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CUSO Legal Update - Reporting Requirements

Thu, Jun 25, 2015

Norfolk, Virginia

As you are aware, on November 21, 2013, the NCUA Board implemented changes to the regulations governing federally insured credit unions' obligations when involved with a credit union service organization (“CUSO”).  The final rule requires action by both federally insured credit unions and CUSOs. For a complete guide to those changes, please see Kaufman & Canoles' previous CUSO Legal Update. A CUSO’s obligation to report certain information to the NCUA, however, had a delayed effective date to permit the NCUA to develop the reporting system. The NCUA’s system is expected to be fully operational by December 31, 2015, at which time CUSOs must begin submitting reports annually. The NCUA believes, as stated in the final rule, that obtaining information directly from CUSOs will permit the NCUA to adequately evaluate the relationships between credit unions and CUSOs, as well as any risk posed by these relationships.

The reporting requirements are straight forward for CUSOs that do not participate in complex or high-risk activities, as defined in the regulation. If your CUSO participates in these complex activities, however, the reporting requirements are more comprehensive. The following summarizes the reporting requirements to assist CUSOs in preparation of reporting by December 31.

Section 712.3(d) of Title 12 of the Code of Federal Regulations outlines the reporting requirements of all CUSOs. Each CUSO must submit a report annually and all newly formed CUSOs must submit a report within sixty (60) days of formation. All CUSOs must submit basic registration information to include, as applicable:

  1. CUSO’s legal name;
  2. Tax identification number;
  3. Address;
  4. Telephone number;
  5. Website;
  6. Primary contact person;
  7. Services offered;
  8. Names(s) and charter(s) of credit union(s) investing in, lending to, or receiving services from the CUSO; and
  9. Investor or subsidiary CUSO(s).

CUSOs that are engaged in complex or high-risk activities must include additional information in the annual report. Activities that are considered complex or high-risk include credit and lending services (e.g., business loan origination, consumer loan origination, loan support services), information technology (e.g., electronic transaction services, record retention, and disaster recovery services), and custody, safekeeping, and investment management services for credit unions. If a CUSO engages in any of these activities, the annual report must include:

  1. A list of services provided to each federally insured credit union;
  2. Your most recent year-end audited financial statements; and
  3. The investment or loan amount and level of activity of each credit union.

In addition to the above requirements, CUSOs that offer credit and lending services must provide supplemental data. This includes: (i) total dollar amount of loans outstanding, (ii) total number of loans outstanding, (iii) total dollar amount of loans granted year-to-date, and (iv) total number of loans granted year–to-date. This information must be provided by loan type for each type of loan serviced or originated by the CUSO.

Be on the lookout for notice from the NCUA once the registry is ready to use. The NCUA will provide notice on its availability and training on how to use the system. This system will allow CUSOs to directly report all of the required information directly to the NCUA. Based on the draft form provided in the final rule, the completion of the report should not be too onerous so long as CUSOs are prepared with the proper information outlined above.

The K&C Credit Union Team serves as general counsel to credit unions, large and small, regularly advising clients on consumer compliance issues, NCUA requirements, and the rules governing credit union service organizations. For more information about our team, view our client testimonial video on Kaufman & Canoles YouTube channel or visit www.kaufcan.com.      

For the Kaufman & Canoles initial analysis and commentary, please see CUSO Legal Update HERE.