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Understanding regulations for credit union service organizations

Oct 27, 2021

Credit Union Service Organizations (CUSOs) are a great way for credit unions to remain competitive with larger banks and financial institutions, though they are not directly regulated by the NCUA and state regulators, there are specific regulations that the credit unions must adhere to.

Some of the most common avenues for the CUSO function are lending, insurance and financial planning and estate services that might not have been offered due to involved risks, expertise, monetary restrictions, or compliance concerns.

One of the largest hurdles the NCUA requires properly operated CUSOs to overcome is the need for the existence of the corporate veil.

While it’s true that CUSOs may often be wholly owned by one credit union, the need to demonstrate that the CUSO has a separate corporate identity that operates independently of the Credit Union still exists.

How can you ensure you maintain separate corporate identities if you’re using credit union staff for a CUSO or if it’s a part of your building? First and foremost, the written agreements between the CUSO and the credit union should outline the responsibilities of all parties and provide details on how that separate existence would be maintained.

All activities of the CUSO should be maintained in separate financial records and be accounted for in accordance with GAAP. These financial records should be prepared at least quarterly and presented to the board of the CUSO.

In addition, a CUSO should have an annual financial statement audit, unless it is a wholly owned CUSO, in which case the CUSO’s records are permitted to be included in the annual consolidated financial statement audit for the credit union.

Keep in mind that if there are any “dual employees” who will serve both the CUSO and the credit union, a method for the CUSO to reimburse the credit union for time spent by the credit union’s employees on the business of the CUSO should be in place.

The same can be said for operating space. If the CUSO occupies space within the credit union, an agreement for reimbursement for space, utilities, supplies and other operating needs the CUSO may obtain from the credit union should be in place.

The CUSO should have its own board of directors, which can include credit union board members/employees, but it must be clear that separate and distinct meetings are held for the purposes of CUSO operations, review of financial records and other pertinent details.

In addition to the written agreements between the CUSO and the credit union, the CUSO should have formalized operating procedures in place to clearly demonstrate the separate functions and operations of the CUSO from the credit union.

Overall, provided that proper written agreements and controls are in place, a CUSO can prove to be an impactful tool in providing a full-service member experience. It allows for cooperation among credit unions to merge talents and share risks and assets.

How Wipfli can help

Credit unions face many challenges today, including regulatory pressure, financial performance, shareholder value, and fierce competition to retain market share and employees. Learn how we can help on our financial institutions web page.


Katie L. Kennedy, CFE, CUCE
Senior Manager
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