CUSO's Purchase of Nonperforming Loans From CU Owners Allowed, "in Limited Circumstances"

ALEXANDRIA, Va. – NCUA has posted a Legal Opinion Letter confirming that “in the limited circumstances” described, it’s permissible for a CUSO to purchase nonperforming loans as part of providing debt collection services. In its LOL 05-0919 – Permissibility of CUSO’s Purchases of Nonperforming Loans for Debt Collection – NCUA Associate General Counsel Sheila Albin responded to a question from Gretchen Jones, Esq. of the firm Skelton, Taintor & Abbott, Auburn, Me., on whether a CUSO can purchase nonperforming loans it is collecting as part of providing debt collection services, “which is a preapproved activity under our regulations,” wrote Albin citing 12 C.F.R. 712.5(j). “We believe that, in the limited circumstances you described, the CUSO’s purchase of nonperforming loans from its credit union owners is permissible,” the NCUA General Counsel stated. “According to your description, the CUSO will provides: debt collection services to its credit union owners, using a salaried attorney from one of the owner credit unions. The CUSO will reimburse the credit union for the attorney’s work and, in turn, will seek reimbursement from the credit unions using the debt collection service. Maine law, however, prevents the member credit unions from reimbursing the CUSO for the attorney’s work on debt collection unless the CUSO owns the nonperforming loans,” Albin continued. In her letter to NCUA, Jones cited two Maine statutes preventing the CUSO from receiving payment from CUs for any debt collection services the attorney provides. * a provision in the Maine Bar Rules governing the practice of law prohibits fee-sharing with non-lawyers. Me. Bar Rule 3.12(a) * Maine’s Fair Debt Collection Practices Act, to which the CUSO will be subject, prohibits a debt collector from sharing compensation for services performed by a lawyer in collecting a debt owed to a third party. Me. Rev. Stat. Ann. Tit.32 11013(j). Albin noted that Jones reported that officials from Maine’s Office of Consumer Credit Regulation told her that if the CUSO owned the nonperforming loans to be collected, the CUSO could receive reimbursement for the debt collection services the attorney provides. “We agree with your analysis that, under these circumstances, the CUSO’s purchase of nonperforming loans is part of a preapproved activity. “Loan support services,” which includes “debt collection services,” are preapproved activities for CUSOs. 12 C.F.R. 712.5(j). In order to receive payment for its debt collection activities and comply with state law, the CUSO must purchase the nonperforming loans from its member credit unions. Accordingly, we conclude that the purchase of nonperforming loans in this case is part of its debt collection activity.” Albin continued to state that, “We also agree with your analysis that the CUSO would not be engaged in consumer lending. As you note, NCUA has not permitted CUSOs to engage in consumer lending, other than mortgage loans and student loans. 62 Fed Re. 10752 (March 5, 1998). CUSOs may, however, engage in “many back office aspects of lending,” as long as the credit union makes the decision whether to grant the loan. Id. You report that the CUSO will not be involved in any debt restructuring that would, in effect, involve it in impermissible consumer loan origination.” In conclusion, the NCUA General Counsel wrote that, “Our analysis is limited to federal law and regulations, and we do not offer an opinion regarding any state law issues, including whether state law requires additional disclosures to the consumer.” -