cause the limited partnership to be treated as a general partnership. For purposes of this rule, "corporation" means a legally incorporated corporation as established and maintained under relevant state or federal law.

(3) Funding. No single credit union's investment (s) in and/or loan(s) to any or all CUSO (s) shall exceed in the aggregate twenty-five percent (25%) of the credit union's net capital (reserves and undivided earnings), unless prior approval is obtained from the director of the Division of Credit Unions.

(4) Permissible Services and Activities. A credit union can invest in and/or lend to a CUSO, only if the CUSO complies with all applicable laws and limits its services and activities to the following general categories of services or activities:

(A) Checking and currency services;

(B) Clerical, professional, and management services;

(C) Loan origination;

(D) Electronic transaction services;

(E) Financial counseling services;

(F) Fixed asset services;

(G) Insurance brokerage or agency;

(H) Leasing;

(I) Loan support services;

(J) Record retention, security, and disaster recovery services;

(K) Securities brokerage services;

(L) Shared credit union branch (service center) operations;

(M) Travel agency services;

(N) Trust and trust-related services;

(O) Real estate brokerage services; or

(P) Other services or activities approved by the director of the Division of Credit Unions.

(5) In connection with providing a permissible service, a CUSO may invest in a non-CUSO service provider. The amount of the CUSO's investment is limited to the amount necessary to participate in the service provider, or a greater amount if necessary to receive a reduced price for goods or services.

(6) Prohibited Activities. A CUSO may not acquire control, directly or indirectly, of another depository financial institution nor invest in shares, stocks or obligations of an insurance company, trade association, liquidity facility of other similar organization. The credit union will not engage in any activities, contract for or enter into any form or manner of arrangement that will allow the credit union to be committed or potentially committed for an amount in excess of its legally allowed investment in or loans to the CUSO(s).

(7) Related Parties.

(A) The officials and senior management employees (and their immediate family members) of a credit union that has outstanding loans or investments in a CUSO must not receive any salary, commission, investment income, or other income or compensation from the CUSO either directly or indirectly, or from any person being served through the CUSO. This provision does not prohibit such credit union officials or senior management employees from assisting in the operation of a CUSO, provided the officials or senior management employees are not compensated by the CUSO. Further, the CUSO may reimburse the credit union for the services provided by such credit union officials and senior management employees only if the account receivable of the credit union due from the CUSO is paid in full at least every one hundred twenty (120) days. For purposes of this section, "official" means affiliated credit union directors or committee members. For purposes of this section, "senior management employee" means affiliated credit union chief executive officer (typically this individual holds the title of President or Treasurer/Manager), any assistant chief executive officers (e.g. Assistant President, Vice President, or Assistant Treasurer/Manager) and the chief financial officer (Comptroller). For purposes of this section, "immediate family member" means a spouse or other family members living in the same household.

(B) The prohibition contained in subsection (A) of this section also applies to credit union employees not otherwise covered if the employees are directly involved in dealing with the CUSO unless the credit union's board of directors determines that the credit union employees' positions do not present a conflict of interest.

(C) All transactions with business associates or family members of credit union officials, senior management employees, and their immediate family members, not specifically prohibited by subsections (A) and (B) of this section must be conducted at arm's length and in the interest of the credit union.

(8) Accounting.

(A) Credit unions must follow generally accepted accounting principles (GAAP) in their involvement with CUSOs.

(B) Credit unions must obtain, from any CUSO for which the credit union has an outstanding loan or investment, a certified public accountant (C.P.A.) audit on at least an annual basis and financial statements (balance sheet and income statement) on at least a quarterly basis.

(C) A CUSO must agree in writing with its participating credit unions to follow GAAP.

(9) Director Access to Books and Records.

(A) A CUSO must agree, in writing, with its participating credit unions to provide the director or the director's representative with complete access to any books and records of the CUSO and to make periodic reports in the manner and form deemed necessary by the director in carrying out the director's duties.

(B) Any findings made by the director or the director's representative that are intended for distribution to the CUSO's participating credit unions shall be presented first to the CUSO's board of directors. The CUSO shall be given fifteen (15) days to object in writing, with a detailed explanation, to any information contained in the director's findings that the CUSO reasonably believes could jeopardize its independent relationship with the CUSO's participating credit unions such that the credit unions would be exposed to liability. Such written objections shall be submitted to the director, who shall then make a determination as to the need to amend the findings prior to presenting them to the participating credit unions. The director or the director's representative may make such additional inquiries or investigations as deemed necessary for a determination of the issue.

(10) Right to Appeal. In any matter relating to a credit union's interest in a CUSO that requires the director to approve or deny a credit union's request, the credit union may appeal the director's denial pursuant to the provisions of Chapter 536, RSMo. Such appeal shall be heard pursuant to sections 536.100 to 536.140, RSMo, if such matter is deemed a contested case following a hearing before the division as determined by rules promulgated by the director. If no such hearing is available for review of the director's decision, then the credit union may seek review pursuant to the remedies afforded in section 536.150, RSMo.

Notes

20 CSR 1100-2.085

AUTHORITY: sections 370.070 and 370.075, RSMo 2000, and sections 370.100 and 370.120, RSMo Supp. 2011.* This rule originally filed as 4 CSR 100-2.085. Original rule filed Oct. 17, 1985, effective Jan. 26, 1986. Amended: Filed Nov. 30, 2001, effective May 30, 2002. Moved to 20 CSR 1100-2.085, effective Aug. 28, 2006. Amended: Filed May 14, 2012, effective Nov. 30, 2012.

*Original authority: 370.070, RSMo 1939, amended 1945, 1949, 1951, 1965, 1967, 1972, 1984, 1986, 1994; 370.075, RSMo 1965, amended 1972, 1982, 1988; 370.100, RSMo 1939, amended 1945, 1945, 1949, 1959, 1967, 1972; and 370.120, RSMo 1939, amended 1945, 1945, 1949, 1955, 1959, 1972.