Current through Reg. 49, No. 38; September 20, 2024
(a) Definitions. As used in this section:
(1) A credit union service organization
(CUSO) is an organization whose primary purpose is to strengthen or advance the
credit union movement, serve or otherwise assist credit unions or their
operations, and provide products or services authorized by this section to
credit unions and their members.
(2) An investment in a CUSO includes the
following:
(A) an investment in the stock,
bonds, debentures, or other equity ownership interest of the CUSO;
and
(B) loans granted by a third
party to the CUSO which are guaranteed in writing by the credit
union.
(3) A financing
program is a plan, approved by the credit union's board of directors, that
provides for multiple extensions of credit to a CUSO during the regular course
of business.
(b)
Authority. A credit union by itself, or with other parties, may organize,
invest in or make loans to a CUSO only if it is structured and operated in a
manner that demonstrates to the public that it maintains a legal existence
separate from the credit union. A credit union and a CUSO must operate so that:
(1) their respective business transactions,
accounts, and records are not intermingled;
(2) each observes the formalities of its
separate corporate or other organizational procedures;
(3) each is adequately capitalized as a
separate unit in light of normal obligations reasonably foreseeable in a
business of its size and character;
(4) each is held out to the public as a
separate and distinct enterprise;
(5) all transactions between them are at
arm's length and consistent with sound business practices as to each of
them;
(6) unless the credit union
has guaranteed a loan to the CUSO, all borrowings by the CUSO indicate that the
credit union is not liable; and
(7)
their respective activities are in compliance with any licensing or
registration requirements imposed by applicable federal or state law.
(c) Notice; Authorization;
Supplemental Information; Written Objection.
(1) Required Notice. Before committing to any
aggregate investment or loan to a CUSO in an amount greater than 15% of the
credit union's net worth, a credit union shall provide at least thirty days'
written notice to the commissioner of its intent to make or increase its
investment in a CUSO, or make a loan to or enter into a financing program with
a CUSO. Subject to the net worth threshold, a credit union shall also provide
notice of its intent to engage in additional or substitute activities in an
existing CUSO or its intent to materially alter an existing loan or financing
program with a CUSO. The written notice shall include as applicable:
(A) a description of the organizational and
legal structure of the CUSO and the proposed method of capitalizing the
organization;
(B) a description of
the loan, including the purpose, terms, guarantors, and collateral;
(C) a description of the products or services
to be offered by the CUSO and the customer base it will serve;
(D) an explanation of how the CUSO will
primarily serve credit unions or members of credit unions, or how the
activities of the CUSO could be conducted directly by a credit union or are
incidental to the conduct of the business of a credit union; and
(E) a representation that the activities will
be conducted in accordance with applicable law, the requirements of this
section, and in a manner that will limit exposure of the credit union to no
more than the loss of funds invested in, or loaned to, the CUSO.
(2) Authorization to Proceed. If
the commissioner issues a non-objection letter, the credit union may proceed
with the proposed transaction when it receives the letter. Otherwise, a credit
union may proceed with the proposed transaction or the CUSO may engage in the
new activities 30 days after the department receives the required notice,
unless the commissioner takes one of the following actions before the
expiration of that time period:
(A) the
commissioner notifies the credit union that it must file additional information
supplementing the required notice. If a credit union is required to file
additional information, it may proceed with the proposed transaction or the
CUSO may engage in the new activities 30 days after the department receives the
requested information, unless the commissioner issues a written objection
before the expiration of that time period; or
(B) the commissioner notifies the credit
union of an objection to the proposed transaction or new activity.
(3) Request for Supplemental
Information. A credit union shall provide any additional information reasonably
requested by the commissioner.
(4)
Action on a Notice. The commissioner shall object to a proposed transaction or
activity if the commissioner finds that:
(A)
there is inadequate capital to support the proposed transaction or
activity;
(B) the proposed
transaction or activity does not comply with this section;
(C) the credit union's concentrated exposures
to the CUSO give rise to safety and soundness issues; or
(D) the credit union has regulatory or
operational deficiencies which would materially affect its ability to properly
and effectively manage and monitor the risk associated with the CUSO.
(5) Written Objection. If the
commissioner determines that an objection should be interposed, the
commissioner will notify the credit union in writing of the determination and
the actions the credit union must take to proceed with the proposed transaction
or activity. A credit union receiving notification of an objection may appeal
the commissioner's finding to the commission in the manner provided by Chapter
93, Subchapter C of this title (relating to Appeals of Preliminary
Determinations on Applications).
(d) Limitations. The board of directors of a
credit union that organizes, invests in, or lends to any CUSO shall adopt and
maintain written policies, which establish appropriate limits and standards for
this type of investment including the maximum amount relative to the credit
union's net worth, that will be invested in or loaned to any one CUSO. The
maximum amount invested in any one CUSO may not exceed the statutory limit
established by Texas Finance Code §
RSA
124.352(b). Total
investments in and total loans to CUSOs shall not, in the aggregate, exceed 10%
of the total unconsolidated assets of the credit union, unless the credit union
receives the prior written approval of the commissioner. The amount of loans to
CUSOs, cosigned, endorsed, or otherwise guaranteed by the credit union, shall
be included in the aggregate for the purpose of determining compliance with the
limitations of this section.
(e)
Prohibitions. No credit union may invest in or make loans to a CUSO:
(1) if any officer, director, committee
member, or employee of the credit union or any member of the immediate family
of such persons owns or makes an investment in or has made or makes a loan to
the CUSO;
(2) unless the
organization is structured as a corporation, limited liability company,
registered limited liability partnership, or limited partnership;
(3) unless the credit union has obtained
written legal advice that the CUSO has been designed in a manner that will
limit the credit union's potential exposure to no more than the amount of funds
invested in or loaned to the CUSO;
(4) if the CUSO engages in any
revenue-producing activity other than the performance of services for credit
unions or members of credit unions, and such activity equals or exceeds one
half (1/2) of the CUSO's total revenue;
(5) unless prior to investing in or making a
loan to a CUSO the credit union obtains a written agreement which requires the
CUSO to follow GAAP, render financial statements to the credit union at least
quarterly, and provide the department, or its representatives, complete access
to the CUSO's books and records at reasonable times without undue interference
with the business affairs of the CUSO;
(6) unless the CUSO is adequately bonded or
insured for its operations;
(7)
unless the CUSO obtains an annual opinion audit, by a licensed Certified Public
Accountant, on its financial statements in accordance with generally accepted
auditing standards, unless the investment in or loan to the CUSO by any one or
more credit unions does not exceed $100,000, or the CUSO is wholly owned and
the CUSO is included in the annual consolidated financial statement audit of
its parent credit union; or
(8) if
any director of the credit union is an employee of the CUSO, or anticipates
becoming an employee of the CUSO upon its formation.
(f) Permissible activities and services. The
commissioner may, based upon supervisory, legal, or safety and soundness
reasons, limit any CUSO activities or services, or refuse to permit any CUSO
activities or services. Otherwise, a credit union may invest in or loan to a
CUSO that is engaged in providing products and services that include, but are
not limited to:
(1) operational services
including credit and debit card services, cash services, wire transfers,
audits, ATM and other EFT services, share draft and check processing and
related services, shared service center operations, electronic data processing,
development, sale, lease, or servicing of computer hardware and software,
alternative methods of financing and related services, other lending related
services, and other services or activity, including consulting, related to the
routine daily operations of credit unions;
(2) financial services including financial
planning and counseling, securities brokerage and dealer activities, estate
planning, tax services, insurance services, administering retirement, or
deferred compensation and other employee or business benefit plans;
(3) internet-based or related services
including sale and delivery of products to credit unions or members of credit
unions;
(4) Property management
services; or
(5) any other product,
service or activity deemed economically beneficial or attractive to credit
unions or credit union members if approved, in writing, by the
commissioner.
(g)
Compensation. A credit union director, senior management employee, or committee
member or immediate family member of any such person may not receive any
salary, commission, or other income or compensation, either directly or
indirectly, from a CUSO affiliated with their credit union, unless received in
accordance with a written agreement between the CUSO and the credit union. The
agreement shall describe the services to be performed, the rate of compensation
(or a description of the method of determining the amount of compensation) and
any other provisions deemed desirable by the CUSO and the credit union. The
agreement, and any amendments, must be approved by the board of directors of
the credit union and the board of directors (or equivalent governing body) of
the CUSO prior to any performance of service or payment and annually
thereafter. For purposes of this section, senior management employee shall
include the chief executive officer, any assistant chief executive officers
(vice presidents and above), and the chief financial officer. Immediate family
shall include a person's spouse or any other person living in the same
household.
(h) Examination fee. If
the commissioner requests a CUSO to make its books and records available for
inspection and examination, the CUSO shall pay a supplemental examination fee
as prescribed in §
RSA
97.113(e) of this title
(relating to Supplemental examination fees). The commissioner may waive the
supplemental examination fee or reduce the fee.
(i) Exception. A credit union which has a net
worth ratio greater than six percent (6%) and is deemed adequately capitalized
by its insuring organization may make an investment in or make loans to a CUSO
that is not limited by the restriction set forth in subsection (e)(4) of this
section, provided the activities of the CUSO are limited to activities which
could be conducted directly by a credit union or are incidental to the conduct
of the business of a credit union. Notwithstanding this exception, all other
provisions of the act and this chapter applicable to a CUSO apply. In the event
a credit union's net worth declines below the required thresholds, the credit
union may not renew, extend the maturity of, or restructure an existing loan,
advance additional funds, or increase the investment in the CUSO without the
prior written approval of the commissioner.
(j) Change in Valuation. If the limitations
established by this section are reached or exceeded solely because of the
profitability of the CUSO and the related GAAP valuation of the investment
under the equity method, divestiture is not required. A credit union may
continue to invest up to the limitation without regard to the increase in the
GAAP valuation resulting from a CUSO's profitability.
