Credit Union Service Organizations
Federal Information & News Dispatch, Inc. |
Final rule.
CFR Part: "12 CFR Parts 712 and 741"
RIN Number: "RIN 3133-AD93"
Citation: "78 FR 72537"
"Rules and Regulations"
SUMMARY: NCUA is issuing a final rule to amend its credit union service organization (CUSO) regulation to increase transparency and address certain safety and soundness concerns. The final rule expands the requirements of the
   EFFECTIVE DATE: This rule is effective
   FOR FURTHER INFORMATION CONTACT:
   SUPPLEMENTARY INFORMATION:
I. Background
   A. Why is NCUA adopting this final rule?
   B. What changes were released for comment in the 2011 proposed rule?
II. Summary of Public Comments
   A. What were the general comments supporting the proposed rule?
   B. What were the general comments opposing the proposed rule?
III. Final Rule
   A. What changes does this rule make?
   B. How does this rule impact credit unions?
   C. What are the key provisions in the final rule?
IV. Draft Reporting Form
V. Regulatory Procedures
I. Background
A. Why is NCUA adopting this final rule?
   CUSOs provide significant value to the credit union industry by acting as a collaborative means to share risk, manage costs, and deliver services to credit union members. With their unique collaborative business model, CUSOs foster cooperation and shared innovation for credit unions to achieve economies of scale, retain expertise, and better serve their members. Thus, the NCUA Board (the Board) recognizes that CUSOs benefit both credit unions and credit union members. Nevertheless, the Board believes the ability to accurately inventory CUSOs and evaluate their financial and operational condition is imperative to mitigating risks to the
   In 2008, the Board issued a final rule, which, among other things, made certain provisions of the
   FOOTNOTE 1 73 FR 79312 (
   FOOTNOTE 2 Id. END FOOTNOTE
   Since the promulgation of the 2008 rule, the Board has determined that additional protections in the
   As a result, the Board is issuing this final rule, which makes additional parts of the
B. What changes were released for comment in the 2011 proposed rule?
   On
   FOOTNOTE 3 76 FR 44866 (
   The proposed rule also added two new requirements to apply to all FICUs. Specifically, the proposed rule required FICUs to include, in their agreements with CUSOs, a requirement that a
II. Summary of Public Comments
   The public comment period for the proposed rule ended on
   Of the 290 comments received, 85 were duplicative in some manner, for example, identical "form" letters from different individual commenters, identical letters from the same person representing different organizations, identical letters from different people representing the same organization, or different letters from the same person representing the same organization. Additionally, the majority of the comments exhibited notable similarities. For example, a significant number of comments contained at least some duplicative or "form" language, presented similar arguments or talking points, cited similar data or statistics, or posed similar questions for clarification.
   Most of the commenters expressed opposition to, or raised concerns about, one or more aspects of the proposed rule. A few commenters were supportive of the proposal overall.
A. What were the general comments supporting the proposed rule?
   The commenters who supported the proposal were generally in favor of subjecting
   Additionally, a number of commenters opposed the proposal in general, but expressed support for certain aspects of it. In particular, several commenters supported the proposed recapitalization limits for less than adequately capitalized FISCUs, noting that this particular provision is consistent with safety and soundness. Several commenters also supported applying the same
B. What were the general comments opposing the proposed rule?
   Commenters expressing opposition to the rule focused primarily on the proposed financial reporting requirement. Most commenters raised concerns about NCUA's authority to impose the proposed reporting requirement. They noted that NCUA does not have statutory authority to directly regulate CUSOs, and questioned whether NCUA's general safety and soundness and examination authority under the Federal Credit Union Act (FCU Act) is sufficient to justify the increased regulatory oversight of CUSOs. Nearly all commenters indicated they do not believe CUSOs pose a true systemic risk to the NCUSIF and argued that additional regulation by NCUA is unnecessary. Commenters contended that NCUA's current authority over CUSOs is sufficient, noting that problems with CUSOs are few, and that these problem cases can be addressed by improving NCUA's supervisory oversight of credit unions and strengthening due diligence requirements. Most commenters suggested that, if the Board adopts a final rule, the Board should take a more targeted regulatory approach by tailoring the rule to identified problem areas. They argued that the proposal is misguided in treating all CUSOs the same, regardless of the
   In addition, a substantial number of commenters argued that the proposed rule would unnecessarily and unfairly increase regulatory burden and compliance costs to both credit unions and their affiliated CUSOs, stifling innovation and placing them at a competitive disadvantage to their non-
   NCUA has carefully reviewed and considered all the comment letters it received in response to the proposal. Recognizing the significant concerns raised by commenters, the Board has made substantial adjustments to the final rule. The key provisions of the final rule, along with an analysis of the pertinent public comments, are discussed in greater detail below.
III. Final Rule
A. What changes does this rule make?
   Under this final rule, several provisions of the current
   FCUs and FISCUs making loans to and investments in CUSOs are impacted by this final rule. The Board emphasizes, however, that the final rule is significantly more limited in application than the proposed rule, targeted mainly to CUSOs engaged in more complex or high-risk activities, such as credit and lending, information technology (IT), and custody, safekeeping, and investment management services for credit unions.
C. What are the key provisions in the final rule?
   A detailed discussion of the final rule's key provisions follows.
Applicability of Certain CUSO Rule Provisions to FISCUs
   Section 120 of the FCU Act authorizes the Board to prescribe rules and regulations for the administration of the FCU Act. /4/ Further, Title II of the FCU Act provides that the Board may insure members' accounts and administer the NCUSIF, and may prescribe regulations for FICUs that are necessary to carry out that purpose. /5/ Subpart B of Part 741 addresses NCUA regulations that FISCUs must follow to obtain and maintain federal share insurance from NCUA. Currently, only two provisions of the
   FOOTNOTE 4 12 U.S.C. 1766. END FOOTNOTE
   FOOTNOTE 5 12 U.S.C. 1781(b)(9), 1789(11). END FOOTNOTE
   FOOTNOTE 6 12 U.S.C. 1757(5)(D). END FOOTNOTE
   FOOTNOTE 7 12 U.S.C. 1757(7)(I). END FOOTNOTE
   FOOTNOTE 8 See, e.g.,
Limits on Recapitalization of Insolvent CUSOs--Applicability of
   In 2008, the Board amended the
   FOOTNOTE 9 73 FR 79312 (
   FOOTNOTE 10 73 FR 23982, 23984 (
   This final rule adds a similar requirement for FISCUs except where state law specifies a higher investment limit in CUSOs. The provision will apply in circumstances where a FISCU is already less than adequately capitalized or where the recapitalization of a
   FOOTNOTE 11 12 CFR part 702. END FOOTNOTE
   In addition to submitting a request to the appropriate SSA, a less than adequately capitalized FISCU, or a FISCU that would be rendered less than adequately capitalized by the recapitalization of a
   Several commenters generally supported applying the same
CUSO Accounting, Audits, and Financial Statements--
   Under the final rule, provisions in the current
   FOOTNOTE 12 73 FR 79312 (
   As noted above, a number of commenters supported applying the same rules to FISCUs and FCUs. A few commenters, however, expressed concern that the proposal to apply the financial statement and audit provision,
Reporting Requirement--
   The proposed rule added a new provision to require a FICU's agreement with a
   As discussed above, this requirement was troubling to most commenters. Commenters expressed opposition to the reporting provision and asked the agency to substantially revise or withdraw the proposal. Commenters also expressed concerns about NCUA's authority to impose the proposed requirements. They noted that NCUA does not have statutory authority to directly regulate CUSOs and, as such, the reporting requirement is overreaching. Further, commenters argued that the provision is unjustified, contending there is insufficient data to demonstrate that
   The Board disagrees. While the Board acknowledges that NCUA does not have direct statutory and regulatory authority over the operations of CUSOs, NCUA does have the authority to regulate FCUs' lending and investment in CUSOs. /13/ NCUA has regulated this lending and investment authority in the
   FOOTNOTE 13 12 U.S.C. 1757(7)(I), 1757(5)(D). END FOOTNOTE
   FOOTNOTE 14 44 FR 12401 (
   Moreover, Title II of the FCU Act provides the Board with the broad authority to insure members' accounts and administer the NCUSIF, and to prescribe regulations for FICUs that are necessary to carry out that purpose. /15/ All FICUs, through their application for insurance, have agreed to comply with those regulations. The current lack of information on CUSOs limits NCUA's ability to conduct offsite monitoring and assess any emergent risks to the NCUSIF posed by
   FOOTNOTE 15 12 U.S.C. 1781(b)(9), 1789(11). END FOOTNOTE
   Furthermore, the Board continues to believe that CUSOs present material risks to the credit union industry. Past experience has demonstrated that a single
   FOOTNOTE 16 The agency does not have a formal mechanism to track information about losses attributable to CUSOs. Further, there are different types of losses that can be realized by credit unions, including losses in terms of the investment in or loan to the
   Case #1--Activities involving multiple CUSOs contributed to a
   Case #2--A
   Case #3--Nineteen FICUs incurred losses totaling over
   Case #4--A student lending
   Case #5--A
Ensign FCU
   Involvement in a business loan
Eastern New York FCU
   Relationships with a complex network of CUSOs, a lack of board of directors' oversight of related business ventures, and improper accounting contributed to the failure of Eastern New York FCU. Several CUSOs were created to generate income, but most of the CUSOs had very few customers.
Community One FCU
   The failure of Community One FCU was due in part to losses stemming from a
   Kern Central CU's failure was due in part to an indirect auto loan program
   The above examples clearly demonstrate the material risks that
   As noted above, in 2008, the Board amended the
   FOOTNOTE 17 74 FR 79312 (
   While NCUA currently has the authority to access
   Nevertheless, the Board recognizes that the rule could be more narrowly focused and still achieve the agency's objective of obtaining more complete and accurate information about CUSOs, the services they offer, and their financial condition. Accordingly, the Board is significantly revising the reporting requirement in the final rule.
   The majority of commenters suggested NCUA should take a more targeted regulatory approach by tailoring the final rule to identified problem areas. Further, they argued that the proposal's one-size-fits-all approach was misguided. Numerous commenters contended that the rule should be exclusively targeted at CUSOs engaging in riskier activities, such as business lending. CUSOs involved in activities with less risk, such as marketing or licensing CUSOs, should not be subject to increased oversight. Commenters recommended that, at a minimum, certain types of lower-risk CUSOs should be exempted from the rule.
   In light of the comments received on the proposed rule, the Board has determined to significantly reduce the scope and application of the reporting requirement in the final rule. Accordingly, the final rule narrowly focuses on CUSOs engaging in certain complex or high-risk activities. The Board notes that the types of activities qualifying as "complex or high-risk," as well as the reporting requirements for CUSOs engaging in such activities, may evolve as new risks emerge. At this time, however, the Board believes that, for purposes of the reporting requirement, complex or high-risk activities include credit and lending, information technology, and custody, safekeeping, and investment management services for credit unions because these particular activities tend to affect a large number of credit unions and present a high degree of operational and/or financial risk. Activities related to these categories currently include:
    * Credit and lending--
    . Business loan origination;
    . Consumer mortgage loan origination;
    . Loan support services, including servicing;
    . Student loan origination; and
    . Credit card loan origination.
    * Information technology--
    . Electronic transaction services;
    . Record retention, security, and disaster recovery services; and
    . Payroll processing services.
    * Custody, safekeeping, and investment management services for credit unions. /18/
   FOOTNOTE 18 CUSOs only engaging in trust services for individual credit union members will be required to submit only basic profile information. These CUSOs will not be required to submit the additional, enhanced report. END FOOTNOTE
   Credit and lending-related activities involve credit unions' core business function and represent a high degree of potential risk. CUSOs engaging in credit and lending services have the potential to pose multiple types of risks to FICUs and the NCUSIF. Without proper monitoring and controls, FICUs making loans to, and investments in, CUSOs engaged in credit and lending activities may quickly be exposed to significant levels of credit, strategic, or reputation risks. For example, credit risk increases with poor underwriting, which may lead to decreased net worth and increased strategic and reputation risks, all of which can ultimately impact member services. Due to the higher-risk nature of credit and lending activities, the Board believes it is necessary to receive additional information about CUSOs involved in credit and lending activities in order to monitor for material levels of risk to the NCUSIF.
   Information technology-related CUSOs usually engage in activities that involve emerging complex electronic services. These services have been subject to malicious attacks, which pose transactional, reputational, and strategic risks to credit unions, and ultimately, the NCUSIF, if proper safeguards are not in place. Moreover, credit union members have been adversely impacted by breaches in network security. The additional data collected for CUSOs engaging in IT services will enable NCUA to better monitor and respond to these increased risks.
   In addition, the Board believes CUSOs engaging in custody, safekeeping, and investment management services for credit unions require robust monitoring due to the complex nature of these services. Credit unions place a high degree of reliance on these CUSOs because credit unions are entrusting their assets and their members' assets to CUSOs. As a result, there are increased reputational, strategic, and compliance risks that warrant additional monitoring by NCUA.
   Under the final rule, only CUSOs engaging in these complex or high-risk activities are required to report substantive information. All other CUSOs will register only basic profile information. Specifically, the final rule requires a FICU to obtain a written agreement from a
   Only CUSOs involved in complex or high-risk activities will be subject to an additional, enhanced reporting requirement. Specifically, in addition to the basic profile information described above, CUSOs engaged in certain complex or high-risk activities will be required to report more detailed information, including audited financial statements and more specific customer information. The Board believes this additional information is crucial in order for the agency to effectively analyze and monitor the risks CUSOs present to FICUs and the NCUSIF. Specifically, CUSOs engaging in complex or high-risk activities will be required to report:
    * For each credit union investing in, lending to, or receiving services from the
    * Services provided to each credit union;
    * The investment amount, loan amount, or level of activity of each credit union; and
    * The
   In addition, CUSOs engaging in credit and lending services will be required to report the following activity by loan type:
    * The total dollar amount of loans outstanding;
    * The total number of loans outstanding;
    * The total dollar amount of loans granted year-to-date; and
    * The total number of loans granted year-to-date.
   CUSOs that previously were not involved in complex or high-risk activities that become involved in such activities by virtue of: (1) A merger with or acquisition of a
   Some commenters objected that the actual reporting form required under the proposal would be issued as guidance, without the opportunity for public comment. The Board believes it would be advantageous for FICUs and CUSOs to have the opportunity to review the format and content of the draft reporting form, so all affected parties are adequately prepared to comply with the new requirements once the reporting system is fully established. Accordingly, the draft reporting form is being published in conjunction with this rulemaking. The draft form illustrates the intended reporting format for the basic registration for all CUSOs, as well as the expanded reporting requirement for CUSOs involved in complex or high-risk services. The Board emphasizes that the draft reporting form is subject to change as the agency works to develop and implement the new reporting system for CUSOs. Furthermore, future modifications may be made to the reporting form based on NCUA's assessment of current needs. NCUA intends to submit a copy of the reporting form to the
   Many commenters raised concerns that the proposed reporting requirement could potentially expose CUSOs' confidential business information and trade secrets to public dissemination through Freedom of Information Act (FOIA) requests, putting them at a competitive disadvantage to their non-
   FOOTNOTE 19 5 U.S.C. 552(b)(4); 12 CFR 792.11(a)(4). END FOOTNOTE
   FOOTNOTE 20 5 U.S.C. 552(b)(8); 12 CFR 792.11(a)(8) (emphasis added). END FOOTNOTE
   Several commenters noted that the proposal required the financial report to be submitted "at least" annually. These commenters urged NCUA to clearly define the reporting frequency as "annual." The Board agrees that reporting under the new rule should occur on an annual basis. As such, the final rule modifies the requirement by establishing the reporting frequency as "annually." Additionally, the final rule modifies the proposed requirement that a newly formed
   Commenters also raised concerns that the proposal is unclear about how the information reported directly by CUSOs will be used by the agency. Numerous commenters noted that, by design, CUSOs generally do not have a sizable capital structure or generate significant income. These commenters urged NCUA not to evaluate CUSOs based solely on their balance sheets and income statements.
   The Board is mindful of commenters' concerns and emphasizes that the agency appreciates the value that CUSOs bring to the credit union industry as collaborative tools for credit unions to achieve economies of scale, retain expertise, and better serve their members. The Board recognizes that CUSOs, in their supportive function, are intentionally designed to operate on thin margins in order to realize greater benefits to credit unions. Accordingly, the Board understands that balance sheets and income statements alone do not reflect the true value of CUSOs. The Board continues to believe, however, that the ability to accurately inventory CUSOs and evaluate their financial and operational condition is paramount to mitigating risk to the credit union system as a whole. It emphasizes that NCUA intends to use the information reported by CUSOs to inform the agency's supervisory oversight of FICUs. For example, NCUA may use the information to help credit unions improve their due diligence, to raise examiner awareness of identified risks, and to foster collaborative problem-solving among CUSOs, credit unions, SSAs, and NCUA. The Board feels that the final rule achieves the balance of exercising regulatory restraint while ensuring the ultimate safety and soundness of the NCUSIF.
Subsidiary CUSOs--
   The proposed rule added a new section to the
   A significant number of commenters expressed concern that the proposal would treat any entity in which a
   The Board disagrees and adopts the subsidiary provision substantially as proposed. NCUA's policy with regard to
   FOOTNOTE 21 62 FR 11781 (
Definitions and Conforming Amendments
   The Board is making several technical and conforming amendments. The final rule updates
   FOOTNOTE 22 76 FR 44761 (
State Exemptions
   Section 712.10 of the current rule allows SSAs to apply for an exemption, on behalf of FISCUs, from
Transition Period for Compliance
   The Board recognizes that FICUs with loans to or investments in CUSOs will be required under this final rule to make changes in the agreements they currently have with their CUSOs. Accordingly, the effective date of the final rule is
IV. Draft Reporting Form
   The Board is publishing a draft reporting form to illustrate the intended format for
See Illustration in Original Document.
See Illustration in Original Document.
V. Regulatory Procedures
Regulatory Flexibility Act
   The Regulatory Flexibility Act (RFA) requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities. NCUA considers credit unions having less than
   FOOTNOTE 23 Interpretive Ruling and Policy Statement (IRPS) 87-2 as amended by IRPS 03-2, 68 FR 30950 (
Paperwork Reduction Act
   The PRA applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden. /24/ For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. NCUA recognizes that this final rule requires FISCUs and FCUs to comply with certain requirements that constitute an information collection within the meaning of the PRA. Under this rule, FISCUs with an investment in or loan to a
   FOOTNOTE 24 44 U.S.C. 3507(d); 5 CFR Part 1320. END FOOTNOTE
   Currently, NCUA cannot fully determine the total number of CUSOs that presently exist, which CUSOs maintain relationships with which credit unions, the financial condition of CUSOs, or the full range of services offered by CUSOs. The current information is incomplete, primarily because the agency is collecting information from the CUSOs' credit union clients rather than directly from each
   Changing the written agreement relating to certain accounting and reporting requirements.
   FISCUs with a reported interest in a
   Frequency of response: one-time /25/
   FOOTNOTE 25 One-time estimates account for, on average, approximately two CUSOs per credit union. The actual frequency will vary based on the credit union's actual number of reported interests in a
   Initial hour burden: 4.
4 hour x 1,161 = 4,644
   In addition to the requirement for FISCUs to revise their agreements with CUSOs, this rule also requires FCUs with an investment in or loan to a
   Changing the written agreement relating to reports to NCUA.
   FCUs with a reported interest in a
   Frequency of response: one-time.
   Initial hour burden: 4.
4 hour x 1,413 = 5,652
   Initial CUSO reporting to NCUA--basic information.
   Reported CUSOs as of
   FOOTNOTE 26 Numbers reported may be over or understated based on the problems with gathering
   Frequency of response: one-time.
   Initial hour burden: 0.5.
0.5 x 1,197 = 598.5
   Initial CUSO reporting to NCUA--expanded information.
   Reported CUSOs providing credit and lending, IT, or custody, safekeeping, and investment management services for credit unions as of 6/30/2013: /27/ 600.
   FOOTNOTE 27 Estimates are likely overstated as credit unions currently report only broad categories of services as defined in the regulation. The expanded reporting requirements under this rule are more narrowly defined and will result in fewer CUSOs affected. END FOOTNOTE
   Frequency of response: one-time.
   Initial hour burden: 3.
3 hours x 600 = 1,800
   Annual CUSO reporting to NCUA--expanded information.
   Reported CUSOs providing credit and lending, IT, or custody, safekeeping, and investment management services for credit unions services as of 6/30/2013: 600.
   Frequency of response: Annual.
   Initial hour burden: 3.
3 hour x 600 = 1,800
   Direct reporting by CUSOs, however, will lessen the existing burden to FICUs for reporting their
   For purposes of this analysis, NCUA estimates that this requirement will affect all FICUs with a reported interest in a
   Completing the
   FICUs with a reported interest in a
   Frequency of response: Quarterly.
   Reduced hour burden: 0.4.
0.4 hours x 2,574 x 4 = 4,118.4
   Completing the
   FICUs with a reported interest in a
   Frequency of response: Semi-annually.
   Reduced hour burden: 0.2.
0.2 hours x 2,574 x 2 = 1,029.6
   Another aspect of this final rule that involves PRA consideration is the requirement pertaining to recapitalizing CUSOs that have become insolvent. The final rule will require certain FISCUs to seek and obtain prior approval from their SSA before making an investment to recapitalize an insolvent
   Obtaining regulatory approval:
   Total less than adequately capitalized FISCUs with an interest in a
   Frequency of response: one-time.
   Initial hour burden: 2.
2 hours x 9 = 18
   In accordance with the requirements of the PRA, NCUA intends to obtain a modification of its OMB Control Number, 3133-0149, to support these changes. Simultaneously with its publication of this final rule, NCUA is submitting a copy of the final rule to OMB, along with an application for a modification of the OMB Control Number.
   The PRA and OMB regulations require that the public be provided an opportunity to comment on the paperwork requirements, including an agency's estimate of the burden of the paperwork requirements. The Board invites comment on: (1) Whether the paperwork requirements are necessary; (2) the accuracy of NCUA's estimates on the burden of the paperwork requirements; (3) ways to enhance the quality, utility, and clarity of the paperwork requirements; and (4) ways to minimize the burden of the paperwork requirements.
   Comments should be sent to the NCUA Contact and the OMB Reviewer listed below:
NCUA Contact:
OMB Contact:
Executive Order 13132
   Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency, /28/ voluntarily complies with the Executive Order.
   FOOTNOTE 28 44 U.S.C. 3502(5). END FOOTNOTE
   The major aspects of the rule make certain aspects applicable to FISCUs. By law, these institutions are already subject to numerous provisions of NCUA's rules, based on the agency's role as the insurer of member share accounts and the significant interest NCUA has in the safety and soundness of their operations. In developing the rule, NCUA worked with representatives of the state credit union regulatory community. This rule incorporates a mechanism by which states may request an exemption from coverage of part of the rule for institutions in that state, provided certain criteria are met. In any event, the final rule will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this final rule does not constitute a policy that has federalism implications for purposes of the executive order.
Assessment of Federal Regulations and Policies on Families
   NCUA has determined that this final rule will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act, 1999. /29/
   FOOTNOTE 29 Public Law 105-277, 112 Stat. 2681 (1998). END FOOTNOTE
Small Business Regulatory Enforcement Fairness Act
   The Small Business Regulatory Enforcement Fairness Act of 1996 /30/ (SBREFA) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the Administrative Procedure Act. /31/ NCUA does not believe this final rule is a "major rule" within the meaning of the relevant sections of SBREFA. NCUA has submitted the rule to OMB for its determination in that regard.
   FOOTNOTE 30 Public Law 104-121, 110 Stat. 857 (1996). END FOOTNOTE
   FOOTNOTE 31 5 U.S.C. 551. END FOOTNOTE
List of Subjects
   12 CFR Part 712
   Administrative practices and procedure, credit, credit unions, insurance, investments, reporting, and record keeping requirements.
   12 CFR Part 741
   Credit, Credit unions, Reporting and recordkeeping requirements, Share insurance.
   By the National Credit Union Administration Board on
Secretary of the Board.
   Accordingly, NCUA amends 12 CFR Parts 712 and 741 as follows:
PART 712--CREDIT UNION SERVICE ORGANIZATIONS (CUSOS)
   1. The authority citation for part 712 continues to read as follows:
   Authority: 12 U.S.C. 1756, 1757(5)(D), and (7)(I), 1766, 1781(b)(9), 1782, 1784, 1785, 1786 and 1789(11).
   2. Revise
   (a) This part establishes when a federal credit union (FCU) can invest in and make loans to credit union service organizations (CUSOs). CUSOs are subject to review by NCUA. This part does not apply to corporate credit unions that have CUSOs subject to
   (c) As used in this part, federally insured credit union (FICU) means an FCU or FISCU.
   (d) As used in this part,
   3. Revise
* * * * *
   (d) * * *
   (2) Special rule in the case of less than adequately capitalized FICUs. This rule applies in the case of a FICU that is currently less than adequately capitalized, as determined under part 702 of this chapter, or where the making of an investment in a
   (i) A less than adequately capitalized FCU, or an FCU that would be rendered less than adequately capitalized by the recapitalization of a
   (ii) A less than adequately capitalized FISCU, or a FISCU that would be rendered less than adequately capitalized by the recapitalization of a
* * * * *
   4. Revise
712.3 What are the characteristics of and what requirements apply to CUSOs?
* * * * *
   (d)
   (1) Account for all of its transactions in accordance with GAAP;
   (2) Prepare quarterly financial statements and obtain an annual financial statement audit of its financial statements by a licensed certified public accountant in accordance with generally accepted auditing standards. A wholly owned
   (3) Provide NCUA, its representatives, and the state supervisory authority having jurisdiction over any FISCU with an outstanding loan to, investment in or contractual agreement for products or services with the
   (4) Annually submit, pursuant to NCUA guidance, a report directly to NCUA and the appropriate state supervisory authority, if applicable. A newly formed
   (i) For each credit union investing in, lending to, or receiving services from the
   (A) A list of services provided to each credit union;
   (B) The investment amount, loan amount, or level of activity of each credit union;
   (ii) The
   (iii) (A) For CUSOs engaged in credit and lending services:
   ( 1) The total dollar amount of loans outstanding;
   ( 2) The total number of loans outstanding;
   ( 3) The total dollar amount of loans granted year-to-date; and
   ( 4) The total number of loans granted year-to-date.
   (B) Such information must be provided by loan type for each type of loan originated or serviced by the
   (5) For purposes of paragraph (d)(4) of this section, complex or high-risk activities include preapproved
   (i) Credit and lending:
   (A) Business loan origination;
   (B) Consumer mortgage loan origination;
   (C) Loan support services, including servicing;
   (D) Student loan origination; and
   (E) Credit card loan origination.
   (ii) Information technology:
   (A) Electronic transaction services;
   (B) Record retention, security, and disaster recovery services; and
   (C) Payroll processing services.
   (iii) Custody, safekeeping, and investment management services for credit unions.
* * * * *
   5. Revise
   (a) Corporate separateness. A FICU and a
   (1) Its respective business transactions, accounts, and records are not intermingled;
   (2) Each observes the formalities of its separate corporate procedures;
   (3) Each is adequately financed as a separate unit in the light of normal obligations reasonably foreseeable in a business of its size and character;
   (4) Each is held out to the public as a separate enterprise;
   (5) The FICU does not dominate the
   (6) Unless the FICU has guaranteed a loan obtained by the
   (b) Written legal advice. Prior to a FICU investing in a
   6. Remove and reserve
   (a) The NCUA Board may exempt FISCUs in a given state from compliance with any or all of
   (b) To obtain an exemption, the state supervisory authority must submit a copy of the legal authority pursuant to which it secures the information required in
   (c) The state supervisory authority must provide the regional director with an assurance that NCUA examiners will be provided with co-extensive authority and will be allowed direct access to
   (d) The state supervisory authority must also provide the regional director with an assurance that NCUA, upon request, will have access to copies of any financial statements or reports which a
   (e) The regional director will review the applicable authority, procedures and assurances and forward the exemption request, along with the regional director's recommendation, to the
   (f) For purposes of this section, whether an entity is a
   8. Add new
   (a) FCUs investing in a
   (b) FISCUs investing in a
   (1) All applicable state laws and rules regarding CUSOs; and
   (2) All of the requirements of this part that apply to FISCUs, which are listed in
   (c) For purposes of this section, a subsidiary
PART 741--REQUIREMENTS FOR INSURANCE
   9. The authority citation for part 741 continues to read as follows:
   Authority: 12 U.S.C. 1757, 1766, 1781-1790, and 1790d.
   10. Revise
   (a) Any credit union that is insured pursuant to Title II of the Act must adhere to the requirements in SUBSEC 712.2(d)(2)(ii), 712.3(d), 712.4 and 712.11(b) and (c) of this chapter concerning permissible investment limits for less than adequately capitalized credit unions, agreements between credit unions and their credit union service organizations (CUSOs), the requirement to maintain separate corporate identities, and investments and loans to CUSOs investing in other CUSOs. For purposes of this section, a
   (b) This section shall have no preemptive effect with respect to the laws or rules of any state providing for access to
[FR Doc. 2013-28479 Filed 12-2-13;
BILLING CODE 7535-01-P
Copyright: | (c) 2013 Federal Information & News Dispatch, Inc. |
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