Credit union service organizations (CUSOs) have proven to be a material boost to credit unions and their members for more than 50 years. But what exactly makes a CUSO a CUSO? The technical answer is simple: they are a corporate entity that is owned by either federally chartered, federally insured, or state-chartered credit unions. But beyond this simple description, they are much more. CUSOs can save credit unions a great deal of money on service costs, create innovative solutions for the industry and even provide recurring revenue streams for credit unions. They’ve also spurred collaboration and innovation between credit unions all over the country.

Why the ownership model matters

Because CUSOs are owned by credit unions, they focus on and understand the needs, philosophies and practices of credit unions. They are only viable so long as credit unions succeed and prosper. As such, they are run for the benefit of credit unions and by people familiar with the industry. As an added plus, CUSOs can insulate the credit union against risk. So long as the organization is formed and run as a separate entity and the “corporate veil” is kept intact, the credit union’s risk is limited to the amount loaned to or invested in that CUSO.

The nitty gritty

CUSO services vary widely, but are limited under Part 712 of NCUA Regulations, which provides a list of permissible services. As a rule of thumb, if it meets a need of a credit union or a credit union member, it is most likely a permissible service. And an NCUA letter can be acquired that allows you to proceed with a service even if that service is not enumerated in Part 712. Many CUSOs are legal cooperative corporations, although the Limited Liability Corporation (LLC) has recently become much more popular in the industry.

Investment and patronage

CUSO investment and patronage are important concepts to understand. The credit unions that own the CUSO may make an investment in or a loan to that organization, but aggregate investments in and loans for CUSOs by federally chartered credit unions may not exceed 1% of unimpaired capital. Credit unions’ patronage with CUSOs is important. The obvious reasons are that the funds spent on the product or service remain in the industry and help credit unions with their mission of people helping people.

Credit union patronage also has another advantage. Services are usually designed specifically for credit unions by other credit union professionals. The prices are typically lower than you find on the open market and your ability to influence pricing, product or services provided is normally much greater in a CUSO than in other for-profit business models. This way, innovation and efficiencies can be shared with other credit unions across the country.

Starting a CUSO

Finally, starting a CUSO is easy and affordable. I will devote a future article to the reasons to start a CUSO as well as the things to consider as you move through that process, but rest assured that starting one is fairly simple and very affordable. That’s not to say that there will not be ongoing costs that can add up in a hurry (i.e. annual CPA audits), so don’t formalize your new business until it is well thought out and ready to go!

Whether you start your own CUSO or not, I strongly advise you to include at least one in any RFP you perform for a new vendor or service provider. There are a number of services that assist you in finding a CUSO. One I particularly like is the CUSO Analyzer published by NACUSO. (www.nacuso.org). Let’s keep it in the industry and BUY CUSO!


  • Bob Frizzle

    CFO, CU*Answers. Formerly Chief Financial Officer of a credit union in Virginia, Mr. Frizzle has been involved in the credit union industry since 1988. Mr. Frizzle has served as CU*Answers CFO since joining the 100% credit union-owned cooperative Credit Union Service Organization (CUSO) in 1997. Mr. Frizzle also provides accounting and CFO services to numerous national organizations and CUSOs. These include Xtend, Inc., eDOC Innovations, NACUSO, CU Student Choice, CU*NorthWest, and Chatter Yak. He is an active board member for eDOC Innovations.

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