Current through Register Vol. 48, No. 12, March 22, 2024
a) The provisions of this Section apply to
credit unions investing in or lending to a Credit Union Service Organization
(CUSO), which is a credit union organization as defined in Section
1.1 of the Act.
b) Prior to the initial investment in or loan
to a CUSO, the records of the credit union shall contain the following
information:
1) The name and location of the
CUSO.
2) Services provided by the
CUSO.
3) The names of the officers,
employees and agents of the CUSO and their relationship to the credit union and
the credit union's directors, officers, staff and members.
4) The form of organization under which the
CUSO operates, including but not limited to corporation, limited partnership,
general partnership, joint venture, limited liability company, or limited
partnership.
5) The most recent
financial statements of the credit union and the CUSO.
6) The customer base served by the
CUSO.
7) The credit union's
investments in or loans to other CUSOs.
8) The credit union's indebtedness to any
other credit unions, corporations, financial institutions, credit union
organizations, or other organizations.
c) A credit union and a CUSO must be operated
in a manner that demonstrates to the public the separate corporate existence of
the credit union and the CUSO.
1) Good
business practices dictate that each must operate so that:
A) Its respective business transactions,
accounts and records are not intermingled;
B) Each observes the formalities of its
separate corporate procedures;
C)
Each is adequately financed as a separate unit in the light of normal
obligations reasonably foreseeable in a business of its size and
character;
D) Each is held out to
the public as a separate enterprise;
E) The credit union does not dominate the
CUSO to the extent that the CUSO is treated as a department of the credit
union; and
F) Unless the credit
union has guaranteed a loan obtained by the CUSO, all borrowings by the CUSO
indicate that the credit union is not liable.
2) Prior to a credit union investing in or
making a loan to a CUSO, the credit union must obtain a written legal opinion
as to whether the CUSO is established in a manner that will limit potential
exposure of the credit union to no more than the loss of funds invested in, or
loaned to, the CUSO. In addition, if a CUSO in which a credit union has made an
investment or loan plans to change its form of organization under subsection
(b)(4), the credit union must obtain a prior written legal opinion that the
CUSO will remain established in a manner that will limit potential exposure of
the credit union to no more than the loss of funds invested in, or loaned to,
the CUSO. The legal opinion must address factors that have led courts to
"pierce the corporate veil", such as inadequate capitalization, lack of
separate corporate identity, common boards of directors and employees, control
of one entity over another, and lack of separate books and records. The legal
opinion may be provided by independent legal counsel of the credit
union.
d) Additional
Requirements
1) The CUSO must comply with the
definition of a credit union organization as defined by Section
1.1 of the Act.
2) The amount a credit union may invest in
and/or loan to a CUSO is subject to Board of Director approval and the
following limitations:
A) Any loan to the CUSO
does not cause aggregate loans to credit union organizations, per Section 51(4)
of the Act, to exceed the greater of 6% of the paid-in and unimpaired capital
and surplus of the credit union.
B)
Any investment in the CUSO does not cause the aggregate investment in CUSOs to
exceed the greater of 6% of the paid-in and unimpaired capital and surplus of
the credit union in accordance with the statutory limitation on investments in
CUSOs.
C) The limit on loans to
CUSOs is independent and separate from the limit on investments in
CUSOs.
D) "Paid-in and unimpaired
capital and surplus" means shares, as defined in Section
1.1 of the Act, and
undivided earnings.
E) If the
investment limits described in this subsection (d)(2) are reached or exceeded
because of the profitability of the CUSO and the related GAAP valuation of the
investment under the equity method, without an additional cash outlay by the
credit union, divestiture is not required. A credit union may continue to
invest up to the authorized amount without regard to the increase in the GAAP
valuation resulting from a CUSO's profitability.
3) Any CUSO in which a credit union invests
or lends that directly or indirectly originates, purchases, facilitates,
brokers, or services loans to consumers in Illinois shall not charge an
interest rate that exceeds the applicable maximum rate established by the
Predatory Loan Prevention Act [815 ILCS 123/15-5 -5].
4) All dealings between the credit union's
directors, officers, employees, their family members or any corporation,
partnership, proprietorship or association in which these individuals hold
interest and the CUSO are disclosed. Any agreements between these individuals,
businesses or associations and the CUSO must be structured to project economic
benefit, increased efficiencies and/or cost effective service to the credit
union and must not project a detrimental effect on the earnings or sound
operation of the credit union. For purposes of this subsection (d)(4) "family
member" means a spouse or a child, parent, grandchild, grandparent, brother or
sister, or the spouse of that individual.
5) All agreements between the credit union
and the CUSO must be structured to project economic benefit, increased
efficiencies and/or cost effective service to the credit union and must not
project a detrimental effect on the earnings or sound operation of the credit
union.
e) Prior to
investing in or lending to the CUSO, the credit union must enter into a written
agreement with the CUSO.
1) The written
agreement must contain clauses that state the CUSO will:
A) Provide the Department with complete
access to any books and records of the CUSO, with the costs of examining these
records borne by the credit union served in accordance with the per diem rate
set out in Section 12 of the Act.
B) Follow GAAP.
C) Provide the credit union with the
financial statements of the CUSO on at least a quarterly basis and Certified
Public Accountant (CPA) audited financial statements on an annual
basis.
2) The agreement
must also contain a clause reciting that the parties agree to terminate their
contractual relationship:
A) Upon 90 days
written notice to the parties by the Secretary that the safety and soundness of
the credit union is threatened pursuant to the Department's cease and desist
and suspension authority as outlined in Sections 8(4), 8(5) and 61 of the
Act.
B) Immediately upon the
parties' receipt of written notice from the Secretary when the Secretary
reasonably concludes, based upon specific facts set forth in the notice to the
parties, that the credit union will suffer immediate, substantial and
irreparable injury or loss if it remains a party to the service
contract.
3) The
termination of the underlying agreement between the CUSO and the credit union
shall in no way operate to relieve the CUSO of repaying any investment,
indebtedness or other obligation due and owing the credit union at the time of
termination.
f) In
recording all transactions with the CUSO, GAAP shall be followed by the credit
union.