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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Proposed Rules
Expansion of Permissible CUSO
Activities to Other Activities as Approved by the Board in Writing Currently, the list of permissible CUSO activities in 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 NCUAs website.41 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. Accordingly, under the proposed rule, the list of permissible activities in 712.5 would include a catchall category for other activities as approved in writing by the NCUA and published on the NCUAs website. The proposed rule would also provide 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.

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III. Request for Comment on the Proposed Rule The above proposed changes are consistent with the Boards ongoing efforts to reduce regulatory burden while assuring that FCUs operate in a safe and sound manner. The Board welcomes comment on all aspects of the proposal,42 including, but not limited to, the following questions:
1 Is the term any type of loan sufficiently clear such that FCUs would be able to comply with the proposed rule? Are there any types of loans that FCUs cannot originate that CUSOs currently do originate?
2 Please discuss, and provide supporting information, on the costs of 41 12 CFR 704.11d3ii. Approved activities are listed on the NCUAs website at: https
www.ncua.gov/regulation-supervision/corporatecredit-unions/corporate-cuso-activities/approvedcorporate-cuso-activities.
42 Many FCUs have considerable experience with CUSO lending relationships, therefore the Board is not providing the usual 60-day comment period for this proposal which would relieve a regulatory prohibition on certain forms of CUSO lending. See NCUA Interpretive Ruling and Policy Statement IRPS 872, as amended by IRPS 032 and IRPS
151. 80 FR 57512 Sept. 24, 2015, available at https www.ncua.gov/files/publications/irps/
IRPS1987-2.pdf.

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the development or acquisition, implementation, and maintenance of technology-based lending services.
3 Would the proposed rule enable FCUs to offer additional technologybased lending services that FCUs may be otherwise unable to offer their members?
4 The Board is also considering whether permitting CUSOs to originate additional types of loans would facilitate FCUs access to securitization markets. It may be cost prohibitive for FCUs to securitize loans because securitizations are most cost effective with a large volume of loans. FCUs may also have difficulty aggregating loans to complete a securitization due to restrictions on purchasing loans and market concerns relating to varying underwriting standards. Therefore, the Board solicits comment on whether a CUSO could serve as an aggregator of loans to allow FCUs better access to securitization markets.
5 Does the proposed rule expose FCUs to unnecessary safety and soundness risks? If so, are there steps the Board should consider to mitigate such risks?
a. For example, should the NCUA
gather additional data about CUSO
lending activities? If so, what data?
b. Should the NCUA consider additional constraints on an FCUs ability to purchase and hold loans originated by a CUSO?
c. Should the NCUA consider risk retention requirements for CUSO
lending activities? The Board notes that FCUs that sell loan participations must maintain 10 percent of the loan.
6 Would permitting CUSOs to engage in any type of lending as FCUs lead to additional reputational risk for FCUs? Loans from affiliated CUSOs may not comply with the same consumer protection limits as FCU loans, for example FCUs are subject to usury restrictions and a regulatory structure for issuing payday alternative loans referred to as PALs.
7 Does expanding CUSO lending authority to include additional core FCU lending categories create unnecessary competition for FCUs, particularly small FCUs?
8 Instead of adopting a provision similar to the corporate CUSO provision that allows the NCUA to add additional categories of permissible activities for all CUSOs on its website, should the Board require individual FCUs to petition the Board for permission to lend to or invest in CUSOs that do additional activities or services not already listed in 712.5?
9 Should the Board publish on its website any conditions imposed on
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activities permissible through the approval process?
10 Should the Board consider additional changes to the permissible activities list for CUSOs?
IV. Request for Comment on the Authority To Invest An FCUs authority to lend to and invest in a credit union organization is provided for in two separate provisions of the FCU Act. The FCU Act authorizes an FCU to lend to credit union organizations provided the extensions of credit do not exceed one percent of the FCUs paid-in and unimpaired capital and surplus.43 A credit union organization is defined as any organization, as determined by the Board, which is 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. In contrast, the FCU Act authorizes FCUs to invest up to one percent of its total paid in and unimpaired capital and surplus, with the approval of the Board, in the shares, stocks, or obligations of any other organization providing services which are associated with the routine operations of credit unions.44
There are significant differences between these lending and investment authorities in the FCU Act. The lending authority refers to credit union organizations and limits such entities to those that primarily serve the needs of their member credit unions. In contrast, the investment authority does not use the term credit union organization, but instead generally refers to an organization. In addition, the investment authority is not limited to organizations that primarily serve the needs of their member credit unions.
The NCUA has historically interpreted the lending and investment authority under the FCU Act as referring to the same types of organizations.45
The NCUAs first CUSO rule explicitly stated that an organization described at Section 1077I of the FCU Act, and a credit union organization, as described at Section 1075D of the FCU Act, are identical entities. 46 The NCUA explained its interpretation in the preamble to its 1977 final rule after several commenters questioned the 43 12

U.S.C. 17575D.
U.S.C. 17577I. Provided, however, that such authority does not include the power to acquire control directly or indirectly, of another financial institution, nor invest in shares, stocks or obligations of an insurance company, trade association, liquidity facility or any other similar organization, corporation, or association, except as otherwise expressly provided by the FCU Act.
45 44 FR 12401 Mar. 7, 1979.
46 Id.
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