NCUA: Required Customer Base Must be Intact Before CUSO Investment
The NCUA said federal credit unions can invest in or buy an insurance agency as a credit union service organization as long as the entity meets its customer base requirement.
The agency provided that guidance in a June 3 legal opinion letter on the matter. At issue was if a FCU would be permitted to purchase or invest in an existing insurance agency as a CUSO if the insurance agency would change its customer base to primarily serve credit union members.
The customer base requirement must be met at the time the FCU invests in the CUSO, wrote Hattie Ulan, NCUA associate general counsel. After that, a reassessment on who is being served must continue.
“To do otherwise would permit a large loophole in the CUSO rule, allowing negligent or unscrupulous CUSOs to ignore the customer base requirements once fully funded from FCUs. This practice could easily lead to safety and soundness problems, and perhaps even threaten the National Credit Union Share Insurance Fund,” Ulan wrote.
In meeting the requirement, an FCU should review the number of affiliated members served, gross or net revenues derived from members, members’ assets under management, the number of policies sold to members, the number of services sold to members, and the availability or accessibility of services to members.
The NCUA was also asked if the target insurance agency could maintain existing franchise agreements with other companies and offer new franchises once it became a CUSO. Under the agreements, franchisees would process applications exclusively for the CUSO, and, although the franchisees would serve non-credit union members, they would primarily serve members.
Ulan said the CUSO may enter into new franchise agreements to offer additional agents, as franchisees, the opportunity to sell permissible insurance services to members. If the CUSO continues to meet the customer base requirement, an FCU is not prohibited from investing in an insurance agency CUSO that uses franchisees to sell its services, she added.