When was the first time you heard the term CUSO? What was your first impression? If you are new to the credit union industry or a seasoned veteran, perhaps it is time to take a closer look at a CUSO.
First, my CliffsNotes summary of what a CUSO is…..
Rules governing Credit Union Service Organizations (CUSOs) can be found in Part 712 of NCUA Regulations (Chapter VII of Title 12, Code of Federal Regulations[1]). These rules provide guidance to federal credit unions relating to the investment in, loans to, and related parties of a CUSO. Among other stipulations, the regulation requires a CUSO to primarily serve credit unions (712.3) and further lists the permitted and prohibited activities of a CUSO (712.4 & 712.5). In summary, these rules allow for credit unions to be entrepreneurial in their pursuit to offer solutions for members.
Now, why should a credit union partner with a CUSO?…..
Culture
There is something special about the credit union movement and it doesn’t take one long to experience the difference when joining the industry. This impalpable, yet powerful, difference is what sets the credit union far ahead of other financial institutions in consumer satisfaction surveys year after year. And because CUSOs are formed directly from credit unions, the same culture exists at CUSOs. Credit Union Service Organizations are not vendors merely trying to earn business; CUSOs are credit union people helping credit union people. If your credit union is looking for a solution which will have direct member contact, wouldn’t it make the most sense to partner with an organization that already understands the credit union difference? Non-CUSO vendors often struggle to replicate or even imitate the “secret sauce” of credit unions.
Economies of Scale
With each passing year, hundreds of credit unions are forced to merge or liquidate. While some are involuntary as a result of failure, most are voluntary and likely due to ever increasing operational expenses. By working together as an industry and pooling resources, credit unions are finding it very beneficial to work with CUSOs to slow expense growth. Additionally, when credit unions partner with a CUSO, their collective memberships are able to tap into additional products and services which may not have been available if going at it alone. With reduced expenses and new sources of revenue, operational efficiency improves for all involved. Thus, economies of scale are reached and more credit unions stay relevant and healthier longer.
Sustainability
Of the 6,000+ credit unions in the country, the top 10-20% is carrying the vast majority of the advocacy efforts at the state and federal level. These credit unions write large checks each year to national, state, and federal organizations whose sole purpose is to promote and protect the credit unions industry. This advocacy work is absolutely necessary as other organizations such as the American Bankers Association (ABA) have much larger wallets and would like nothing more to see the credit union industry as we know it dissolved.
Another common trait amongst the nation’s largest credit unions is their involvement in CUSOs. Over time, they have formed CUSOs as a way to help smaller credit unions and to generate revenue; income that, in part, is put to use for advocacy efforts and credit union industry awareness. Over the course of my career, I have seen many examples of credit unions choosing to partner with large banks for products and services over a CUSO. Each time, I wonder to myself if the deciding credit union realizes they may be funding the industry (ABA) which wishes to see them extinct.
In conclusion, CUSOs provide the opportunity for credit unions across the country to partner together to solve our own challenges. As financial cooperatives, we are guided by the seven cooperative principles. None are more important to the long term success of the industry than principle number six “Cooperation among cooperatives”. So the next time your credit union needs a product or service, consider a CUSO because as JFK often said, “A rising tide lifts all boats”.
Chris Boler
President and CEO
7, LLC
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About 7, LLC:
Rooted in the seven cooperative principles of the cooperative movement, 7 is a credit union service organization made of experienced credit union people with the passion, insight, and skills to help credit unions and their members thrive. Our name is a direct reflection of our commitment to credit unions and the principles on which they were founded. We are 100% owned by credit unions and proud to provide products and services to other credit unions through our three companies: 7 Mortgage, 7 Title & 7 Insurance.
[1] http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=823c0f66240459dc0f59ef0bab427f5d&mc=true&n=pt12.7.712&r=PART&ty=HTML
