12 C.F.R. § 704.11 Corporate Credit Union Service Organizations (Corporate CUSOs).
Title 12 - Banks and Banking
(a) A corporate CUSO is an entity that: (1) Is at least partly owned by a corporate credit union; (2) Primarily serves credit unions; (3) Restricts its services to those related to the normal course of business of credit unions; and (4) Is structured as a corporation, limited liability company, or limited partnership under state law. (b) Investment and loan limitations. (1) The aggregate of all investments in member and nonmember corporate CUSOs must not exceed 15 percent of a corporate credit union's capital. (2) The aggregate of all investments in and loans to member and nonmember corporate CUSOs must not exceed 30 percent of a corporate credit union's capital. A corporate credit union may lend to member and nonmember corporate CUSOs an additional 15 percent of capital if the loan is collateralized by assets in which the corporate has a perfected security interest under state law. (3) If the limitations in paragraphs (b)(1) and (b)(2) of this section 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 corporate, divestiture is not required. A corporate credit union may continue to invest up to the regulatory limit without regard to the increase in the GAAP valuation resulting from the corporate CUSO's profitability. (c) Due diligence. A corporate credit union must comply with the due diligence requirements of §§723.5 and 723.6(f) through (j) of this chapter for all loans to corporate CUSOs. This requirement does not apply to loans excluded under §723.1(b). (d) Separate entity. (1) A corporate CUSO must be operated as an entity separate from a corporate credit union. (2) A corporate credit union investing in or lending to a corporate CUSO must obtain a written legal opinion that concludes the corporate CUSO is organized and operated in a manner that the corporate credit union will not reasonably be held liable for the obligations of the corporate CUSO. This opinion must address factors that have led courts to “pierce the corporate veil,” such as inadequate capitalization, lack of corporate identity, common boards of directors and employees, control of one entity over another, and lack of separate books and records. (e) Prohibited activities. A corporate credit union may not use this authority to acquire control, directly or indirectly, of another depository financial institution or to invest in shares, stocks, or obligations of an insurance company, trade association, liquidity facility, or similar organization. (f) An official of a corporate credit union which has invested in or loaned to a corporate CUSO may not receive, either directly or indirectly, any salary, commission, investment income, or other income, compensation, or consideration from the corporate CUSO. This prohibition also extends to immediate family members of officials. (g) Prior to making an investment in or loan to a corporate CUSO, a corporate credit union must obtain a written agreement that the corporate CUSO will: (1) Follow GAAP; (2) Provide financial statements to the corporate credit union at least quarterly; (3) Obtain an annual CPA opinion audit and provide a copy to the corporate credit union. A wholly owned or majority owned CUSO is not required to obtain a separate annual audit if it is included in the corporate credit union's annual consolidated audit; and (4) Allow the auditor, board of directors, and NCUA complete access to its books, records, and any other pertinent documentation. (h) Corporate credit union authority to invest in or loan to a CUSO is limited to that provided in this section. A corporate credit union is not authorized to invest in or loan to a CUSO under part 712 of this chapter. [62 FR 12938, Mar. 19, 1997, as amended at 63 FR 10756, Mar. 5, 1998; 67 FR 65656, Oct. 25, 2002; 68 FR 56550, Oct. 1, 2003]
Title 12: Banks and Banking
PART 704—CORPORATE CREDIT UNIONS
§ 704.11 Corporate Credit Union Service Organizations (Corporate CUSOs).
