The Evolution Of CUSOs

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There is a subtle but definite shift occurring in credit union service organizations (CUSOs).

Long dominated by lines of business offering insurance and investment services, increasingly CUSOs are being formed to offer services to small and medium-sized businesses. The trend could be seen during the annual meeting hosted here by the National Association of CUSOs (NACUSO).

"There is a transformation away from investments and insurance to business lending," NACUSO Executive Director Bob Dorsa told The Credit Union Journal. "NACUSO still is a trade association and we don't want to abandon 20 years of following investment and insurance products, even though they are going back within credit unions."

Dorsa's reference was to the fact credit unions are looking to transfer services that had been handled by their credit union service organizations (CUSOs) back in-house following the passage of incidental powers. But Dorsa acknowledged many credit unions have been hesitant to take back certain services-such as investment and insurance services- because they have been told for so many years CUSOs must keep the CU's board of directors out of the picture to avoid a number of conflicts, and due to related liabilities and even criticisms from the banking industry.

According to Dorsa, CUSOs of the future are going to become larger, and increasingly will feature shared ownership by several credit unions. Even if they are not needed for investments and insurance, CUSOs remain useful for business lending, broker-dealer services, real estate lending and trust services, he said.

As investment services go back in-house, Dorsa expects better production. He said more members should have awareness of the availability of investment products and services once they are not one layer removed from the CU.

One downside he foresees in CUs directly offering investment and insurance services to their members is a greater vulnerability to attacks by the bankers. "They are always looking for anything about credit unions to criticize, so if we sell these services in a big way, it will trigger complaints."

Dorsa said he believes CUSOs will remain an important option for smaller credit unions that don't have the staff to offer specific services. For example, Dorsa said five to 10 smaller CUs might form a CUSO that will enable all of them to offer real estate lending.

The transition will not be completely smooth, he warned. There are personnel and compensation issues to be dealt with, and, for state-chartered CUs, issues related to unrelated business income tax (UBIT) might create problems.

"Business services are so different from anything credit unions do. It is not just lending," he said. "It is difficult to think a credit union could house business services in the credit union without creating complete upheaval. Any time there is a chance for large numbers of transactions with non-members, a CUSO still is the way to go."

Dorsa said he hopes CUs will "reconfigure themselves" to really use the powers they have at their disposal to go out and bring in new members.

"We can have the best products in the world, but they are useless if people don't use them," he said. "We need to expand our reach to all groups. The fact 75% of Americans are not members is scary to me. What is it going to take to get people to join?"

Dorsa said he wants CUs to do all of these things while maintaining the cooperative spirit and "not ending up looking like a community bank."

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