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Federal Register / Vol. 86, No. 205 / Wednesday, October 27, 2021 / Rules and Regulations
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 nonmembers 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 Acts 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.
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 40 12 U.S.C. 1759 and the NCUAs 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. 17575D.

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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
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 Boards 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.
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 42 63

FR 10743, 10752 Mar. 5, 1998.

43 Id.
44 Id.

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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
Accordingly, based on this reexamination 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.
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 45 12

CFR 712.3b.
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47 12 CFR 701.23b.
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