ALEXANDRIA, Va. - CUSOs can assist credit unions in providingpayroll services to CUs' business members, however says NCUA, theycannot provide them directly to credit union members. In a letterto NCUA Associate General Counsel Sheila Albin, NACUSO GeneralCounsel Guy Messick proposed a situation where members wouldcontract with an FCU for payroll services. The business memberwould maintain a payroll account at the FCU, and the FCU would makedisbursements from this account to the business employees for eachpayday. The FCU would deduct the appropriate amounts for incometaxes and employee-paid benefit premiums. The FCU would thencontract with the CUSO for assistance in providing the payrollservices. CUSO staff would work with FCU staff and provide adviceand any hands-on assistance the FCU needs to implement the payrollservice. Citing 12 U.S.C. 1757(17) of the Federal Credit Union Act,Albin said it allows FCUs to "exercise such incidental powers" asnecessary to carry on its business. NCUA's incidental powersregulation, she wrote, includes a list of categories of activitiesthat meet this test and are preapproved as incidental powers forFCUs. Preapproved activities, she stated, include electronicfinancial services, payroll deduction and tax payment services tomembers.Providing payroll services to members includes elements ofelectronic financial services, payroll deduction and tax payment,"and we conclude it is a permissible incidental power for FCUs. Inaddition, Albin stated, "We conclude an FCU may use a CUSO tomarket the service on behalf of an FCU and implement the payrollservices." She wrote that, "According to your description, theCUSO's role would include advising credit union personnel andproviding hands-on assistance as needed, in addition to marketingthe service. The FCU Act requires that the business of CUSOs"relates to the daily operations of the credit unions they serve"and any CUSO services must be "associated with the routineoperations of credit unions." .The CUSO regulation includescategories of preapproved activities for CUSOs.We believe, ifstructured as you propose, the CUSO's role is permissible, becauseits activities fall within categories of activities preapproved forCUSOs to offer to credit unions." NCUA cautioned though that theCUSO may not provide payroll services to credit union membersdirectly. "NCUA's longstanding view is that clerical, professionaland management services and electronic transaction services arepreapproved activities for CUSOs only if the services are providedto credit unions. A CUSO may not provide these services directly tocredit union members," Albin concluded.