Dear Mr. Arroyo:
You have asked if a federal credit union (FCU) can provide loan servicing and collection services
to a nonmember either directly or through a CUSO. An FCU does not have the authority to provide
these services to a nonmember and using a CUSO, as you propose, is also impermissible, but we
discuss below two other options you can consider.
You state Government of Guam Employees Federal Credit Union (Employees FCU) would like to assist the Habitat for Humanity Guam (HHG) by recording loans HHG makes on its mortgage loan system as off balance sheet loans, collecting loan payments, providing notices for past due accounts, and handling collections on behalf of HHG. HHG is not currently a member of FCU. You have also asked, if this is impermissible, if Employees FCU could provide these services indirectly though a wholly owned CUSO. Specifically, you propose that Employees FCU overcome the prohibition on providing services to a nonmember by having HHG enter into contract with a CUSO owned by Employees FCU for these services. The CUSO would then subcontract with Employees FCU to provide the services to HHG, using credit union personnel and facilities to provide all the loan servicing and collection services.
Generally, FCUs can only provide services to members and can only engage in activities authorized
in the Federal Credit Union Act or recognized as permissible as an incidental power. 12 U.S.C. §1757. As part of granting loans, FCUs engage in loan servicing and collection services, and we conclude FCUs can provide loan servicing and collection services as a financial service but only to members. 12 C.F.R. §721.3(g). Thus, if HHG is eligible for membership, we recommend it join and Employees FCU would be able to assist it with its lending program as you have described.
The proposal to use a CUSO as you described is not permissible because we would view it as a sham transaction. Although the CUSO rule permits CUSOs to provide loan support services, including processing, servicing, and collection, 12 C.F.R. §712.5(j), the CUSO, itself, would not be
providing the service. The contractual arrangements you described are not real business
transactions but simply an attempt to circumvent the restriction on an FCU providing a service to a
If HHG is not eligible for membership, we suggest Employees FCU consider providing the
services to HHG as an in-kind, charitable contribution or donation. Under the charitable
contributions rule, FCUs can make charitable contributions to nonprofit recipients, regardless
of membership, that are located or conduct activities in a community in which the FCU has a
place of business. 12 C.F.R. §701.25(a). HHG would appear easily to meet the criteria for an
appropriate recipient. We note Employee’s FCU’s board of directors is responsible for
ensuring the reasonableness of any contribution and that the contribution is in the credit
union’s best interests. 12 C.F.R. §701.25(b).
If you have any further questions, please contact Staff Attorney Justin Anderson or me.