CUSOs can Develop DP Software for CUs but Cannot Invest in LLC to do the Same

ALEXANDRIA, Va.-Credit Union Service Organizations are permitted to develop data processing software to license to credit unions but generally cannot invest in a limited liability company for the same purpose, NCUA wrote in a recent legal opinion letter. Currently, a federal credit union can invest up to 1% in aggregate of its paid-in and unimpaired capital and surplus in an LLC. Federal credit unions may also invest in a CUSO structured as a corporation or limited partnership and may invest in a CUSO even if not all investors are federal credit unions. The Financial Services Regulatory Relief Act of 2003 (H.R. 1375) is presently before Congress to expand credit unions' investment powers in CUSOs to an aggregate of 3%. However, CUSOs do not have independent investment authority; they may make limited investments in a non-CUSO service provider in connection with providing a permissible service and the dollar amount is limited to that necessary to participate in the service provider or more for a discount on goods or services. The letter also clarified that federal credit unions may invest in a CUSO organized as an LLC, but state chartered credit unions' authorities vary by state. If a state chartered credit union makes an investment not permitted for a federal credit union, it must establish a reserve for the nonconforming investment.