[Federal Register Volume 86, Number 205 (Wednesday, October 27, 2021)]
[Rules and Regulations]
[Pages 59289-59302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23322]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 712

RIN 3133-AE95


Credit Union Service Organizations (CUSOs)

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is issuing a final rule that amends the 
NCUA's credit union service organization (CUSO) regulation. The final 
rule accomplishes two objectives: expanding the list of permissible 
activities and services for CUSOs to include the origination of any 
type of loan that a Federal credit union (FCU) may originate; and 
granting the Board additional flexibility to approve permissible 
activities and services.

DATES: This final rule is effective November 26, 2021.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Office of General 
Counsel, (703) 518-6540; or by mail at National Credit Union 
Administration, 1775 Duke Street, Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION:

I. Introduction

Legal Authority and Background

    The Board is issuing this rule pursuant to its authority under the 
Federal Credit Union Act (FCU Act).\1\ Under the FCU Act, the NCUA is 
the chartering and supervisory authority for FCUs and the federal 
supervisory authority for federally insured credit unions (FICUs). The 
FCU Act grants the NCUA a broad mandate to issue regulations governing 
both FCUs and FICUs. Section 120 of the FCU Act is a general grant of 
regulatory authority and authorizes the Board to prescribe regulations 
for the administration of the FCU Act.\2\ Section 209 of the FCU Act is 
a plenary grant of regulatory authority to the NCUA to issue 
regulations necessary or appropriate to carry out its role as share 
insurer for all FICUs.\3\ Accordingly, the FCU Act grants the Board 
broad rulemaking authority to ensure that the credit union industry and 
the National Credit Union Share Insurance Fund (NCUSIF) remain safe and 
sound.
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    \1\ 12 U.S.C. 1751 et seq.
    \2\ 12 U.S.C. 1766(a).
    \3\ 12 U.S.C. 1789.
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    Under the FCU Act, FCUs have the authority to lend up to one 
percent of their paid-in and unimpaired capital and surplus, and to 
invest an equivalent amount, in CUSOs.\4\ The NCUA regulates FCUs' 
lending to, and investment in, CUSOs in part 712 of its regulations 
(CUSO rule).\5\ In general, a CUSO is an organization: (1) In which a 
FICU has an ownership interest or to which a FICU has extended a loan; 
(2) is engaged primarily in providing products and services to credit 
unions, their membership, or the membership of credit unions 
contracting with the CUSO; and (3) whose business relates to the 
routine daily operations of the credit unions it serves.\6\ The CUSO 
rule provides a list of preapproved activities and services related to 
the routine daily operations of credit unions.\7\
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    \4\ 12 U.S.C. 1757.
    \5\ 12 CFR part 712. All sections of part 712 apply to FCUs. 
Sections 712.2(d)(2)(ii), 712.3(d), 712.4, and 712.11(b) and (c) 
apply to federally insured, state-chartered credit unions (FISCUs), 
as provided in Sec.  741.222 of the chapter. FISCUs must follow the 
law in the state in which they are chartered with respect to the 
sections in part 712 that only apply to FCUs. Corporate credit union 
CUSOs are subject to part 704. Any amendments to part 704 would 
occur through a separate rulemaking and are not included in this 
final rule.
    \6\ See 12 CFR 712.1(d), 712.3(b), and 712.5.
    \7\ 12 CFR 712.5.
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    The list of preapproved activities and services in the CUSO rule 
has not been substantively revised since 2008.\8\ The 2008 final rule 
added two new categories of permissible CUSO activities: (1) Credit 
card loan origination and (2) payroll processing services. The 2008 
final rule also added new examples of permissible CUSO activities and 
clarified that FCUs may invest in, and loan to, CUSOs that buy and sell 
participations in loans they are authorized to originate. In the 2008 
final rule, commenters requested that FCUs be permitted to lend to or 
invest in CUSOs involved in broader types of lending; specifically, car 
loans, including direct lending and the purchase of retail installment 
sales contracts from vehicle dealerships, and payday lending. The NCUA, 
however, declined to provide such authority at that time.\9\
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    \8\ 73 FR 79307 (Dec. 29, 2008).
    \9\ The NCUA's rationale for not extending CUSO lending 
authority more broadly is discussed in detail in Section III, Final 
Rule.
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II. Proposed Rule

    At its January 14, 2021 meeting, the Board issued the proposed rule 
to amend the NCUA's CUSO regulation.\10\ The proposed rule would 
accomplish two objectives: Expanding the list of permissible activities 
and services for CUSOs that FCUs may lend to or invest in to include 
origination of any type of loan that an FCU may originate; and granting 
the Board additional flexibility to approve permissible activities and 
services. The NCUA also sought comment on broadening general FCU 
investment authority in CUSOs based on the FCU Act's provision that 
authorizes FCUs to invest in organizations providing services 
associated with the routine operations of credit unions, which is 
codified in a separate provision from the authority for FCUs to lend to 
``credit union organizations.'' The proposed rule provided for a 30-day 
comment period that closed on March 29, 2021. To allow interested 
persons more time to consider and submit comments, the Board extended 
the comment period for an additional 30 days. The extended comment 
period closed on April 30, 2021.\11\
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    \10\ 86 FR 11645 (Feb. 26, 2001).
    \11\ 86 FR 16679 (Mar. 31, 2021).
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    The Board received over 1,000 comments on the proposed rule. 
Comments were received from credit unions, both state and federal, 
CUSOs, credit union leagues and trade associations, banking trade 
organizations, individuals, consumer organizations, and an association 
of state credit union supervisors. In general, consumer organizations, 
banking trade organizations, and individuals who participated in a form 
letter writing campaign were opposed to the proposed rule. Credit 
unions were not unanimous, with some credit unions supporting the rule 
and others opposing it. CUSOs, credit union leagues, and trade 
organizations were generally in favor of the proposed rule.

III. Final Rule

    The final rule adopts the proposed rule without any substantive 
change. Under the final rule, therefore, CUSOs are permitted to 
originate any type of

[[Page 59290]]

loan that an FCU may originate and grants the Board additional 
flexibility to approve permissible CUSO activities and services outside 
of notice and comment rulemaking.\12\ The final rule and a discussion 
of the Board's responses to the comments are discussed in detail 
subsequently. First, however, the Board explains the general principles 
and approach it has taken to examine and reconcile the competing 
viewpoints of commenters as well as past statements by the NCUA and 
individual Board Members on risks relating to CUSO activity.
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    \12\ Originate means to fund or make loans. This is separate 
from the already permissible activity for FCUs to lend to or invest 
in CUSOs that engage in loan support services that include loan 
processing and servicing under Sec.  712.5(j).
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    As detailed in response to commenters' different points, which are 
grouped by subject matter in the following sections, the Board has re-
examined several key statutory and policy principles to engage in a 
thorough, balanced review of the comments. These points include the 
following:
    1. The Board's views regarding safety and soundness and risk to the 
NCUSIF. On this critical issue, the Board has considered key reference 
points, including the statutory definition of a ``material loss'' to 
the NCUSIF and requirements for NCUA insurance of member accounts. 
These authorities do not define all losses as material or involving 
undue risk to the NCUSIF. This preamble elaborates on these reference 
points in considering the degree of risk the rule may pose.
    2. The need to balance predicted risks against predicted benefits. 
Many commenters opposing the proposed rule made, for the most part, 
generalized predictions of harm to the NCUSIF, to consumers, or to the 
reputation of credit unions. While the Board recognizes the need to 
consider these concerns, it also finds that they do not account for the 
potential benefits that the regulatory changes may bring to FCUs by 
enhancing efficiency and supporting innovation, and to consumers by 
expanding lending options and access through credit union-affiliated 
lenders. The Board also finds this expansion in FCU authority 
appropriate for parity purposes because the Board currently does not 
restrict the activity of CUSOs in which only FISCUs lend or invest.
    3. Some of the policy concerns invoked by commenters, as well as 
the Board at times in the past, have been both qualified and 
conditional. Most notably, some commenters and the Board in past CUSO 
rulemakings have considered the potential for FCUs lending to or 
investing in CUSOs with expanded authorities to dilute the FCU common 
bond and introduce more competition to small credit unions. The Board 
continues to recognize that these issues raise concerns for some 
parties, but has found that neither rests on clear statutory authority 
in the FCU Act. That is to say, nothing in the FCU Act binds CUSOs to 
FCU field of membership common bond provisions, and the Board itself 
has invoked this concern only conditionally in past rulemakings, 
allowing it to yield to the needs of credit unions to avail themselves 
of expanded CUSO lending activity. Further, the FCU Act does not 
require a CUSO to serve credit unions and members exclusively, but 
rather primarily, which balances a focus on credit union members while 
expressly authorizing CUSOs to serve others. Similarly, the Board does 
not believe it is prudent to allow concerns over legitimate competition 
in the marketplace to restrain regulatory changes that may benefit many 
credit unions and the system as a whole. Accordingly, to the extent 
these factors are appropriate regulatory considerations, the Board 
believes they must yield to the benefits of expanded FCU authority 
about CUSO activity and other factors.
    4. Application of the Board's judgment to reconcile differing 
viewpoints. Commenters opposing the rule raised several concerns, and 
in a few cases, cited past examples or incidents. But the Board does 
not believe that commenters opposing the rule provided substantial 
evidence to support their predictions that adopting the proposed rule 
would result in various harm. Commenters supporting the rule provided 
reasons they believe the rule would be beneficial. In considering these 
competing viewpoints, the vast majority of which are general policy 
views, the Board has applied its own judgment to make the best 
conclusions it can about the potential benefits and risks of the 
proposed rule. Throughout this review, the Board has concluded that 
limiting expansion and innovation indefinitely based only on 
generalized concerns would result in regulatory stagnation, which may 
harm the credit union system in the long term.
    After considering the mixed viewpoints, the Board has determined 
that the overall weight of the factors in the record favor moving 
forward to enhance opportunities for FCUs CUSOs to engage in all types 
of lending permitted for FCUs.

Expansion of Permissible FCU Lending and Investment in CUSOs Engaged in 
Lending Activity

    The Board has reconsidered its 2008 position on permitting FCUs to 
invest in or lend to CUSOs that engage in all types of lending. The 
Board now believes that permitting FCUs to invest in or lend to CUSOs 
that originate any type of loan that an FCU may originate may better 
enable FCUs to compete effectively in today's marketplace and better 
serve their members.
    As discussed in the preceding section, the FCU Act permits an FCU 
to lend to or invest in a CUSO that provides services associated with 
the routine and daily operations of credit unions. The NCUA has 
interpreted this statutory authority broadly to permit an FCU to lend 
to, and invest in, a CUSO that does most of the same activities and 
services permissible for an FCU.\13\ To date, however, FCUs have not 
been permitted to invest in, or lend to, CUSOs that originate certain 
kinds of loans.\14\
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    \13\ 12 CFR 712.5.
    \14\ See, 62 FR 11779 (Mar. 13, 1997).
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    As discussed in the proposed rule, the NCUA historically has been 
reluctant to grant FCUs authority to invest in or lend to CUSOs with 
broad lending authority. First, the NCUA has been hesitant because 
CUSOs may serve those who are not members of a member credit union. The 
NCUA has been concerned about FCUs benefiting from CUSO profits 
generated from non-members.\15\ Second, the NCUA has also expressed 
concern that if member loans were being made by CUSOs, the NCUA would 
have a duty to examine such loans and that would necessitate greater 
NCUA examination authority over CUSOs.\16\ Finally, the NCUA has also 
had concerns that permitting CUSOs to engage in a core credit union 
function could negatively affect affiliated credit union services.\17\
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    \15\ Id.
    \16\ Id.
    \17\ 68 FR 16450 (Apr. 4, 2003).
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    Due to these concerns, the NCUA has previously found compelling 
justification for permitting FCUs to invest in or lend to CUSOs engaged 
in only four types of loans: (1) Business; (2) consumer mortgage; (3) 
student; and (4) credit cards.\18\ In permitting these types of 
lending, the NCUA has considered factors specific to each type of 
lending, such as whether these activities require specialized staff or 
economies of scale, and, as discussed subsequently, whether loan 
aggregation

[[Page 59291]]

was prevalent in the marketplace for the particular type of lending.
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    \18\ Id. See also, 73 FR 79307 (Dec. 29, 2008).
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    Upon reexamination, the Board now believes it is appropriate to 
permit FCUs to invest in, or lend to, CUSOs that engage in all types of 
lending permitted for FCUs. As discussed previously, the Board received 
extensive comments on the proposed rule. The commenters, including 
credit union commenters, were split on whether permitting CUSOs to 
originate any loan that an FCU can originate would be ultimately 
beneficial to credit unions, particularly small credit unions, or 
detrimental to the long-run interests of credit unions. Comments are 
discussed in detail in the following paragraphs.
Safety and Soundness
    Some commenters who supported the proposed rule generally stated 
that the rule would not cause safety and soundness concerns and that 
the current CUSO regulatory framework sufficiently protects FCUs and 
the NCUSIF. Commenters pointed to several existing authorities to 
manage the potential risk from CUSO lending. First, commenters noted 
that under the current regulation, the NCUA may at any time, based upon 
supervisory, legal, or safety and soundness reasons, limit any CUSO 
activities or services, or refuse to permit any CUSO activities or 
services. Commenters further stated that the NCUA can exert pressure on 
FCUs if CUSOs engaged in unsafe or unsound behavior. Second, an FCU may 
invest in, loan to, and/or contract with only those CUSOs that are 
sufficiently bonded or insured for their specific operations and 
engaged in preapproved activities and services. Third, FCUs are bound 
by an aggregate limit of loans and investments in CUSOs to two percent 
of paid-in and unimpaired capital and surplus. Fourth, FCUs (as well as 
FISCUs) are required to include provisions in contracts with CUSOs in 
which they lend or invest to give the NCUA complete access to any books 
and records of the CUSO and the ability to review the CUSO's internal 
controls. Finally, other commenters noted that CUSOs are subject to 
state lending laws and federal consumer protection laws. In addition, 
some CUSOs may be subject to supervision at the state level by way of 
state licensing requirements or third-party oversight authority.
    Some commenters discussed that CUSOs currently have extensive 
lending authority and there have not been any extraordinary losses.
    A few commenters also discussed that the bigger safety and 
soundness risk may arise from not adopting the proposed rule as it 
permits FCUs to remain competitive and build capital. Commenters also 
discussed that FCUs could be subject to reputational harm if they 
cannot provide members the necessary services.
    In response to a question in the proposed rule about potential 
safety and soundness conditions, one commenter urged caution on the 
potential to apply risk retention requirements to participation loans 
originated by wholly owned CUSOs. The commenter stated that, since the 
balance sheets of the CUSO and its parent are consolidated, the 
participation becomes effectively nonexistent, so a risk retention 
requirement becomes unnecessary.\19\
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    \19\ Note that a CUSO's balance sheet would be consolidated with 
a credit union's if required by applicable accounting principles. 
Generally, the NCUA requires credit unions to consolidate a CUSO's 
balance sheet with the credit union's when the credit union wholly 
owns or owns a controlling interest in the CUSO. See NCUA Call 
Report Form 5300 Instructions, Statement of Financial Condition, at 
2, effective Sept. 2021, available at https://www.ncua.gov/files/publications/regulations/call-report-instructions-september-2021.pdf.
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    In contrast, some of the commenters who opposed the proposed rule 
believed that the proposal would have substantial unintended 
consequences and affect the safety and soundness of FCUs and the 
NCUSIF. Commenters primarily focused on the NCUA's lack of examination 
or oversight authority and the systemic risk that arises from a few 
CUSOs providing services to a large portion of credit unions.
    Commenters generally discussed that the NCUA has no examination or 
oversight authority over CUSOs. One commenter noted that several 
federal agencies, including the Government Accountability Office and 
the Financial Stability Oversight Council, have recommended that the 
NCUA be given supervisory oversight of CUSOs and that the Chairs of 
every NCUA Board over the past decade, as well as the NCUA's Inspector 
General, have called for vendor authority. These commenters believed 
expanding CUSO lending authority at the same time the NCUA has 
acknowledged an existing risk related to CUSOs would exacerbate the 
current problems that arise from the inability to supervise CUSOs. One 
commenter questioned why the NCUA would propose providing CUSOs with 
all the powers of FCUs, but with none of the commensurate prudential 
supervision or consumer safeguards to mitigate the risk. One commenter 
recommended a hybrid approach that would enable the NCUA to review a 
CUSO's loan origination activities, but not permit a complete NCUA 
examination.
    The Board does not believe that the limited expansion of FCUs' 
ability to lend to, or invest in, CUSOs engaged in lending permissible 
for an FCU contradicts its long-stated need for additional examination 
and enforcement authority of CUSOs and other third-party vendors.\20\ 
It is the Board's continuing policy to seek third-party vendor 
authority for the agency from Congress. The Board does not believe this 
rule undermines its request for such authority as the rule provides 
only a modest expansion of FCU authority to lend to, and invest in, 
CUSOs and results in only an incremental amount of additional risk to 
the NCUSIF.
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    \20\ The Board also notes that its request for third-party 
vendor authority is more expansive than examination and enforcement 
authority over CUSOs. The term third-party vendors include any 
third-party service provider regardless of credit union ownership, a 
larger category of institutions than just CUSOs. The NCUA currently 
has very limited oversight of non-CUSO third-party vendors.
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    The Board also believes there are several factors that may mitigate 
the risk to the NCUSIF, though the Board acknowledges that despite 
these mitigating factors CUSOs have caused more than $500 million in 
losses to FICUs since 2008. First, as commenters in favor of the rule 
discussed, even though the NCUA does not have examination or 
enforcement authority over CUSOs, FCUs only have the authority to lend 
up to one percent of their paid-in and unimpaired capital and surplus, 
and to invest an equivalent amount, in total to CUSOs. These investment 
and lending limits mitigate risk to the NCUSIF. Additionally, Sec.  
712.3(d) requires all FICUs that obtain an ownership interest in a CUSO 
to ensure by contract that the NCUA has access to the CUSO's books and 
records and other information and reports. CUSOs are also subject to 
state lending laws and federal consumer protection laws. These and the 
other regulatory requirements discussed above mitigate the potential 
risk to the NCUSIF due to the modest expansion of FCU authority to lend 
to and invest in CUSOs engaged in all lending activities.
    The Board also notes that it has broad investigative subpoena 
authority that agency staff can use to obtain records and testimony in 
certain extraordinary circumstances.\21\ This broad authority is not 
limited to credit unions and may permit NCUA staff to obtain 
information from third parties in connection with the agency's 
examinations of credit unions.\22\ The Board does not currently

[[Page 59292]]

use this authority broadly to obtain information from CUSOs, but the 
Board could potentially instruct NCUA staff to employ these oversight 
tools to their full potential to guard against risks to the NCUSIF 
associated with CUSO activity in the absence of direct statutory 
examination and enforcement authority over CUSOs.
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    \21\ 12 U.S.C 1784(a), 1786(p).
    \22\ 12 U.S.C. 1784(a); see United States v. Inst. for Coll. 
Access & Success, 27 F. Supp. 3d 106, 112 (D.D.C. 2014) (an agency 
Inspector General's administrative subpoena to third party in an 
investigation was enforceable even though third party was not an 
entity subject to agency's regulatory jurisdiction).
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    Further, regarding its enforcement authority, the Board also notes 
that it may have statutory enforcement authority in certain cases over 
CUSOs that commit misconduct. Specifically, an insured credit union's 
independent contractor may be subject to the Board's enforcement powers 
under the FCU Act if it knowingly or recklessly participates in certain 
violations that cause or are likely to cause more than a minimal 
financial loss to, or a significant adverse effect on, the insured 
credit union.\23\ Thus, the Board may have greater power in certain 
circumstances than opposing commenters acknowledge.
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    \23\ 12 U.S.C. 1786(r).
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    The Board also believes that the risk to the NCUSIF is mitigated 
because in its experience most CUSO loans are sold to credit unions, 
which are subject to NCUA enforcement and examination authority. In 
addition, the Board also believes that the additional risk is mitigated 
because most CUSOs are wholly owned by the parent credit union (as of 
the end of 2020, for instance, approximately 72 percent of natural 
person CUSOs were wholly owned by credit unions),\24\ which provides 
the NCUA additional leverage if a CUSO is engaging in unsafe or unsound 
lending practices. In both situations, the NCUA would likely have 
additional insight into the risk of the CUSO's lending. The Board 
acknowledges, however, that there may be gaps in its jurisdiction for 
certain CUSOs that may retain its loans, sell them to third parties, or 
are not wholly owned by credit unions.\25\ It is the Board's belief 
that this risk is limited and is outweighed by the potential benefits 
of the final rule.
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    \24\ CUSOs at a Glance (2020), available at https://www.ncua.gov/analysis/cuso-economic-data/cusos-glance.
    \25\ The Board notes that such risk is already present in the 
credit union system as the NCUA insures FISCUs that may be subject 
to substantially less restrictive CUSO requirements. For example, 
many states do not restrict, or have higher limits for, FISCU 
investments in CUSOs.
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    As some commenters supporting the proposed rule observed, the 
expanding lending authority may be beneficial to FCUs by enhancing 
their competitiveness and ability to generate capital. Increased credit 
union capital would strengthen the NCUSIF by reducing the potential for 
losses due to credit union failures. The Board believes that the 
potential benefits of the expanded authority for FCUs to lend to or 
invest in CUSOs engaged in all lending activities may outweigh the 
potential costs of the rule including additional risk to the NCUSIF, 
decreased credit union lending due to increased competition, and 
increased consolidation, particularly among smaller credit unions. In 
any event, the Board considers the potential benefit to credit unions 
and the NCUSIF to be at least a partial mitigating factor against the 
potential incremental risks.
    Other commenters expressed concerns about systemic risk. For 
example, one commenter quoted former NCUA Board Chair Mark McWatters to 
highlight how CUSOs contribute to systemic risk: ``Since 2008, CUSOs 
have caused more than $500 million in losses to federally insured 
credit unions, and they have contributed to the failure of 11 credit 
unions . . . more than half of the NCUA's institutions hold less than 
$33 million in assets and average approximately three to four full-time 
employees per institution. These institutions are heavily dependent on 
third-party outsourced services and do not possess the resources to 
independently perform full due diligence on all of their critical 
services providers.'' Another commenter stated that a large CUSO 
operating as a loan originator and selling participations or whole 
loans could produce systemic risks within the industry as evidenced by 
prior events caused by single originators, a concentrated group of 
originators, or by overconcentration within a sector.
    As discussed in its responses to other comments in the preceding 
section, the Board has considered the potential benefits and risks of 
FCUs lending to or investing in CUSOs engaged in broader types of 
lending. The Board recognizes that several present and prior Board 
Members, the Inspector General, and other government bodies have found 
that the NCUA needs statutory enforcement authority over third-party 
vendors, including CUSOs, to manage the associated risks appropriately. 
The NCUA has also documented significant previous losses to the NCUSIF 
that were attributed to CUSOs, particularly between 2008 and 2015.
    The Board, however, does not find it necessary to continue to limit 
FCUs' authority to invest in, or lend to, CUSOs engaged in lending 
activities permissible for FCUs until the FCU Act is amended to add 
enforcement authority over CUSOs. Such a response is disproportionate 
to the modest expansion permitted in this final rule.
    The Board also finds that prior statements about losses to the 
NCUSIF do not support any firm prediction that similar losses will 
occur in the future because of this final rule (or even with a mere 
continuation of the current authorities).\26\ For example, the Board 
considers what has occurred since 2015, as reflected in the Inspector 
General's regular reports. Under the FCU Act, the Inspector General 
must submit a written report to the Board, the Comptroller General of 
the United States, and other parties when the NCUSIF incurs a 
``material loss'' an insured credit union, with material loss defined 
as one exceeding $25 million and 10 percent of total assets of the 
credit union.\27\ These reports must include a description of the 
reasons that the problems of the credit union resulted in a material 
loss to the NCUSIF and recommendations for preventing any such loss in 
the future.\28\ For losses that are not material as defined in this 
section of the FCU Act, the Inspector General must identify losses 
occurring in each 6-month period and report semi-annually to the Board 
and Congress on whether any of those losses warrant an in-depth 
review.\29\ Since 2015, the NCUA's Inspector General has not issued any 
Material Loss Review reports in which CUSO activity was cited as the 
reason, or part of the reason, for the losses. The NCUA also looked at 
the total losses due to CUSOs in failed FICUs from 2015 to June 30, 
2021. The Board found that failed FICUs lost approximately $4 million 
due to CUSOs during this period. And, the NCUSIF lost only an amount 
estimated to be under $1 million due to CUSOs during this period as 
most of the failed FICUs with CUSO-related losses were merged into 
other institutions without substantial loss to the NCUSIF.
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    \26\ The Board also notes that there have been significant 
changes to laws, regulations, and industry practices for loan 
underwriting and credit administration since the 2008 financial 
crisis. Therefore, the Board also believes that the historical 
losses attributed to CUSOs that were discussed in the comments are 
not reflective of the current standards and practices, so the 
referenced historical losses may not necessarily be predictive of 
future losses.
    \27\ 12 U.S.C. 1790d(j)(1), (2).
    \28\ 12 U.S.C. 1790d(j)(1).
    \29\ 12 U.S.C. 1790d(j)(4). This discussion provides only a 
general description of these requirements and the Inspector 
General's duties and activities. More information is available on 
the Inspector General website and in its Semi-Annual Reports to 
Congress.

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[[Page 59293]]

    The Board finds the absence of material CUSO-related losses during 
this period noteworthy; however, the Board acknowledges it excluded 
losses that occurred during the 2008 banking crisis and looked at data 
that occurred during a relatively robust economy. This absence does not 
guarantee that material losses will not occur in the future, but it 
illustrates the uncertainty associated with predictions by some 
commenters. A past pattern of material losses is not, in the Board's 
opinion, sufficient evidence that the pattern will continue.
    In reconciling these competing perspectives, the Board also has 
considered the general principles discussed in the introduction to this 
preamble. Neither the FCU Act nor the NCUA's regulations or policies 
require the agency to ensure all potential losses to the NCUSIF are 
avoided. The FCU Act requires the Board to consider whether a credit 
union applying for insurance of member accounts poses ``undue risk'' to 
the NCUSIF and to deny the application if the financial conditions and 
policies are unsafe and unsound or if the applicant poses undue risk to 
the NCUSIF.\30\ In its regulations in Sec.  741.204(d), the Board has 
further defined ``undue risk'' to the NCUSIF as a condition that 
creates a probability of loss in excess of that normally found in a 
credit union and which indicates a reasonably foreseeable possibility 
of insolvency and a resulting claim against the NCUSIF. Similarly, in 
considering whether a credit union's practices are unsafe and unsound 
for chartering and field of membership purposes, the Board considers 
whether the action or lack of action would result in an ``abnormal risk 
of loss'' to the credit union, its members, or the NCUSIF.\31\
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    \30\ 12 U.S.C. 1781(c).
    \31\ 12 CFR 701, App. B, Glossary.
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    The Board also notes that the ongoing trend of credit union 
consolidation is already increasing systemic risk. On an aggregate 
basis, the total number of credit unions has been cut in half over the 
prior two decades as smaller credit unions have merged or consolidated. 
There were over 5,000 fewer credit unions with less than $1.0 billion 
in total assets in 2020 than there were in 2000. As the number of 
credit unions has declined, loan portfolios have become increasingly 
concentrated within the largest credit unions. Expanding FCUs' 
authority to lend or invest in CUSOs engaged in all lending activities 
may allow smaller credit unions to combine their resources to remain 
more competitive within the changing lending landscape, which could 
result in a reduction of systemic risk.
    Separately, the Board already insures FISCUs that may, depending on 
state law, lend or invest in CUSOs that engage in all lending 
activities. In its role as insurer, the Board finds it would be 
unreasonable to decline to expand FCU authority on a risk basis when it 
currently allows the activity for FISCUs.
    Based on these standards and principles, the Board does not find 
that the expanded FCU authority to lend to or invest in CUSOs engaged 
in all lending activities provided by this rule are likely or more 
likely than not to result in material losses to the NCUSIF or unsafe 
and unsound practices posing an undue risk to the NCUSIF.
    Regarding the concern over concentration risk, the Board believes 
that existing limitations in Sec. Sec.  701.22 and 701.23 on the amount 
of eligible obligations that FCUs may purchase and on the amount of 
loan participations that all federally insured credit unions may 
purchase from a single source will provide significant protection 
against this concern. Additionally, the Board believes there is some 
potential benefit to small credit unions buying loans from CUSOs. In 
such a case, many credit unions may be purchasing loans from the same 
entity leading collectively to enhanced due diligence on the CUSO.
    Commenters also discussed the risk for reputational harm. For 
example, the ownership structure of CUSOs may result in the public's 
linking any aggressive or improper CUSO lending activity with the 
lending activity of FCUs themselves.
    The Board agrees that confusion over the status of CUSOs or 
mistaken belief that they are federally insured and subject to the 
NCUA's full oversight would be problematic. The Board notes that 
certain FCU practices related to the promotion of CUSO services or 
CUSOs with names related to their FCU parents may raise unfair, 
deceptive, or abusive acts or practices issues.\32\ FCUs should pay 
particular attention to their marketing and ensure that members are 
informed and understand the legal significance between FCU-originated 
loans and CUSO-originated loans. For example, FCUs should ensure that 
members clearly understand that the NCUA may have a more limited 
ability to address member complaints related to CUSO-originated loans. 
The Board notes that standardized disclaimers in loan origination 
documentation may be insufficient to address this concern. The Board, 
however, finds that the current regulations, including the prohibition 
on unfair, deceptive, or abusive acts or practices, reasonably guard 
against the concern about member confusion. First, Sec.  712.4(a) 
specifies that an insured credit union must take several steps to 
ensure corporate separateness from a CUSO, including that each is held 
out to the public as separate enterprises. Adherence to this 
requirement, and proper enforcement of it by the NCUA, is likely to 
mitigate much or all of the concern regarding confusion. Second, and 
similarly, the NCUA's advertising regulation in Sec.  740.2 requires, 
among other matters, that an insured credit union using a trade name in 
advertising must use its official name in loan agreements and account 
statements. This requirement may further safeguard against the risk of 
confusing a credit union with an associated CUSO with a similar name 
because the official loan documentation would disclose which entity or 
entities are involved. Each of these provisions on their own, 
therefore, and when considered in concert, may work to address this 
concern.
---------------------------------------------------------------------------

    \32\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Title X, Subtitle C, Sec.  1036; Public Law 111-203 (July 21, 2010).
---------------------------------------------------------------------------

    Commenters also noted that CUSO lending activities are currently 
considered complex or high risk. The Board acknowledges that CUSO 
lending activity has the potential to create material financial risk. 
This is why lending CUSOs are currently subject to additional reporting 
requirements in Sec.  712.3(d). As discussed above, however, the Board 
does not believe this rule represents an undue safety and soundness 
risk; rather, the Board believes it only represents an incremental risk 
to credit unions and the NCUSIF. This relatively modest, incremental 
risk is further mitigated, as discussed above, by the existing 
regulatory and supervisory controls and standards in place.
    Finally, one commenter recommended that loans purchased from a CUSO 
be subject to the same limitations as loans purchased from other credit 
unions and recommended that the NCUA have a process to ensure the 
quality of CUSO loans.
    The Board has considered this recommendation and declines to adopt 
it. First, regarding new limitations on loans, the Board underscores 
that currently, Sec. Sec.  701.22 and 701.23 of the Board's regulations 
restrict loan and loan participation purchases by credit unions. 
Subject to various exceptions, including those provided in the 
temporary COVID rule in effect through

[[Page 59294]]

December 31, 2021,\33\ FCUs may purchase only eligible obligations of 
its members for loans the FCU would itself be empowered to grant.\34\ 
Section 701.22, most of which applies to FISCUs as well as to FCUs, 
restricts the types of loan participations that a credit union may 
purchase to those the credit union is empowered to grant and also 
requires the originating lender, including a CUSO, to retain at least 
five percent of the outstanding balance of the loan through the life of 
the loan (10 percent is required if the originating lender is an 
FCU).\35\
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    \33\ 85 FR 22010 (Apr. 21, 2020); 85 FR 83405 (Dec. 22, 2020).
    \34\ 12 CFR 701.23(b).
    \35\ 12 CFR 701.22(b)(3).
---------------------------------------------------------------------------

    The Board believes that these existing restrictions are sufficient 
to ensure that the loans or loan interests purchased by credit unions 
from CUSOs will have reasonable terms. At the same time, the Board 
acknowledges that CUSOs may originate loans that parties other than 
credit unions purchase. In turn, this would make the restrictions 
discussed in the preceding paragraph inapplicable. This is, however, 
the current situation for loans originated by CUSOs. The commenter who 
recommended this new restriction did not present persuasive evidence 
that this new restriction is necessary and further provided no analysis 
or evidence regarding how the restrictions might hamper CUSO activities 
and thus decrease the value of credit union interests in CUSOs. 
Accordingly, the Board declines to adopt this recommendation.
    Second, regarding the quality of loans, the Board believes that 
credit unions and other parties who purchase CUSO-originated loans can 
perform due diligence and ensure that loans are underwritten and 
documented appropriately. Further, as part of the examination process, 
NCUA examiners can continue to request documentation on credit unions' 
due diligence and other policies and procedures associated with their 
investment, lending, and other interaction with CUSOs. As with the 
recommendation on the terms of loans, the Board finds no persuasive 
evidence or analysis of the benefits and risks of such new oversight 
and declines to adopt the recommendation.
Consumer Protection
    Commenters who supported the rule did not extensively discuss 
consumer protection issues. Several commenters stated that CUSOs would 
likely only issue loans that comply with the NCUA's loan origination 
rules as generally CUSO-originated loans would be sold to the parent 
credit unions. Another commenter stated that the proposed rule would 
expand financial inclusion due to the potential for collaboration to 
develop new technologies. Finally, commenters noted that CUSOs are 
subject to state lending laws and federal consumer protection laws.
    In contrast, commenters who were against the proposed rule 
generally expressed concerns that the proposed rule would create risk 
to consumers. Several commenters expressed concerns that CUSO-
originated loans are not subject to the same restrictions as loans 
originated by FCUs. For instance, the FCU Act limits interest rate, 
maturity, and prepayment terms for FCU-originated loans. Commenters 
were concerned that this rule change would enable an FCU to circumvent 
statutory lending restrictions through a CUSO subsidiary. Commenters 
were especially concerned about abuses because the proposed rule would 
principally allow payday and auto lending, which may be more likely 
targeted towards members in low-to-moderate-income communities and 
underserved areas. Furthermore, several commenters stated that CUSOs 
have been responsible for abusive lending in the past. One commenter 
noted that CUSOs were marketing payday loan products to state-chartered 
credit unions with triple digit interest rates in Texas until 
restrictions were implemented on the state level. One noted a 2010 
National Consumer Law Center report, which documented that over 40 
credit unions were involved with payday lending through CUSOs. This 
prompted the NCUA to issue a letter to credit unions. Another commenter 
stated that the proposal will disproportionately harm communities of 
color and exacerbate financial exclusion, even as the Board elsewhere 
emphasizes racial equity and financial inclusion. Another commenter 
stated that investing in CUSOs that violate the FCU Act usury ceiling 
creates not only reputation risk, but compliance and legal risk as 
loans that exceed the usury cap in the FCU Act should not be considered 
part of the routine operations of credit unions.
    Commenters raised several potential solutions to potential consumer 
harm. One commenter stated that any expansion of CUSO lending activity 
should be limited to loans FCUs are themselves empowered to make. 
Another commenter recommended changes to the Payday Alternative Loans 
(PALs) program if the goal is to encourage more small-dollar lending 
and included ideas on how to increase credit unions' adoption of PALs. 
Another commenter suggested requesting examination findings from the 
Consumer Financial Protection Bureau, which has requisite authority to 
examine CUSOs to determine whether consumer protection laws are being 
followed.
    The Board has considered the comments on this point and finds that 
overall, they provide support for proceeding with adopting the 
regulatory change to CUSO lending authorities as proposed.
    As commenters in support of the expansion of FCU authority with 
respect to loans to and investments in CUSOs engaged in all lending 
activities stated, more collaboration and use of financial services 
technology may positively affect financial inclusion. By authorizing 
more parties to offer an array of consumer loans, the Board may 
increase beneficial competition and expand consumer choice. The Board 
also believes that CUSOs would likely adhere to the statutory and 
regulatory restrictions on loans that FCUs are empowered to grant in 
order to be able to sell these loans to FCUs (though the Board notes 
that the purchasing authority provisions may vary for FISCUs because 
the Board's eligible obligation purchase regulation in Sec.  701.23 
applies to FCUs only) and that CUSOs may not be under the same 
liquidity pressure for auto and payday loans as other types of loans 
currently authorized by the CUSO rule. The Board also notes that it 
recently relaxed some of these protections in light of the COVID-19 
pandemic.\36\ As a whole, however, it is the Board's belief that the 
current authorities governing FCU purchases of loans would likely 
result in a substantial amount of CUSO loans being issued on terms 
equivalent to those in the FCU Act, or what is already permitted for 
FISCUs.
---------------------------------------------------------------------------

    \36\ 85 FR 83405 (Dec. 22, 2020).
---------------------------------------------------------------------------

    The Board is, of course, concerned about the risk of unfavorable 
terms for consumers. As one commenter noted, in 2009, the NCUA Chairman 
issued a letter to all FCUs on consumer lending, including consumer 
protection issues.\37\ The Board has also established two payday 
alternative loans (PALs) programs for FCUs to promote short-term, 
small-dollar loans for FCUs and their members that can serve as an 
alternative to loans with less favorable terms. The Board's concerns 
are partially mitigated, however, by state usury laws and other 
consumer

[[Page 59295]]

protection laws that may be enough to curtail the risk of predatory 
lending by CUSOs. The Board acknowledges, however, that the majority of 
states permit payday lending and therefore state laws only provide some 
mitigation relating to the concern of CUSOs offering loans at excessive 
interest rates.\38\ The Board plans to monitor new practices closely 
and take aggressive action when it can to protect consumers from 
abusive terms that are contrary to law. When the Board lacks direct 
authority, it can partner with other federal agencies, such as the 
CFPB, or state authorities to address any such situations. Ultimately, 
the Board and other parties, in combination, have tools available to 
protect consumers and curb abusive practices.
---------------------------------------------------------------------------

    \37\ Payday Lending, 09-FCU-05, July 2009, available at https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/payday-lending.
    \38\ See the CFPB final rule, Payday, Vehicle Title, and Certain 
High-Cost Installment Loans, 85 FR 44382, 44383 (July 22, 2020).
---------------------------------------------------------------------------

    At the same time, the Board disagrees with commenters who believe 
that the expanded FCU authority to lend to or invest in CUSOs engaged 
in all lending activities would open up a new area of lending above the 
FCU interest rate cap and that such activity is contrary to the FCU 
Act.
    First, the Board finds greater competition in the consumer loan 
market from FCU-owned entities is likely to introduce better consumer 
options and greater choice. If the Board decides to limit innovation 
and expansion out of concern for potential consumer harm, it may 
actually perpetuate a lack of consumer choice and access. Regardless of 
what action the Board takes, other parties will continue to lend in the 
marketplace and may lack the same grounding in the credit union mission 
and industry that would tend to mitigate the risk of abusive lending 
practices. Confronted with this choice, the Board's judgment is that 
CUSOs will be more likely than other lenders to offer only reasonable 
terms to consumers and be held accountable by the NCUA, other federal 
agencies, or state authorities. Second, regarding one commenter's 
opinion about the ``daily operations of credit unions'' not including 
lending above the FCU interest rate ceiling, the Board finds that the 
FCU Act's broad wording should not be read so narrowly. Reading this 
limitation into the phrase would, if applied to other areas of CUSO 
activity, such as trustee and fiduciary activity that is not generally 
within the power of an FCU, limit CUSOs to only those activities that 
FCUs may perform within all limitations of the FCU Act. CUSOs have long 
been permitted to engage in activities that are not specifically bound 
by these limitations. In particular, since originally authorizing CUSOs 
to engage in limited lending activity, the Board has not imposed the 
interest rate ceiling or other restrictions applicable to FCU-made 
loans to CUSO-made loans. The concern, therefore, that some commenters 
raise is not specific to this rulemaking and has long stood as the 
agency's position on CUSO activities, including lending.
    Ultimately, when faced with the choice between limiting or 
proceeding with this expansion of FCU authority to lend to, or invest 
in, CUSOs engaged in all lending activities, the Board finds in its 
judgment that the regulatory changes carry the potential to benefit 
consumers and FCUs through greater choice. At the same time, the Board 
will closely monitor the expanded activity given the importance of 
consumer protection.
    In addition, the Board notes that amending the PALs program is 
beyond the scope of the CUSO rulemaking but will take commenters' input 
on that program into account in any future action on that program.
Innovation
    Some of the commenters who supported the proposed rule generally 
stated that CUSOs enable necessary innovation. Many commenters 
discussed how CUSOs can pool resources for various projects each credit 
union could not afford to embark on individually, especially smaller 
credit unions. With innovation and technology continuously evolving at 
a significant pace, giving FCUs the option to start or partner with a 
CUSO to advance their technology capabilities would help FCUs remain 
competitive as they often lack the resources to build and maintain the 
technology infrastructure. Commenters stated that CUSOs are currently 
helping credit unions survive in the rapidly changing financial 
industry and several credit unions credited CUSOs with assisting them 
in reaching members, including low-to-moderate income members. Many 
commenters mentioned fintechs and that CUSOs are enabling credit unions 
to compete with fintechs and large banking organizations that have the 
resources to develop new technologies. Several commenters stated that 
credit unions must continue to innovate, reduce costs, and generate 
income, especially as traditional sources of income, like net interest 
margins, are no longer sufficient.
    Some of the commenters who were opposed to the proposed rule stated 
that CUSOs are already able to facilitate FCUs' collective investment 
in technology without having their lending powers broadened. CUSOs' 
permissible activities include ``loan support services, including loan 
processing, servicing, and sales,'' which means CUSOs can currently 
play a support role in FCU lending according to one commenter.
    When discussing current CUSO authorities to do indirect lending, 
another commenter stated that small FCUs struggle to engage in indirect 
lending, which requires significant investment and oversight. The 
commenter further stated that managing relationships with dealers and 
monitoring the quality of loans an FCU receives is paramount to the 
success of an indirect lending program. As a result, the indirect 
lending channel is often closed to small FCUs.
    The Board has considered the wide variety of viewpoints on this 
issue. As several commenters noted, broadening the permissible CUSO 
lending categories may foster innovation and partnerships. Conversely, 
some commenters contended that the rule change is not needed for this 
purpose because credit unions already partner effectively with CUSOs to 
develop technology to support FCU lending. The Board views this 
difference of opinion and predictions similarly to how it views other 
general predictions about the risks and benefits of the rule change. 
The Board recognizes that the expanded FCU authority to lend to or 
invest in CUSOs engaged in all lending activities may not result in 
enhanced partnerships and cooperation with CUSOs and other credit 
unions because it is not possible to predict the future of the 
marketplace with certainty. Alternatively, the regulatory changes may 
enhance this collaboration for some credit unions in some type of 
lending but not in all.
    However, the Board in its judgment also finds that expanded areas 
of activity and investment would naturally tend to increase 
collaboration and cooperation. Affording greater opportunities for FCUs 
to lend to and invest in CUSOs engaged in a broader range of lending 
may facilitate more partnerships that position FCUs better to work with 
new entities and technologies in financial services. For this reason, 
the Board continues to find this a good basis to proceed with the 
regulatory changes.\39\
---------------------------------------------------------------------------

    \39\ The Board also notes that innovation and collaboration were 
not the sole basis for the proposed rule. As discussed in the 
preamble to the proposed rule, another basis for the rule was to 
enable FCUs to better serve their members. The Board views the 
various bases in the proposed rule as independently sufficient to 
support the rule. 86 FR 11645, 11646 (Feb. 26, 2001).

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[[Page 59296]]

Credit Union Mission
    Some of the commenters in favor of the proposed rule broadly stated 
that CUSOs enable FCUs to fulfill their mission by enhancing their 
ability to serve members. Several commenters stated there is no 
evidence that the proposed rule would hurt the industry, members, or 
the NCUSIF.
    In contrast, some of the commenters opposed to the proposed rule 
stated that the proposed rule undermines fundamental principles of the 
FCU Act. Principally, in their view, the proposed rule would dilute the 
common bond by permitting lending outside of FCUs' fields of 
membership. These commenters stated that allowing FCUs to directly 
profit from loans that are originated to non-members is contrary to the 
intent of the FCU Act. Many commenters generally stated that the profit 
FCUs would derive from non-members calls into question the rationale 
for the exclusion from federal income taxation.
    The Board finds that concerns about diluting the FCU common bond do 
not warrant modifying or declining to adopt the proposed rule.
    First, the Board does not agree with commenters who believe the FCU 
Act requires consideration of this factor in evaluating proposed CUSO 
activities. The FCU Act's field of membership and common bond 
provisions apply to FCUs, not to CUSOs.\40\ The loan authority for 
CUSOs in the FCU Act specifically defines a ``credit union 
organization'' in part as an organization ``established primarily to 
serve the needs of its member credit unions, and whose business relates 
to the daily operations of the credit unions they serve.'' \41\ Thus, 
the FCU Act does not require that CUSOs be established exclusively to 
serve credit union members or credit unions. Accordingly, any objection 
based on a claim that expanded FCU authority to lend to or invest in 
CUSOs engaged in all lending activities violates the FCU Act is 
unfounded.
---------------------------------------------------------------------------

    \40\ 12 U.S.C. 1759 and the NCUA's Chartering and Field of 
Membership Manual, 12 CFR 701, App. B., set forth common bond 
definitions and requirements for FCUs.
    \41\ 12 U.S.C. 1757(5)(D).
---------------------------------------------------------------------------

    Second, apart from the statutory provisions, in this rulemaking the 
Board has re-examined its prior policy-based concern regarding dilution 
of the common bond through CUSO lending authorities. As the proposed 
rule recounted, historically the Board has been hesitant in granting 
CUSOs authority to make consumer loans because it may be perceived as 
diluting the common bond. In a 1998 final rule in which it granted 
CUSOs authority to make student loans, but not other types of consumer 
loans, the Board elaborated that it limited the expansion because 
Congress and the public may perceive it as a dilution of the common 
bond.\42\ In the same discussion, the Board explained that it would 
grant authority to CUSOs to make student loans because they required 
more specialized staff and experience, whereas general consumer loans 
did not.\43\
---------------------------------------------------------------------------

    \42\ 63 FR 10743, 10752 (Mar. 5, 1998).
    \43\ Id.
---------------------------------------------------------------------------

    The 1998 final rule is, therefore, best read as relying on two 
bases for limited expansion at that time: Perception of dilution of the 
common bond and the need for credit unions to partner with CUSOs for 
certain types of loans. And in that rule, the determination that one 
type of new loan authority would be beneficial to credit unions 
overcame the generalized concern about perceived dilution. In fact, in 
the same final rule, the Board refuted in detail the contention by a 
commenter that CUSOs are subject to the statutory common bond 
requirement,\44\ demonstrating further that the perceived dilution 
concern was not viewed as an absolute or particularly strong 
counterweight to other policy rationales. That is to say, incremental 
expansion of FCU authority about CUSO lending authorities based on the 
Board's judgment and experience have in the past outweighed this 
concern. Based on this re-examination, the Board concludes that the 
concern over perceived dilution of the common bond is relatively weak 
and has not historically been given great weight or decisiveness in 
evaluating the reasons for and against an expansion of FCU authority 
related to this activity.
---------------------------------------------------------------------------

    \44\ Id. at 10745.
---------------------------------------------------------------------------

    Given this background and context for the perceived common bond 
dilution concern, the Board finds that it does not warrant refraining 
from adopting this final rule. The commenters who cited this concern 
provided only generalized predictions or policy arguments that lack 
specific evidence even to predict with any certainty that the 
regulatory changes would appear to dilute the common bond. Other 
commenters predicted that the expanded authority might instead bring 
credit union membership to more people. The Board believes this result 
is at least as likely as one in which the common bond is perceived by 
some subjectively as being diluted. For example, non-credit union 
members who are eligible for membership may decide to join a credit 
union after obtaining a loan from an affiliated CUSO. And in any event, 
a CUSO engaging in this type of lending would still be required to 
primarily serve credit unions, its membership, or the membership of 
credit unions contracting with the CUSO.\45\
---------------------------------------------------------------------------

    \45\ 12 CFR 712.3(b).
---------------------------------------------------------------------------

    Accordingly, based on this re-examination of the perceived dilution 
concern and the limited support offered by commenters opposing the rule 
on this basis, the Board concludes that this concern does not weigh 
against adopting the rule as proposed.
    Another commenter stated that FCUs would profit from loans 
exceeding usury caps in the FCU Act, and this is against the spirit of 
the FCU Act.
    The Board does not find this generalized concern persuasive. 
Currently, CUSOs are not subject to the interest rate ceiling in the 
FCU Act.\46\ This provision applies to loans made by an FCU. By 
regulation, subject to some exceptions, an FCU may not buy a loan it is 
not empowered to grant.\47\ However, the Board recognizes that an FCU 
investing in a CUSO may receive revenue derived from loans the CUSO 
makes but does not sell to an FCU. This is true under the current 
regulation, but the customer base requirement discussed in the 
preceding section tends to limit this effect by requiring that CUSOs 
primarily serve credit unions, CUSO members, and members of credit 
unions contracting with the CUSO. The same requirement will apply to 
CUSOs engaged in new types of consumer loans. For this reason, the 
Board finds this concern lacks sufficient support and weight to warrant 
not adopting the rule as proposed.
---------------------------------------------------------------------------

    \46\ 12 U.S.C. 1757(5)(A)(vi).
    \47\ 12 CFR 701.23(b).
---------------------------------------------------------------------------

Growth or Competition
    Some of the commenters who supported the proposed rule generally 
stated that the CUSOs would not compete with credit unions because 
CUSOs do not have enough liquidity to originate and hold loans. These 
commenters stated that CUSOs will originate loans only as a mechanism 
to secure more loans for their lending partners and will then sell the 
loans to credit unions. Several commenters pointed to credit union loan 
growth in mortgages, student loans, credit cards, and business lending. 
One credit union trade organization acknowledged credit unions and 
CUSOs would likely compete for loans; however, it believed the greater 
threat comes from fintech and banks.
    Several commenters also stated that the proposed rule would help 
FCUs

[[Page 59297]]

because it would result in increased lending opportunities. One of the 
reasons for increased lending discussed was CUSOs' potential to lower 
costs through economies of scale. Several commenters stated that CUSOs 
enable FCUs to share costs, distribute risk, and provide scale. A few 
commenters specifically stated that the proposed rule would enable 
smaller FCUs to continue their lending activities but, instead of 
keeping their lending operations in-house, utilize the services of a 
CUSO to generate loans.
    In contrast, several commenters who opposed the proposed rule 
believed that CUSOs would bring unnecessary competition, particularly 
for smaller credit unions. Some commenters stated that the proposed 
rule could benefit certain, larger FCUs, but it could hurt other, 
smaller credit unions as well-funded CUSOs could capture potentially 
significant market share. One commenter noted that past NCUA Boards 
have been concerned that CUSOs only benefit large credit unions and 
once noted that smaller credit unions have been unable to meet minimum 
eligibility requirements in order to partake of CUSO services. One 
commenter noted there is no evidence FCUs need help with non-complex 
consumer loans or auto loans. Other commenters stated that the proposed 
rule would not result in increased lending and that CUSO-originated 
loans sold to credit unions do not drive credit union loan growth.
    A few other commenters believed that the rule could be anti-
competitive as it may result in additional industry consolidation 
because small credit unions could lose market share.
    The Board has considered the differing viewpoints on this issue and 
determined that this concern does not warrant refraining from adopting 
the rule as proposed. As discussed in the introduction to this 
preamble, the Board has re-examined its historical stance on 
competition as it relates to CUSO activity and small credit unions.
    First, it is not clear that the Board should, as a matter of 
principle, consider shielding credit unions from competition as an 
important consideration in its rulemaking.\48\ Doing so may result in 
stagnation and could produce overall negative results for the credit 
union system and the NCUSIF over time.
---------------------------------------------------------------------------

    \48\ See Fed. Comm'cns Comm'n et al. v. Prometheus Radio Project 
et al., No. 19-1231 (Apr. 1, 2021), Thomas, J., concurring 
(discussing whether the FCC should have considered a non-statutory 
factor in its rulemaking).
---------------------------------------------------------------------------

    Second, the NCUA currently does and will continue to provide 
significant support and flexibility to small credit unions through 
various regulatory and supervisory programs. These efforts recognize 
the challenges that these small credit unions face by reducing 
regulatory burdens. For example, the NCUA has a small credit union 
examination program that streamlines the examination process for small 
FCUs with a record of solid performance.\49\
---------------------------------------------------------------------------

    \49\ See, 12-FCU-03 (2012).
---------------------------------------------------------------------------

    The Board believes the final rule presents an opportunity for all 
credit unions to work collaboratively. It is the Board's belief that 
the final rule has the potential to benefit all credit unions, 
especially smaller credit unions, if they can effectively pool their 
resources to form new technology. The Board also believes the final 
rule would likely be a net benefit to the entire system. The Board 
acknowledges there would likely be additional competition for credit 
unions, particularly certain smaller credit unions, but this rule 
provides additional flexibilities to permit the credit union system to 
offer enhanced lending products. The Board believes that under the 
final rule, credit unions will have an enhanced ability to collaborate 
and create better lending products for their members.
    For each of these reasons on their own, and in their totality, the 
Board finds that it is prudent to proceed with this final rule despite 
this objection.
Types of Loans
    Some of the commenters who favor the rule encouraged the NCUA to 
finalize expansive lending authorities for CUSOs as lending 
opportunities are always evolving. Several commenters stated that there 
are currently companies looking for FCU partners that originate solar, 
renovation, boat, and airplane loans. One commenter expressed concern 
that these types of loans might cause credit unions to focus on loans 
for luxury items to the detriment of low- and moderate-income members.
    The Board has not limited the types of loans a CUSO can originate 
provided that the loans are the type of loan an FCU is able to 
originate. Contrary to the concern of one commenter, the Board does not 
believe that focused CUSO activity would detract from individual credit 
unions' focus on providing financial services to all their members, as 
required by fair lending laws.
Auto Loans and National Lending
    Several commenters who support the proposed rule stated that the 
proposal is necessary for FCUs to remain competitive as lending becomes 
more standardized and consumers move online for more of their financial 
services. Many commenters discussed a recent trend to point of sale 
financing. According to these commenters, consumers are acquiring 
credit at the point of sale, instead of acquiring credit through a 
credit union first. Commenters were particularly concerned about this 
trend for auto loans. These commenters expressed concerns that point of 
sale sellers are not interested in working with credit unions. The 
challenge, according to some commenters, is that a large, nationally 
focused seller is unlikely to secure relationships with thousands of 
individual credit unions. This presents an opportunity for CUSOs to 
help the credit union industry with their collaborative business model. 
Some commenters believed credit unions risk diminishing market share if 
CUSOs are not permitted to contract with national lenders. One CUSO 
commenter stated that CUSOs could easily use a common platform and 
participate out loans to credit unions within the geographic area in 
which members are located.
    A few of the commenters who opposed the rule highlighted the 
established relationships some credit unions have with local dealers. 
These commenters were concerned that national lending CUSOs would 
threaten these existing relationships.
    The Board finds that the comments on this issue generally support 
the regulatory changes. The Board agrees that expanding CUSO lending 
authority to cover auto loans may help credit unions compete at the 
point of sale. Existing data also supports the Board's belief that 
small credit unions are struggling to compete in auto lending and that 
the final rule may support small credit union auto lending efforts. The 
largest 150 credit unions have seen significant expansion of their auto 
lending market share over the prior two decades, while smaller credit 
unions have lost market share almost every year.\50\ The data indicates 
that smaller credit unions are becoming increasingly less competitive 
in the auto lending space.
---------------------------------------------------------------------------

    \50\ The Board notes, however, that during this period, the 
number of credit unions with less than $1 billion in assets also 
decreased by over fifty percent.
---------------------------------------------------------------------------

    The Board also recognizes that, despite the stated intent of the 
proposal, some credit union relationships with local dealers could be 
displaced by this rule, as they equally could be by other market 
forces. As discussed previously in response to concerns regarding 
additional competition for some small

[[Page 59298]]

credit unions, the Board believes it would be inappropriate for the 
Board to attempt to restrain competition. The Board also believes that 
in the long-term, the benefits to the entire credit union system 
through this enhanced authority and competition will exceed costs 
associated with disruption to existing credit union-dealer 
relationships. Indeed, these costs are not certain or inevitable to 
occur.
Impact Analysis
    Several commenters who were opposed to the proposed rule requested 
that the NCUA conduct an independent economic analysis to weigh the 
advantages and disadvantages of the proposal. Other commenters 
recommended an impact analysis specifically to determine the impact on 
small credit unions.
    The Board is aware of the challenges that face small credit unions. 
As discussed previously regarding growth and competition, the Board 
does not believe it is prudent or necessary to adopt rules that prevent 
market-based competition. In response to this specific recommendation 
for an impact study, the Board also notes that the Administrative 
Procedure Act does not require agencies to engage in studies before 
adopting regulatory changes.\51\ The Board also believes an impact 
analysis is unnecessary. The Board believes the final rule will likely 
benefit credit unions. In the Board's experience, CUSOs generally 
benefit credit unions through additional capital and the sale of CUSO-
originated loans to credit unions. For these reasons, the Board will 
proceed with the proposed changes without delaying them further to 
conduct a general impact study. As a separate reason to decline taking 
this step now, the Board observes that the commenters did not provide 
any specific studies of their own that would give the Board empirical 
evidence to support delaying these regulatory changes now.
---------------------------------------------------------------------------

    \51\ Fed. Comm'cns Comm'n et al. v. Prometheus Radio Project et 
al., No. 19-1231 (Apr. 1, 2021), slip op. at 12 (holding that the 
Administrative Procedure Act imposes no general obligation on 
agencies to conduct or commission their own empirical or statistical 
studies).
---------------------------------------------------------------------------

Loan Pools, Aggregation, and Securitization
    A few commenters discussed the issue of securitization and whether 
the proposed rule would facilitate credit union securitizations. A few 
commenters asked for the NCUA to specifically permit CUSOs to aggregate 
credit union loans and issue securities on the secondary market as many 
credit unions do not have the available resources and volume necessary 
to originate the requisite amount of loans to securitize assets on 
their own. The Board will take this comment into consideration for 
future action.
    Another commenter expressed concerns about CUSOs aggregating loans 
for sale to credit unions. The commenter stated that CUSO-generated 
loan pools may increase short-term operational efficiency; however, it 
also transfers the credit risk to smaller credit unions while the 
ancillary income is generated and retained by the CUSO. This commenter 
stated that the low margin and credit risk would be passed to the 
credit union with the higher margin income retained at the CUSO and 
ultimately benefit the largest credit union equity partners of the 
CUSO. This commenter added that historically, when there is market 
disintermediation, risk and credit losses are passed back to the 
passive participants with a disproportionate impact. The Board does not 
believe it is good policymaking to restrict credit union authorities on 
the potential for credit unions to enter unfavorable business deals. 
The Board does not believe that a few examples of unfavorable contracts 
with CUSOs sufficiently justify reducing the flexibilities afforded to 
the credit union system as a whole. Each credit union is responsible 
for its own due diligence prior to purchasing assets and entering into 
a contractual arrangement. Credit unions should exercise business 
judgment before making purchases and entering any contractual 
arrangement, even for counterparties that are part of the credit union 
industry. As part of good governance, credit unions with ownership in a 
CUSO are encouraged to monitor the length of time all loans remain on 
the books of the CUSO.
    Accordingly, for the reasons discussed in the proposed rule and 
this final rule, the final rule is adopting the proposed rule without 
substantive change. Under the final rule, CUSOs are permitted to 
originate, purchase, sell, and hold any type of loan permissible for 
FCUs to originate, purchase, sell, and hold. CUSOs, therefore, could 
originate types of loans previously prohibited by the CUSO rule, 
including general consumer loans, direct auto loans, and unsecured 
loans and lines of credit. CUSOs could also purchase vehicle-secured 
retail installment sales contracts (RICs) from vehicle dealers.
    Under the final rule, CUSO originated loans are not subject to the 
same restrictions as loans originated by FCUs. For example, part 701 of 
the NCUA's regulations imposes conditions on FCU lending relating to 
loan terms such as interest rate, maturity, and prepayment.\52\ These 
restrictions would not apply to CUSO-originated loans because CUSOs, 
even wholly owned CUSOs, are separate entities from FCUs and are not 
subject to direct NCUA supervision. However, an FCU may not purchase a 
loan from a CUSO unless the loan meets the requirements of the NCUA's 
eligible obligations rule.\53\ Similarly, an FCU may not purchase a 
loan participation from a CUSO unless it complies with the NCUA's loan 
participations rule.\54\
---------------------------------------------------------------------------

    \52\ 12 CFR part 701.
    \53\ See, 12 CFR 701.23(b).
    \54\ 12 CFR 701.22.
---------------------------------------------------------------------------

Loan Participations

    Besides specifically permitting CUSOs to engage in consumer 
mortgage, business, and student loan origination, the current CUSO rule 
also permits CUSOs to buy and sell participation interests in such 
loans. The inclusion of this authority to buy and sell participation 
interests in such loans stems from the FCU Act and the NCUA's loan 
participation rule, which classifies a CUSO as a ``credit union 
organization'' authorized to engage in the purchase and sale of loan 
participations.\55\ The NCUA's loan participation rule, however, does 
not permit the sale to FCUs of participation interests in open-end, 
revolving credit.\56\ Therefore, the current CUSO rule only permits 
CUSOs to originate credit card loans, but not the authority to buy and 
sell participation interests in credit card loans. To remain consistent 
with the NCUA's loan participation rule, this final rule grants CUSOs 
the authority to only purchase and sell participation interests that 
are permissible for FCUs to purchase and sell. There were no comments 
specifically objecting to this provision, and the Board adopts it 
without change.
---------------------------------------------------------------------------

    \55\ 12 U.S.C. 1757(5)(E); 12 CFR 701.22(a).
    \56\ 73 FR 79307 (Dec. 29, 2008).
---------------------------------------------------------------------------

CUSO Registry

    Under the current CUSO rule, a FICU must obtain a written agreement 
from a CUSO the FCU loans to or invests in that the CUSO will annually 
submit to the NCUA a report containing basic registration information 
for inclusion in the NCUA's CUSO registry (CUSO Registry).\57\ CUSOs 
that are engaged in complex or high-risk activities have additional 
obligations with respect to the CUSO Registry.\58\ Under the current

[[Page 59299]]

CUSO rule, complex or high-risk activities are defined to include 
credit and lending, including business loan origination, consumer 
mortgage loan origination, loan support services, student loan 
origination, and credit card loan origination.\59\ For consistency, the 
final rule removes the specific subcategories of lending and instead 
refers to all loan originations as complex or high risk. Lending 
activities are considered complex or high risk because they can present 
a high degree of operational or financial risk.\60\ Specifically, FICUs 
making loans to and investments in CUSOs engaged in credit and lending 
activities may be exposed to significant levels of credit, strategic, 
and reputation risks.\61\
---------------------------------------------------------------------------

    \57\ 12 CFR 712.3(d).
    \58\ Id. Complex or high-risk CUSOs must agree to include in 
their report: (1) A list of services provided to certain credit 
unions, and (2) the investment amount, loan amount, or level of 
activity of certain credit unions. Complex or high-risk CUSOs must 
also agree to provide the CUSO's most recent year-end audited 
financial statements to the NCUA. CUSOs engaged in credit and 
lending services are also required to report the total dollar amount 
of loans outstanding, the total number of loans outstanding, the 
total dollar amount of loans granted year-to-date, and the total 
number of loans granted year-to-date.
    \59\ 12 CFR 712.3(d)(5)(i).
    \60\ 78 FR 72537 (Dec. 3, 2013).
    \61\ Id.
---------------------------------------------------------------------------

    Commenters also noted that the CUSO Registry requires all CUSOs to 
provide data to the NCUA. Several commenters stated that the current 
reporting requirements are sufficient and the NCUA should not expand 
reporting requirements, as proposed. The Board is not expanding what 
must be reported by CUSOs engaging in complex or high-risk activities, 
but as proposed is incorporating all types of lending in the definition 
of complex or high-risk activities.
    An association of state credit union supervisors expressed concern 
that state CUSOs with authority to engage in all forms of lending would 
be required to report additional information under the proposed rule. 
The organization requested that the NCUA consult with state regulators. 
The Board notes that when it adopted this provision in 2013, it broadly 
described credit and lending activities as complex or high-risk and 
applied this requirement to FICUs.\62\ Further, some FISCU-owned CUSOs 
are reporting the number and dollar amount of their lending activities, 
even if those lending activities are not explicitly listed in Sec.  
712.3(d). The Board, therefore, does not believe the effect of this 
rule on CUSOs in which only FISCUs have an ownership interest 
represents a policy change from that final rule.
---------------------------------------------------------------------------

    \62\ 78 FR 72537, 72542 (Dec. 3, 2013).
---------------------------------------------------------------------------

Expansion of Permissible CUSO Activities to Other Activities as 
Approved by the Board in Writing

    Currently, the list of permissible CUSO activities in Sec.  712.5 
includes many of the core services and activities associated with the 
daily and routine operations of credit unions. The list, however, does 
not provide the Board flexibility to consider additional activities and 
services without engaging in notice and comment rulemaking. In 
contrast, part 704 permits corporate CUSOs to engage in any category of 
activity as approved in writing by the NCUA and published on the NCUA's 
website.\63\ Amending part 712 to be similar to part 704 has the 
potential to reduce regulatory burden by allowing the rule to expand as 
technology shapes the routine and daily operations of credit unions.
---------------------------------------------------------------------------

    \63\ 12 CFR 704.11(d)(3)(ii). Approved activities are listed on 
the NCUA's website at: https://www.ncua.gov/regulation-supervision/corporate-credit-unions/corporate-cuso-activities/approved-corporate-cuso-activities.
---------------------------------------------------------------------------

    Several commenters supported the proposed change to permit the NCUA 
to approve of new activities outside of notice-and-comment rulemaking. 
Commenters mentioned the current authority in part 704 for corporate 
CUSOs. Other commenters generally stated that the proposed process 
would be more efficient and that the advantages outweigh the public 
input received through notice-and-comment rulemaking. One commenter 
stated that the change would allow the Board to be more responsive to 
shifting market dynamics. Another commenter encouraged the NCUA to 
periodically review the list for updates and to post any additional 
activities on its website. A few commenters noted that a technical 
change is necessary in the regulatory text.
    A few commenters who opposed the proposed rule generally discussed 
that enabling the Board to approve new activities without notice-and-
comment rulemaking would eliminate regulatory transparency and 
opportunity for the public to review and comment on newly proposed CUSO 
activities. One banking trade organization stated that the authority to 
approve rules without notice and comment is exacerbated by requiring 
formal rulemaking to revoke or reform the approved activity, but not 
adding the same activity. The commenter stated that this policy places 
a regulatory obstacle to address potentially unsafe and unsound 
activities, or activities that may be harming consumers, members, and 
underserved areas and low-to-moderate income communities. One credit 
union trade organization that supported the rule overall nonetheless 
encouraged the NCUA to do notice-and-comment rulemaking to add approved 
activities and suggested limiting the comment period to thirty days as 
a balance between speed and transparency. Another consumer stated that 
emerging technologies often pose risks to members and other consumers 
that should be evaluated through the public notice and comment process.
    The Board has considered the comments on this issue and is 
finalizing the changes to the approval process as proposed. As 
commenters supporting the change observed, a streamlined process may 
help CUSOs keep pace with innovation. The Board has considered the 
opposing comments and notes that its intent is to use this authority 
only for approving activities that are related to the existing 
authorities in Sec.  712.5. If the Board believes a new authority is 
sufficiently novel, and that notice and comment is advisable or 
required under the Administrative Procedures Act, then the Board would 
use notice and comment rulemaking.
    The Board also believes it is reasonable to add new approved 
activities without issuing the matters for public comment but to 
solicit public comment before removing activities. The Board has had 
this process in place in part 704 for corporate credit unions since 
2011 without any indication that the process is unworkable or leads to 
inadequately considered policy choices. Using notice-and-comment 
procedures when removing an approved activity is sound policy to ensure 
that the Board considers parties' serious reliance interests when 
changing a policy.\64\ While the removal of any given approved activity 
may not rise to the level requiring an in-depth analysis of reliance 
interests before removing it, the general policy of following this 
process will help the Board ensure it conducts this analysis in 
appropriate cases.
---------------------------------------------------------------------------

    \64\ See Dep't of Homeland Sec. v. Regents of the Univ. of 
Calif. et al., 591 U.S. __ (2020), slip. op. at 23 (holding that, 
when an agency changes course, it must recognize that longstanding 
policies may have engendered serious reliance interests that must be 
taken into account).
---------------------------------------------------------------------------

    Second, the Board has considered, but disagrees with, the 
suggestion to use a 30-day comment period when adding new activities as 
a blanket policy. While a 30-day comment period would naturally tend to 
lead to a prompter conclusion than a 60-day comment period, it would 
still generally result in several months or more from the time the 
activity is proposed until it is

[[Page 59300]]

approved by the Board when taking into account the need to review and 
respond to public comments and prepare a final Board action in 
response. The Board, therefore, finds this suggestion would not 
implement the proposal as it was intended. Regarding the commenter's 
transparency concern, the Board notes that it would have discretion to 
take action to add activities in a public forum, such as open Board 
meetings, or alternatively, undertake notice-and-comment proceedings if 
it deems them appropriate or desirable under the circumstances of any 
particular request to approve a new activity.
    Accordingly, under the final rule, the list of permissible 
activities in Sec.  712.5 includes a catchall category for other 
activities as approved in writing by the NCUA and published on the 
NCUA's website. The final rule also provides that once the NCUA has 
approved an activity and published that activity on its website, the 
NCUA would not remove that particular activity from the approved list, 
or make substantial changes to the content or description of that 
approved activity, except through formal rulemaking procedures.

IV. Investment Authority

    An FCU's authority to lend to and invest in a credit union 
organization is provided for in two separate provisions of the FCU Act. 
The NCUA has historically interpreted the lending and investment 
authority under the FCU Act as referring to the same types of 
organizations.\65\ The Board solicited comment about adopting separate 
definitions for the types of organizations that an FCU may invest in or 
lend to, which potentially would expand the types of organizations 
eligible for FCU investment. Several commenters supported the Board's 
decision to reconsider its longstanding interpretation of FCU 
investment and lending authority. Commenters in support of the 
reinterpretation generally discussed the benefit of broadly permitting 
FCUs to invest in financial technology companies. Several commenters 
stated that FCUs can get left out of the development of new financial 
technology because of the requirement to primarily serve members. Some 
commenters stated that additional investment authority would ensure the 
industry has better leverage, control, and influence in the development 
of new technologies. Three commenters provided sample safety and 
soundness conditions that could be applied to these lending 
authorities.
---------------------------------------------------------------------------

    \65\ 12 U.S.C. 1757(5)(D).
---------------------------------------------------------------------------

    One commenter recommended that certain de minimis investments be 
exempt from CUSO requirements. This commenter recommended that the NCUA 
permit FCUs to make a 25 percent investment in CUSOs of FISCUs without 
those CUSOs being subject to part 712. Currently, the preapproved 
activities and most other requirements of part 712 do not apply to 
CUSOs with only FISCU investment. Accordingly, if the only credit 
unions that have an ownership in a CUSO are state-chartered, then the 
CUSO may be able to engage in activities beyond those that are 
preapproved in Sec.  712.5. Thus, any investment in, or loan to, a CUSO 
(which Sec.  712.1 generally describes as ownership interests) from an 
FCU subjects the CUSO to all of part 712's requirements. The 
commenter's suggestion is that some amount of such investment should be 
allowed without invoking those requirements. The Board appreciates this 
recommendation and will take it into consideration when evaluating 
future action on the investment issue. The Board observes, however, 
that any future expansion of FCU investment authority would need to be 
in organizations providing services associated with the routine 
operations of credit unions, which could vary from some types of 
entities in which state-chartered credit unions may invest.
    Another commenter recommended that the proposed interpretation be 
adopted and extended to corporate credit unions.
    In contrast, one banking trade organization stated that expanding 
FCU investment authority in CUSOs would be outside the routine 
operations of credit unions, which are statutorily confined to serving 
their fields of membership. The commenter stated that the NCUA's 
position would exceed the agency's legal authority under the FCU Act.
    The Board will consider these comments in determining whether to 
propose any change to its existing interpretation and regulatory 
definition of a CUSO. The Board notes, however, that it does not find 
persuasive the contention that the possible reinterpretation is 
inconsistent with the FCU Act. As set forth in the preamble to the 
proposed rule, the investment provision of the FCU Act contains 
distinct wording from the loan provision. The preamble discussion in 
the proposed rule discussed the statutory wording and possible 
interpretation in careful detail. The Board, therefore, declines to 
withdraw this portion of the proposed rule, as recommended by the 
commenter, and will consider this issue for potential future action.

V. Other Comments

    The Board also received other comments outside the scope of the 
proposed rule, which are discussed briefly in this section.
    One commenter recommended that where a CUSO is making a loan that 
involves tax credits the CUSO should be permitted to acquire and 
syndicate the tax credits, whether among taxable (non-credit union) 
members of the CUSO and/or third-party investors. The Board will 
consider this issue for potential future action for CUSO investment 
authorities but notes that these authorities have historically been 
narrow.\66\ The NCUA has, however, previously found a CUSO's proposed 
acquisition and sale of tax credits in connection with approved lending 
activity to be permissible.\67\
---------------------------------------------------------------------------

    \66\ See 12 CFR 712.5(r), 712.6.
    \67\ OGC Op. Ltr. 03-0647, FCU and CUSO Participation in New 
Markets Tax Credit Program (July 2003), available at https://www.ncua.gov/regulation-supervision/legal-opinions/2003/federal-credit-union-and-credit-union-service-organization-participation-newmarkets-tax-credits.
---------------------------------------------------------------------------

    One commenter asked that CUSOs be permitted to engage in both debt 
and equity aspects of financing sale-leaseback transactions for credit 
unions, whether those credit unions are members of the CUSO or not. The 
Board will consider this request in connection with future action on 
CUSO authorities.
    One commenter suggested the NCUA offer periodic dialogue sessions 
akin to those recently launched by the Federal Deposit Insurance 
Corporation, and recommended a CUSO compliance guide. The Board will 
consider these suggestions as part of its ongoing supervisory program.

VI. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a final rulemaking, an agency prepare and make 
available for public comment a final regulatory flexibility analysis 
that describes the impact of a rule on small entities (defined for 
purposes of the RFA to include credit unions with assets less than $100 
million).\68\ A regulatory flexibility analysis is not required, 
however, if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities 
and publishes its certification and a short, explanatory statement in 
the Federal Register together with the rule.
---------------------------------------------------------------------------

    \68\ See 80 FR 57512 (Sept. 24, 2015).

---------------------------------------------------------------------------

[[Page 59301]]

    This rule does not have a significant economic impact on a 
substantial number of small entities. The rule imposes no requirement 
or costs on small entities and only expands the list of permissible 
activities for CUSOs. The rule expands the list of activities that are 
considered complex or high risk for purposes of the CUSO Registry, 
however, the Board does not expect the additional reporting 
requirements to entail substantial regulatory burden. Accordingly, the 
NCUA certifies that the final rule does not have a significant economic 
impact on a substantial number of small FICUs.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.) 
requires that the Office of Management and Budget (OMB) approve all 
collections of information by a Federal agency from the public before 
they can be implemented. Respondents are not required to respond to any 
collection of information unless it displays a current, valid OMB 
control number.
    Consistent with the PRA, the information collection requirements 
included in this final rule has been submitted to OMB for approval 
under control number 3133-0149.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. Per 
fundamental federalism principles, the NCUA, an independent regulatory 
agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the 
principles of the Executive order. This rulemaking will not have a 
substantial direct effect on the states, on the connection between the 
National Government and the states, or on the distribution of power and 
responsibilities among the various levels of government. The NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the Executive order.

Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this rule will not affect family well-
being within the meaning of section 654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).\69\
---------------------------------------------------------------------------

    \69\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) generally provides for congressional review of agency 
rules.\70\ A reporting requirement is triggered in instances where the 
NCUA issues a final rule as defined in the Administrative Procedure 
Act.\71\ An agency rule, besides being subject to congressional 
oversight, may also be subject to a delayed effective date if the rule 
is a ``major rule.'' The NCUA does not believe this rule is a ``major 
rule'' within the meaning of the relevant sections of SBREFA. As 
required by SBREFA, the NCUA will submit this final rule to OMB for it 
to determine if the final rule is a ``major rule'' for purposes of 
SBREFA. The NCUA also will file appropriate reports with Congress and 
the Government Accountability Office so this rule may be reviewed.
---------------------------------------------------------------------------

    \70\ 5 U.S.C. 551.
    \71\ Id.
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 712

    Administrative practices and procedure, Credit, Credit unions, 
Insurance, Investments, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on October 21, 
2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons stated in the preamble, the Board amends 12 CFR 
part 712 as follows:

PART 712--CREDIT UNION SERVICE ORGANIZATIONS (CUSOs)

0
1. Amend the authority for part 712 by revising the citation to read as 
follows:

    Authority:  12 U.S.C. 1756, 1757(5)(D) and (7)(I), 1766, 1782, 
1784, 1785, 1786, and 1789(a)(11).


0
2. Amend Sec.  712.3 by revising paragraphs (d)(5)(i), (d)(5)(ii) 
introductory text, and (d)(5)(iii) to read as follows:


Sec.  712.3  What are the characteristics of and what requirements 
apply to CUSOs?

* * * * *
    (d) * * *
    (5) * * *
    (i) Credit and lending:
    (A) Loan support services, including servicing; and
    (B) Loan origination, including originating, purchasing, selling, 
and holding any loan as described in Sec.  712.5(q).
    (ii) Information technology:
* * * * *
    (iii) Custody, safekeeping, and investment management services for 
credit unions.
* * * * *

0
3. Amend Sec.  712.5 as follows:
0
a. Revise paragraph (a) introductory text;
0
b. In paragraph (a)(4), add a semicolon at the end of the paragraph;
0
c. Revise paragraph (b) introductory text;
0
d. In paragraph (b)(11), remove the period and add a semicolon in its 
place;
0
e. Remove paragraphs (c), (d), (n), and (s);
0
f. Redesignate paragraphs (e) through (t) as paragraphs (c) through 
(p);
0
g. Revise newly redesignated paragraphs (c) introductory text, (d) 
introductory text, (e) introductory text, (f) introductory text, (g) 
introductory text, and (h) introductory text;
0
h. In newly redesignated paragraph (h)(3), remove the word ``and'';
0
i. Revise newly redesignated paragraphs (i) introductory text, (j), 
(k), (l), and (m) introductory text;
0
j. In newly redesignated paragraph (m)(3), remove the period and add a 
semicolon in its place;
0
k. Revise newly redesignated paragraph (n);
0
l. In newly redesignated paragraph (o), remove ``CUSO investments in 
non-CUSO service providers:'' and remove the last period and add a 
semicolon in its place;
0
m. In newly redesignated paragraph (p), remove the period and add a 
semicolon in its place; and
0
n. Add new paragraphs (q) and (r).
    The additions read as follows:


Sec.  712.5  What activities and services are preapproved for CUSOs?

* * * * *
    (a) Checking and currency services:
* * * * *
    (b) Clerical, professional and management services:
* * * * *
    (c) Electronic transaction services:
* * * * *
    (d) Financial counseling services:
* * * * *
    (e) Fixed asset services:
* * * * *
    (f) Insurance brokerage or agency:
* * * * *
    (g) Leasing:
* * * * *
    (h) Loan support services:
* * * * *
    (i) Record retention, security and disaster recovery services:
* * * * *
    (j) Securities brokerage services;

[[Page 59302]]

    (k) Shared credit union branch (service center) operations;
    (l) Travel agency services;
    (m) Trust and trust-related services:
* * * * *
    (n) Real estate brokerage services;
* * * * *
    (q) Loan origination, including originating, purchasing, selling, 
and holding any type of loan permissible for Federal credit unions to 
originate, purchase, sell, and hold, including the authority to 
purchase and sell participation interests that are permissible for 
Federal credit unions to purchase and sell; and
    (r) Other categories of activities as approved in writing by the 
NCUA and published on the NCUA's website. Once the NCUA has approved an 
activity and published that activity on its website, the NCUA will not 
remove that particular activity from the approved list or make 
substantial changes to the content or description of that approved 
activity, except through formal rulemaking procedures.

[FR Doc. 2021-23322 Filed 10-26-21; 8:45 am]
BILLING CODE 7535-01-P