Starting a CUSO

How Credit Unions and Entrepreneurs Can Get Started (and Win!) with Credit Union Service Organizations

By Brian Lauer, Messick Lauer & Smith P.C.

More people are turning to member-owned credit unions for their banking needs. But most credit unions can’t provide the wide range of services offered by large global institutions and lack the resources to keep up with evolving technologies. Credit unions must become more flexible to remain vital–and Credit Union Service Organizations can make that happen.

This essential handbook explains the rules, risks, and rewards of forming or joining a CUSO, a working partnership that combines the individual strengths of multiple credit unions and financial technology entrepreneurs. Brian Lauer explores every aspect of this game-changing collaboration, from creation through operation, and the tremendous opportunities it affords credit union management stakeholders and fintech innovators alike.

In a highly competitive banking market, credit unions need to expand their financial horizons. CUSOs offer a bold strategic vision for maximizing efficiency and encouraging innovation to provide credit union members with more options and a higher level of service.

So, You Want to Start a CUSO?

We believe in the 6th cooperative principle: Cooperation among Cooperatives and there’s no better way than to work together using the Credit Union Service Organization model.

What is a CUSO?

A CUSO is an organization that is owned by credit unions in whole or in part that provides permitted financial services and/or operational services primarily to credit unions or members of credit unions.

How are CUSOs structured?

A CUSO must be a limited liability company, corporation or limited partnership. The corporation can be structured as a for-profit or as a non-profit cooperative. The most common form of CUSO is a limited liability company (“LLC”). CUSOs are typically run by boards appointed or elected by the owner credit unions.

Who owns CUSOs?

In order to be called a CUSO, a CUSO must have at least one credit union owner. CUSOs can be wholly owned by one credit union, wholly owned by multiple credit unions, or partially owned by credit unions and non-credit unions.

Who regulates CUSOs?

CUSOs are not regulated by the National Credit Union Administration (“NCUA”).* The Federal Credit Union Act provides the power to federal credit unions to invest and loan to a CUSO but does not give NCUA the power to regulate CUSOs.*

*[Federal credit unions may invest] in the shares, stocks, or obligations of any other organization, providing services which are associated with the routine operations of credit unions, up to 1 per centum of the total paid in and unimpaired capital and surplus of the credit union with the approval of the Board: Provided, however, That such authority does not include the power to acquire control directly or indirectly, of another financial institution, nor invest in shares, stocks or obligations of an insurance company, trade association, liquidity facility or any other similar organization, corporation, or association, except as otherwise expressly provided by this chapter.

What services do CUSOs provide?

CUSOs provide or facilitate financial services to credit union members; e.g., investment and insurance services. CUSOs also provide or facilitate operational services to credit unions; e.g. lending support services, IT services and compliance services. NCUA’s regulation lists the specific services CUSOs may provide.* State chartered credit unions tend to permit the same services and some states have additional permitted services.

Who may a CUSO serve?

CUSOs must primarily serve credit unions or members of credit unions that have a contractual relationship with the CUSO. NCUA’s rules are not specific in how to measure “primarily serves” but by practice it means 51% of the CUSO’s customers must be credit unions or members.

What are the limitations on credit union investments in CUSOs?

Federal credit unions may invest in the aggregate up to 1% of its paid-in and unimpaired capital and surplus in CUSOs. In more understandable terms, it is the shares and undivided earnings of the credit union less reserves. Federal credit unions may loan the same amount in the aggregate. State chartered credit unions often have the same limits but some states allow higher percentage of capital to be invested or loaned to CUSOs.

How many CUSOs exist?

The National Credit Union Administration (“NCUA”)* requires CUSOs to make an information filing annually since 2016. The NCUA’s CUSO Registry as of 2020 has 988 CUSOs registered. Search on the official site.

NACUSO has a data base called the CUSO Analyzer. NACUSO’s CUSO count has more recent data and is available to NACUSO members.

We are also very fortunate to have CU*Answers as a Platinum Partner. Their team created an amazing document: CUSO Formation: A Collection of CUSO Formation Considerations and Techniques.

Guy Messick spent most of his professional career helping credit unions collaborate. He served as NACUSO’s first General Counsel for over 30 years. He was NACUSO’s Liaison with the NCUA where he advocated for a regulatory climate conducive to credit union collaborations. He is honored as a CUSO Pioneer in America’s Credit Union Museum. To pass on the knowledge acquired over his career, Guy wrote a book entitled “Credit Union Collaborations – Lessons Learned” which is available on Amazon. Guy has taken the main points in the book and made five recorded presentations on credit union collaborations which are available on below.Also included below is a presentation on credit unions working with brokers to offer investment and insurance services.

You can also read more about the History of CUSOs and How to Start One document from Messick Lauer & Smith P.C.

Introduction to the Collaboration Series

Part 1 – Why Collaborate

Part 2 – Opportunities in Collaboration

Part 3 – Lessons Learned

Part 4 – Creating the Business Structure

Part 5 – Collaboration Policy

Part 6 – Insurance and Investment Services