ALEXANDRIA, Va. – NCUA has approved a plan by a group of Florida credit unions to create a CUSO that would buy and collect on troubled loans.
The CUSO can restructure loans as part of its collection activity but it may not advance new principal on the loans, the agency said in a new legal opinion posted last week. "The primary restriction for CUSOs servicing nonperforming loans is that they cannot advance new principal, because CUSOs cannot originate consumer loans except for student loans and residential mortgage loans," said the legal opinion.
"Our view is a CUSO that purchases non-performing loans may restructure delinquent debt it owns, so long as the credit union made the original underwriting decision and no new credit is being extended to the borrower," said NCUA. "CUSOs are able to restructure loans by changing terms of the loans, such as the term, payment schedules, or interest rates, but cannot advance new principal."
The proposed CUSO would consolidate a number of back-office functions for the participating credit unions and engage in the purchase and collection of delinquent loans.
NCUA said the purchase of non-performing loans was recognized in a 2005 legal opinion as a permissible part of a CUSO’s debt collection activity. But that legal opinion did not fully address the authority of a CUSO to engage in debt restructuring when it purchases non-performing loans.
