Kansas credit unions were very supportive this year when John Smith, credit union administrator of the Kansas Department of Credit Unions, proposed to update Kansas Statute Annotated (KSA) 17-2204a which provides authority for Kansas credit unions to invest in or make loans to a Credit Union Service Organization (CUSO).
The change was important because credit unions needed to have more flexibility in the ownership structure of a CUSO and under the previous law, credit unions were limited to ownership of a CUSO structured as a capital stock corporation. A CUSO as a capital stock corporation was very outdated in the eyes of many credit unions, leading some credit unions to begin structuring CUSOs as limited liability companies in order to protect the credit union from undue liability.
Mr. Smith quickly recognized the inequity with the state law and initiated conversations with the Kansas Credit Union Association to gain support for changes to the state law. The proposed amendments were easy to understand and easy to justify, especially since credit unions were ahead of the Department in recognizing the need to limit their liability when establishing ownership in a CUSO.
Early in the process, Mr. Smith took the lead by characterizing the changes as clarification or clean-up provisions in the Kansas credit union law necessary to provide credit unions with appropriate authority to conduct business on behalf of credit union members throughout the state. The Department had concluded that the law should reflect the activities already present in the state, since credit unions were already structuring CUSOs as limited liability companies.
Two changes are reflected in the updated law, both of which are positive changes for credit unions. First, credit unions are now specifically authorized by law to structure a CUSO as a limited liability company or limited liability partnership. This eliminates the need for a credit union/CUSO to defend their limited liability structure as a right provided under Kansas corporation law, which does support the credit union's right to form a limited liability CUSO. The changes also specifically provide for a limited liability partnership, which allows individual credit unions to establish ownership rights based on partnership shares in the CUSO. Kansas has not seen much activity of CUSOs being formed as limited liability partnerships, but this makes it clear that credit unions are free to explore this type of CUSO ownership.
The second change reflected in the updated law provides authority for the Department to establish rules and regulations regarding loans to a CUSO. Previous language made it clear that rules and regulations could be established for investments in CUSOs but it was unclear whether rules and regulations could be established for loans to CUSOs. The new law makes it clear that the Department may establish rules and regulations. This change is good for credit unions because credit unions will understand how to structure loans to CUSOs rather than require them to request an interpretation from the Department or wait for the issue to be addressed in an examination.
In a nutshell, the changes help Kansas law catch up with credit union actions regarding the structure of CUSOs in Kansas. Credit unions are pleased that John Smith recognized the wisdom in proposing and initiating the changes to Kansas law and are pleased that he is working hard to insure that Kansas credit unions are able to conduct business without the undue restraint of outdated laws.
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