Current through Register Vol. 49, No. 6, March 15, 2024
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.
*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.
