Source: Callahan & Associates
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Since the National Credit Union Administration began tracking the
amount of money invested in credit union service organizations (CUSOs)
in 2010, credit unions have allocated a significant amount of funds
toward these organizations. CUSOs have access to capital now more than
ever, and credit unions are interested in investing.
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Credit union investments in and loans to CUSOs have risen by 7.8%
since the start of the COVID-19 pandemic, with investments comprising
80.9% of the total funds as of March 2022.
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Per NCUA regulation 12 CFR § 712.2, federally chartered credit
unions can only invest in or lend to CUSOs 1% of the amount in paid-in
share accounts and deposits based on their last year-end financial
report. This rule makes it difficult for credit unions with low assets
to allocate any significant funds to CUSOs, even if those investments
could be valuable. Of the 1,958 credit unions with an aggregate cash
outlay interest in a CUSO at the end of the first quarter, 645 are under
$100M in assets. These small institutions comprise only 32.9% of
CUSO-investing credit unions, but makeup 63.4% of all credit unions in
the country. More than 150 of these smaller CUs have investments of
$10,000 or less. For now, CUSO investing is predominantly a large credit
union game – though small shops can still benefit from CUSO service
offerings.
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Non-interest income data from Callahan & Associates shows that
credit unions that reported income deriving from CUSOs in 2020 saw a
37.2% year-over-year increase in their CUSO earnings by December 2021.
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All things considered, CUSOs have proven to be a great alternative
for credit unions to increase and diversify their non-interest income,
while at the same time investing in an industry that is specifically
targeted to serve credit unions and their members.
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