CUSO Investment Relies On ‘Primarily Serves’ Customer Base Test

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ALEXANDRIA, Va. – A federal credit union may buy or invest in an existing insurance agency as a CUSO only if the insurance agency meets NCUA’s “primarily serves” customer base test, that is, the insurance agency primarily serves members of that or any other credit union, NCUA said in a new legal opinion.

“Before making an investment, an FCU must determine whether a CUSO meets the customer base test,” said NCUA. That means that “the CUSO primarily serves credit unions, the FCU’s members, or the members of other credit unions contracting with the CUSO.”

NCUA denied any firm guidelines to meet the “primarily serves” threshold, but said a credit union should consider a number of variables, including the number of affiliated members served, gross or net revenues derived from members, members’ assets under management, the number of policies sold to members, the number of services sold to members, and, the availability or accessibility of services to members.

The CUSO, said NCUA, must meet the customer base requirement at the time an FCU invests in the CUSO and the requirement is ongoing while the FCU maintains an investment in the CUSO.

The credit union’s board, “must vigilantly reassess the customer base requirement on a constant basis,” said NCUA. “To do otherwise would permit a large loophole in the CUSO rule, allowing negligent or unscrupulous CUSOs to ignore the customer base requirements once fully funded from FCUs. This practice could easily lead to safety and soundness problems, and perhaps even threaten the [National Credit Union Share Insurance Fund].”

The legal opinion was provided to Sharon Henderson, a Jacksonville, Fla., lawyer.


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