This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

11645 

Vol. 86, No. 37 

Friday, February 26, 2021 

1 12 U.S.C. 1751 et seq. 

2 12 U.S.C. 1766(a). 

3 12 U.S.C. 1789. 

4 12 U.S.C. 1757. 

5 12 CFR part 712. All sections of part 712 apply 

to FCUs. Sections 712.2(d)(2)(ii), 712.3(d), 712.4, 

and 712.11(b) and (c) apply to federally insured, 

state-chartered credit unions (FISCUs), as provided 

in § 741.222 of the chapter. FISCUs must follow the 

law in the state in which they are chartered with 

respect to the sections in part 712 that only apply 

to FCUs. Corporate credit union CUSOs are subject 

to part 704. Any amendments to part 704 would 

occur through a separate rulemaking and are not 

included in this proposed rule. 

6See 12 CFR 712.1(d), 712.3(b), and 712.5. 

7 12 CFR 712.5. 

8 73 FR 79307 (Dec. 29, 2008). 

9The NCUA’s rationale for not extending CUSO 

lending authority more broadly is discussed in 

detail in Section II, Proposed Rule. 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 712 

RIN 3133–AE95 

Credit Union Service Organizations 

(CUSOs) 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule. 

SUMMARY: The NCUA Board (Board) is 

seeking comment on a proposed rule 

that would amend the NCUA’s credit 

union service organization (CUSO) 

regulation. The proposed rule would 

accomplish two objectives: Expanding 

the list of permissible activities and 

services for CUSOs to include 

originating any type of loan that a 

Federal credit union (FCU) may 

originate; and granting the Board 

additional flexibility to approve 

permissible activities and services. The 

NCUA is also seeking comment on 

broadening FCU investment authority in 

CUSOs. 

DATES: Comments must be received by 

March 29, 2021. 

ADDRESSES: You may submit written 

comments, identified by RIN 3133– 

AE95, by any of the following methods 

(Please send comments by one method 

only): 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (703) 518–6319. Include 

‘‘[Your Name]—Comments on Proposed 

Rule: Credit Union Service 

Organizations (CUSOs)’’ in the 

transmittal. 

• Mail: Address to Melane ConyersAusbrooks, Secretary of the Board, 

National Credit Union Administration, 

1775 Duke Street, Alexandria, Virginia 

22314–3428. 

• Hand Delivery/Courier: Same as 

mail address. 

Public Inspection: You may view all 

public comments on the Federal 

eRulemaking Portal (http://

www.regulations.gov) as submitted, 

except for those we cannot post for 

technical reasons. The NCUA will not 

edit or remove any identifying or 

contact information from the public 

comments submitted. Due to social 

distancing measures in effect, the usual 

opportunity to inspect paper copies of 

comments in the NCUA’s law library is 

not currently available. After social 

distancing measures are relaxed, visitors 

may make an appointment to review 

paper copies by calling (703) 518–6540 

or emailing OGCMail@ncua.gov. 

FOR FURTHER INFORMATION CONTACT: 

Policy and Analysis: Jacob McCall, (703) 

518–6624; Legal: Rachel Ackmann, 

Senior Staff Attorney, (703) 548–2601; 

or by mail at National Credit Union 

Administration, 1775 Duke Street, 

Alexandria, VA 22314. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

Legal Authority and Background 

The Board is issuing this rule 

pursuant to its authority under the 

Federal Credit Union Act (FCU Act).1

Under the FCU Act, the NCUA is the 

chartering and supervisory authority for 

FCUs and the Federal supervisory 

authority for federally insured credit 

unions (FICUs). The FCU Act grants the 

NCUA a broad mandate to issue 

regulations governing both FCUs and 

FICUs. Section 120 of the FCU Act is a 

general grant of regulatory authority and 

authorizes the Board to prescribe 

regulations for the administration of the 

FCU Act.2 Section 209 of the FCU Act 

is a plenary grant of regulatory authority 

to the NCUA to issue regulations 

necessary or appropriate to carry out its 

role as share insurer for all FICUs.3

Accordingly, the FCU Act grants the 

Board broad rulemaking authority to 

ensure that the credit union industry 

and the NCUSIF remain safe and sound. 

Under the FCU Act, FCUs have the 

authority to lend up to one percent of 

their paid-in and unimpaired capital 

and surplus, and to invest an equivalent 

amount, in CUSOs.4 The NCUA 

regulates FCUs’ lending to and 

investment in CUSOs in part 712 of its 

regulations (CUSO rule).5 In general, a 

CUSO is an organization: (1) In which 

a FICU has an ownership interest or to 

which a FICU has extended a loan; (2) 

is engaged primarily in providing 

products and services to credit unions, 

their membership, or the membership of 

credit unions contracting with the 

CUSO; and (3) whose business relates to 

the routine daily operations of the credit 

unions it serves.6 The CUSO rule 

provides a list of preapproved activities 

and services related to the routine daily 

operations of credit unions.7

The list of preapproved activities and 

services in the CUSO rule has not been 

substantively revised since 2008.8 The 

2008 final rule added two new 

categories of permissible CUSO 

activities: (1) Credit card loan 

origination and (2) payroll processing 

services. The 2008 final rule also added 

new examples of permissible CUSO 

activities and clarified that FCUs may 

invest in and loan to CUSOs that buy 

and sell participations in loans they are 

authorized to originate. In the 2008 final 

rule, commenters requested additional 

CUSO lending authority. Specifically, 

commenters requested the authority to 

make car loans, including direct lending 

and the purchase of retail installment 

sales contracts from vehicle dealerships, 

and to engage in payday lending. The 

NCUA, however, declined further 

expansions of CUSO lending authority 

at that time.9

II. Proposed Rule 

The Board proposes to amend the 

CUSO rule to permit CUSOs to originate 

any type of loan that an FCU may 

originate and grant the Board additional 

flexibility to approve permissible CUSO 

activities and services outside of notice 


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11646 Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Proposed Rules 

10Originate means to fund or make loans. This is 

separate from the already recognized authority of 

CUSOs to engage in loan support services that 

include loan processing and servicing under 

§ 712.5(j). 

11 12 CFR 712.5. 

12See, 62 FR 11779 (Mar. 13, 1997). 

13 Id. 

14 Id. 

15 68 FR 16450 (Apr. 4, 2003). 

16 Id. See also, 73 FR 79307 (Dec. 29, 2008). 17 73 FR 79307 (Dec. 29, 2008). See also, 73 FR 

23982 (May 1, 2008). 18 51 FR 10353 (Mar. 26, 1986). 19 Id. 20 68 FR 56537 (Oct. 1, 2003). 21 63 FR 10743 (Mar. 5, 1998). 22 Id. 

23 73 FR 79307 (Dec. 29, 2008). 

24 63 FR 10743 (Mar. 5, 1998). 

25See U.S. Treasury, ‘‘A Financial System That 

Creates Economic Opportunity: Nonbank 

Financials, Fintech, and Innovation,’’ July 2018. 

Available at https://home.treasury.gov/sites/ 

default/files/2018-07/A-Financial-System-thatCreates-Economic-Opportunities---NonbankFinanci....pdf. 

and comment rulemaking.10 Each 

proposed change is discussed in detail 

below. 

Expansion of Permissible CUSO Lending 

Activity 

The Board has reconsidered its 2008 

position on permitting CUSOs to engage 

in all types of lending. The Board now 

believes that permitting CUSOs to 

originate any type of loan that an FCU 

may originate may better enable FCUs to 

compete effectively in today’s 

marketplace and better serve their 

members. 

As discussed above, the FCU Act 

permits an FCU to lend to or invest in 

a CUSO that provides services 

associated with the routine and daily 

operations of credit unions. The NCUA 

has interpreted this statutory authority 

broadly to permit an FCU to lend to and 

invest in a CUSO that does most of the 

same activities and services permissible 

for an FCU.11 However, to date CUSOs 

have not been permitted to originate 

certain kinds of loans.12

The NCUA historically has been 

reluctant to grant CUSOs general 

lending authority for all loans for 

several reasons. First, the NCUA has 

been hesitant in granting CUSOs 

authority to provide consumer loans as 

it may be perceived as a dilution of the 

FCU common bond requirement.13

Specifically, because CUSOs may serve 

people that are not members of an FCU, 

the NCUA has been concerned about 

FCUs benefiting from CUSO profits 

generated from non-members. Second, 

the NCUA has also expressed concern 

that if member loans were being made 

by CUSOs, the NCUA would have a 

duty to examine such loans and that 

would lead to stricter NCUA 

examination authority over CUSOs.14

Finally, the NCUA has also limited 

CUSO lending authority due to concerns 

that permitting CUSOs to engage in a 

core credit union function could 

negatively affect affiliated credit union 

services.15

Due to these concerns, the NCUA has 

previously found compelling 

justification for expanding CUSO 

lending authority for only four types of 

loans: (1) Business; (2) consumer 

mortgage; (3) student; and (4) credit 

cards.16 In granting CUSOs these 

lending authorities, the NCUA has 

considered factors specific to each type 

of lending, such as whether these 

activities require specialized staff or 

economies of scale, and, as discussed 

below, whether loan aggregation was 

prevalent in the marketplace for the 

particular type of lending. 

For example, when the NCUA 

permitted CUSOs to engage in credit 

card origination, the agency expressed 

concern that the scale, expertise, and 

back office operational support required 

to be successful in the credit card 

business was causing many FCUs 

without such resources to sell their 

credit card portfolio to other financial 

institutions.17 The NCUA has also 

permitted expanded CUSO lending 

when economies of scale, which an 

individual FCU may not have, made 

lending more economically viable.18

When the NCUA granted CUSOs the 

ability to originate consumer mortgage 

loans, it stated that economies of scale 

are essential to provide mortgage loans 

in a cost effective and professional 

manner.19 The Board has stated that 

enabling FCUs to realize the benefits of 

economies of scale offered by CUSOs 

may allow FCUs to offer services to their 

members that otherwise could not be 

offered. For example, in permitting 

CUSOs to engage in business loan 

origination, the NCUA noted that FCUs 

could afford their small business 

members access to loans that the FCU 

may otherwise not be able to offer.20 In 

addition, the NCUA has also permitted 

CUSOs to engage in lending where loan 

aggregation for resale on a secondary 

market is customary such as consumer 

mortgage and student loan origination.21

The Board has previously cited the strict 

rules in the secondary market as 

justification for expanding CUSO 

lending authority.22

In past rulemakings, the NCUA has 

also discussed why the agency declined 

to expand CUSO lending authority more 

broadly. The NCUA stated that a 

primary rationale for allowing CUSOs to 

engage in a particular kind of loan 

origination is that an FCU may not 

possess the level of expertise or 

resources required for a successful loan 

program, whereas the CUSO may. With 

respect to vehicle loan origination, the 

NCUA stated that most FCUs are able to 

successfully originate vehicle loans and 

do not need the expertise of a CUSO.23

Similarly, in declining to expand CUSO 

lending authority to general consumer 

loans, the NCUA described such loans 

as ‘‘relatively easy to offer and process’’ 

and did not believe such loans shared 

similar characteristics with other more 

sophisticated lending categories 

permissible for CUSOs.24

After reexamining CUSO authority, 

the Board is now considering whether it 

is appropriate to expand CUSO lending 

authority. It is currently permissible for 

CUSOs to engage in several types of 

lending, including consumer mortgage, 

business, student, and credit card. 

These categories of permissible CUSO 

lending represent several core areas of 

FCU business. The proposed rule would 

permit a reasonable expansion of CUSO 

lending authorities, and the Board 

expects the proposed rule would 

principally result in CUSOs originating 

automobile loans and small dollar 

consumer loans. 

One reason the NCUA has historically 

been hesitant to expand CUSO lending 

is the concern that if CUSOs engaged in 

a core credit union function, it could 

negatively affect affiliated credit union 

services. As discussed above, CUSOs, 

however, have been originating loans 

that are also core FCU lending products 

for over 30 years without negatively 

impacting FCUs. Given this extensive 

history, the Board does not believe the 

expansion of CUSO lending authority in 

the proposed rule would be disruptive 

to FCUs. 

The Board also believes that recent 

technological developments have 

further increased the benefits of 

allowing CUSOs to engage in expanded 

loan originations. As noted by the U.S. 

Treasury Department, consumer 

expectations for financial services are 

expanding with unprecedented speed. 

The market to originate loans has grown 

increasingly complex as technological 

changes, including digitization, help 

drive changes to the established lending 

landscape.25 Digital lending is 

increasingly common throughout the 

household and small business lending 

market as consumers derive credit from 

a highly diverse mix of financial 

institutions and nonbank firms. For 

example, nonbank firms constitute a 

significant share of the consumer 

lending market and are increasingly 


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26 Id. at 87. 

27 Id. at 84. 

28 Id. at 85. 

29 Id. 

30 47 FR 30462 (July 14, 1982). One of the original 

purposes of CUSOs was to permit small credit 

unions to join together to perform functions and 

engage in activities at a lesser cost than could be 

accomplished by an individual credit union. 

31 12 CFR part 701. 

32See, 12 CFR 701.23(b). 

33 12 CFR 701.22. 

34 12 U.S.C. 1757(5)(E); 12 CFR 701.22(a). 

35 73 FR 79307 (Dec. 29, 2008). 

36 12 CFR 712.3(d). 

37 Id. Complex or high-risk CUSOs must agree to 

include in their report: (1) A list of services 

provided to certain credit unions, and (2) the 

investment amount, loan amount, or level of 

activity of certain credit unions. Complex or highrisk CUSOs must also agree to provide the CUSO’s 

most recent year-end audited financial statements 

to the NCUA. CUSOs engaged in credit and lending 

services are also required to report the total dollar 

amount of loans outstanding, the total number of 

loans outstanding, the total dollar amount of loans 

granted year-to-date, and the total number of loans 

granted year-to-date. 

38 12 CFR 712.3(d)(5)(i). 

39 78 FR 72537 (Dec. 3, 2013). 

40 Id. 

targeting lending products traditionally 

provided by credit unions, including 

auto finance, small-dollar consumer 

lending, and unsecured consumer 

credit.26 Nonbank companies now 

account for a significant percent of the 

outstanding non-mortgage consumer 

loan market.27

The U.S. Treasury Department noted 

that ‘‘[n]onbank digital lenders have 

gained outsized attention in recent 

years, driven in part by their rapid rate 

of growth and employment of new 

technology-intensive approaches to 

lending.’’ 28 These firms, particularly 

lenders active in consumer and small 

business lending, have digitized the 

customer acquisition, origination, 

underwriting, and servicing processes. 

Moreover, these lenders are creating 

customer experiences that may be more 

timely and seamless than the techniques 

employed by some credit unions, and 

these changes also appear to reduce 

expenses, which lowers the cost of 

credit as well as providing greater 

access to credit. In contrast, many credit 

unions have yet to digitize their lending 

at a similar level. The U.S. Treasury 

Department stated that, ‘‘[k]ey elements 

of digitization employed by new digital 

lenders are rapidly expanding across the 

wider banking and financial institution 

landscape and are expected to permeate 

all major lending segments over 

time.’’ 29

To compete effectively in a market 

with a rising prevalence of these 

technology-based lenders, FCUs may 

need to rely increasingly on pooling 

their resources to fund CUSOs and to 

build the necessary infrastructure. The 

costs for research and development, 

acquisition, implementation, and 

specialized staff capable of managing 

these new technologies may be 

prohibitive for all but a very few of the 

largest FCUs. CUSOs may provide the 

means for FCUs to address these 

challenges and may enable FCUs to 

collaboratively develop technologies 

that better serve their members. 

The Board recognizes that CUSOs 

provide significant value to the credit 

union industry by facilitating 

cooperation among credit unions. With 

CUSOs’ collaborative business model, 

CUSOs are able to foster shared 

innovation among credit unions to 

achieve economies of scale, develop 

expertise, and better serve their 

members. These attributes allow CUSOs 

to offer financial services to credit union 

members more efficiently than an 

individual credit union may otherwise 

be able to offer, particularly for small 

credit unions.30 The cooperation and 

transfer of knowledge among credit 

unions through CUSOs can have longterm positive implications for the safety 

and soundness of the credit union 

system. 

Accordingly, under the proposed rule, 

CUSOs would be permitted to originate, 

purchase, sell, and hold any type of loan 

permissible for FCUs to originate, 

purchase, sell, and hold. Therefore, 

CUSOs could originate types of loans 

previously prohibited by the CUSO rule, 

including general consumer loans, 

direct auto loans, and unsecured loans 

and lines of credit. CUSOs could also 

purchase vehicle-secured retail 

installment sales contracts (RICs) from 

vehicle dealers. In proposing this 

change, the Board acknowledges and 

recognizes the importance of existing 

relationships that FICUs have with local 

vehicle dealers in connection with 

originating vehicle loans. The Board 

intends for this proposed rule to protect 

and maintain those relationships. 

Under the proposed rule, CUSO 

originated loans would not be subject to 

the same restrictions as loans originated 

by FCUs. For example, part 701 of the 

NCUA’s regulations imposes conditions 

on FCU lending relating to loan terms 

such as interest rate, maturity, and 

prepayment.31 These restrictions would 

not apply to CUSO-originated loans 

because CUSOs, even wholly owned 

CUSOs, are separate entities from FCUs 

and are not subject to direct NCUA 

supervision. However, an FCU may not 

purchase a loan from a CUSO unless the 

loan meets the requirements of the 

NCUA’s eligible obligations rule.32

Similarly, an FCU may not purchase a 

loan participation from a CUSO unless 

it complies with the NCUA’s loan 

participations rule.33

Loan Participations 

In addition to specifically permitting 

CUSOs to engage in consumer mortgage, 

business, and student loan origination, 

the current CUSO rule also permits 

CUSOs to buy and sell participation 

interests in such loans. The inclusion of 

this authority to buy and sell 

participation interests in such loans 

stems from the FCU Act and the 

NCUA’s loan participation rule, which 

classifies a CUSO as a ‘‘credit union 

organization’’ authorized to engage in 

the purchase and sale of loan 

participations.34 The NCUA’s loan 

participation rule, however, does not 

permit the sale to FCUs of participation 

interests in open-end, revolving 

credit.35 Therefore, the current CUSO 

rule only permits CUSOs to originate 

credit card loans, but not the authority 

to buy and sell participation interests in 

credit card loans. To remain consistent 

with the NCUA’s loan participation 

rule, this proposed rule would grant 

CUSOs the authority to only purchase 

and sell participation interests that are 

permissible for FCUs to purchase and 

sell. 

CUSO Registry 

Under the current CUSO rule, a FICU 

must obtain a written agreement from a 

CUSO the FCU loans to or invests in 

that the CUSO will annually submit to 

the NCUA a report containing basic 

registration information for inclusion in 

the NCUA’s CUSO registry (CUSO 

Registry).36 CUSOs that are engaged in 

complex or high-risk activities have 

additional obligations with respect to 

the CUSO Registry.37 Under the current 

CUSO rule, complex or high-risk 

activities are defined to include credit 

and lending, including business loan 

origination, consumer mortgage loan 

origination, loan support services, 

student loan origination, and credit card 

loan origination.38 For consistency, the 

proposed rule would remove the 

specific subcategories of lending and 

instead refer to all loan originations as 

complex or high risk. Lending activities 

are considered complex or high risk 

because they involve credit unions’ core 

business function, tend to affect a large 

number of credit unions, and present a 

high degree of operational and financial 

risk.39 Specifically, FICUs making loans 

to and investments in CUSOs engaged 

in credit and lending activities may be 

exposed to significant levels of credit, 

strategic, or reputation risks.40


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41 12 CFR 704.11(d)(3)(ii). Approved activities are 

listed on the NCUA’s website at: https://

www.ncua.gov/regulation-supervision/corporatecredit-unions/corporate-cuso-activities/approvedcorporate-cuso-activities. 

42Many 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) 87–2, as amended by IRPS 03–2 and IRPS 

15–1. 80 FR 57512 (Sept. 24, 2015), available at 

https://www.ncua.gov/files/publications/irps/ 

IRPS1987-2.pdf. 

43 12 U.S.C. 1757(5)(D). 

44 12 U.S.C. 1757(7)(I). 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. 

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 NCUA’s 

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 NCUA’s 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. 

III. Request for Comment on the 

Proposed Rule 

The above proposed changes are 

consistent with the Board’s 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 

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 FCU’s 

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 

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 FCU’s 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 

FCU’s 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 NCUA’s first CUSO rule explicitly 

stated that ‘‘an organization described at 

Section 107(7)(I) of the [FCU Act], and 

a ‘credit union organization,’ as 

described at Section 107(5)(D) 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 


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47 Id. 

48 Id. 

49 Id. 

50 Id. 

51 Id. 52See 80 FR 57512 (Sept. 24, 2015). 

definitional section of the proposed rule 

that defined ‘‘credit union service 

corporation’’ to be both the entity 

described at Section 107(7)(1) and 

Section 107(5)(D). In the preamble, the 

NCUA discussed that the thrust of the 

comments was that the definition was 

unduly restrictive and was not legally 

mandated. In response, the NCUA stated 

that ‘‘in light of the mandate in the 

legislative history by Congressman St 

Germain that [investment] authority is 

to be ‘exercised on a carefully controlled 

basis by NCUA,’ the Administration 

feels justified in tying the two 

definitions together.’’ 47 The NCUA also 

stated that it found no substantive 

difference in an organization ‘‘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’’ and an 

organization ‘‘providing services which 

are associated with the routine 

operations of credit unions.’’ 48 The 

NCUA also stated that the legislative 

history indicated that the House 

committee stands ready to review 

investment interpretation matters upon 

request from NCUA ‘‘[s]hould a case be 

made for a more liberal interpretation of 

the provisions.’’ 49

The NCUA also noted that the FCU 

Act specifically ‘‘intertwines the 

lending and investment powers. For 

instance, section 107(7)(A) allows a 

Federal credit union to ‘‘invest’’ its 

funds in ‘‘loans exclusively to 

members.’’ 50 Due to the preceding 

analysis, the NCUA believed that its 

interpretation of sections 107(5)(D) and 

107(7)(I) were justified. The NCUA 

stated that ‘‘[w]hile it may restrict the 

permissible activities for Federal credit 

unions in this field, legislative history 

mandates a rather conservative 

approach.’’ 51

The NCUA is now considering 

whether to reconsider this longstanding 

interpretation. Specifically, the NCUA is 

considering adopting separate 

definitions for the types of organizations 

that an FCU may invest in or lend to, 

which potentially would expand the 

types of organizations eligible for FCU 

investment. For example, the NCUA 

could permit FCUs to invest in 

organizations that do not primarily 

serve credit unions or credit union 

members, but still provide services that 

relate to the routine operations of FCUs. 

Under such an interpretation of the FCU 

Act, FCUs could potentially invest in 

companies that broadly serve the 

financial service community, but do not 

primarily serve credit unions and their 

members. For instance, an FCU could 

form an organization with community 

banks to create a lending platform that 

could be used by both the FCU’s 

members and the community banks’ 

customers. 

The Board notes that the statutory 

limitations on the amount of 

investments would remain unchanged. 

An FCU is only authorized by the FCU 

Act to invest up to one percent of its 

total paid in and unimpaired capital and 

surplus in organizations. An FCU that 

has already invested one percent of its 

total paid in and unimpaired capital and 

surplus in CUSOs would not be 

authorized to invest any additional 

money. Instead, such an FCU would 

have to reallocate its investments if it 

sought to make any investments that 

were previously prohibited. 

The Board invites comments on 

whether it should reconsider its 

longstanding interpretation of the 

lending and investment authorities 

under the FCU Act. In addition, the 

Board invites comments on the 

following specific questions: 

1. Do specific provisions and the 

legislative history of the FCU Act 

suggest that the NCUA could take a less 

conservative approach to interpreting 

the lending and investment authorities? 

2. The investment authority under the 

FCU Act states that Board approval is 

required before an FCU can make an 

investment in an organization. 

Currently, the regulation provides for 

this approval through the pre-approved 

permissible activities list in § 712.5. If 

the Board were to consider permitting 

investments that are not included in 

§ 712.5, should approval be required for 

each investment to determine if the 

activities of the organization relate to 

the routine operations of FCUs? If the 

Board requires separate notice 

requirements, should current 

investments be grandfathered? 

3. Please discuss appropriate safety 

and soundness limitations that the 

Board should consider if it reinterprets 

its interpretation. Should the Board 

impose a requirement that the FCU’s 

ownership interest in the organization 

not be speculative? For example, should 

an FCU be permitted to have an 

investment in an organization that is 

still developing a product? If the Board 

reinterprets its interpretation, should 

the Board impose a separate capital 

treatment for new investments that are 

currently prohibited? 

V. Regulatory Procedures 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

generally requires that, in connection 

with a notice of proposed rulemaking, 

an agency prepare and make available 

for public comment an initial regulatory 

flexibility analysis that describes the 

impact of a proposed rule on small 

entities (defined for purposes of the 

RFA to include credit unions with 

assets less than $100 million).52 A 

regulatory flexibility analysis is not 

required, however, if the agency 

certifies that the rule will not have a 

significant economic impact on a 

substantial number of small entities and 

publishes its certification and a short, 

explanatory statement in the Federal 

Register together with the rule. 

This proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

The proposed rule imposes no 

requirement or costs on small entities 

and only expands the list of permissible 

activities for CUSOs. The proposed rule 

would expand the list of activities that 

are considered complex or high risk for 

purposes of the CUSO Registry, 

however, the Board does not expect the 

additional reporting requirements to 

entail substantial regulatory burden. 

Accordingly, the NCUA certifies that the 

proposed rule would not have a 

significant economic impact on a 

substantial number of small FICUs. 

Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) applies to rulemakings in which 

an agency by rule creates a new 

paperwork burden on regulated entities 

or modifies an existing burden (44 

U.S.C. 3507(d)). For purposes of the 

PRA, a paperwork burden may take the 

form of a reporting, recordkeeping, or a 

third-party disclosure requirement, 

referred to as an information collection. 

The NCUA is seeking comments on 

proposed revisions to the information 

collection requirements contained 12 

CFR part 712, which has been submitted 

to the Office of Management and Budget 

(OMB) for review and approval under 

OMB control number 3133–0149. Under 

the proposed rule, CUSOs would be 

permitted to originate, purchase, sell, 

and hold any type of loan permissible 

for FCU’s to originate, purchase, sell, 

and hold. Accordingly, CUSOs could 

originate categories of loans previously 

prohibited under the CUSO rule. The 

NCUA estimated 60 new CUSOs would 

enter into an agreement with a FICU 

(§ 712.3(d)); which would also require 


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11650 Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Proposed Rules 

53Public Law 105–277, 112 Stat. 2681 (1998). 

the FICU to obtain a written legal 

opinion prior to investing in a CUSO, as 

prescribed by § 712.4(b), and that these 

CUSO would be categorized a complex 

and be required to complete the 

expanded information via the CUSO 

Registry (§ 712.3(d)(5)). It is estimated 

that the increase in the number of 

respondents would increase total 

burden hours by 690. 

OMB Control Number: 3133–0149. 

Title of information collection: Credit 

Union Service Organizations (CUSOs), 

12 CFR part 712. 

Estimated number of respondents: 

1,843. 

Estimated number of responses per 

respondent: 1. 

Estimated total annual responses: 

1,843. 

Estimated burden per response: 1.82. 

Estimated total annual burden: 3,356. 

The NCUA invites comments on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

(b) the accuracy of the agency’s estimate 

of the burden of the proposed collection 

of information, including the validity of 

the methodology and assumptions used; 

(c) ways to enhance the quality, utility 

and clarity of the information to be 

collected; and (d) ways to minimize the 

burden of the collection of information 

on those who are to respond, including 

through the use of appropriate 

automated, electronic, mechanical, or 

other technological collection 

techniques or other forms of information 

technology; and (e) estimates of capital 

or start-up costs and cost of operation, 

maintenance, and purchase of services 

to provide information. 

All comments are a matter of public 

records. Due to the limited in-house 

staff, email comments are preferred. 

Comments regarding the information 

collection requirements of this rule 

should be (1) mailed to: PRAcomments@

ncua.gov with ‘‘OMB No. 3133–0149’’ in 

the subject line; faxed to (703) 837– 

2406, or mailed to Dawn Wolfgang, 

NCUA PRA Clearance Officer, National 

Credit Union Administration, 1775 

Duke Street, Suite 6032, Alexandria, VA 

22314, and to the (2) Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, at 

www.reginfo.gov/public/do/PRAMain. 

Select ‘‘Currently under 30-day 

Review—Open for Public Comments’’ or 

by using the search function. 

Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

state and local interests. In adherence to 

fundamental federalism principles, the 

NCUA, an independent regulatory 

agency as defined in 44 U.S.C. 3502(5), 

voluntarily complies with the principles 

of the Executive order. This rulemaking 

will not have a substantial direct effect 

on the states, on the connection between 

the National Government and the states, 

or on the distribution of power and 

responsibilities among the various 

levels of government. The NCUA has 

determined that this proposal does not 

constitute a policy that has federalism 

implications for purposes of the 

Executive order. 

Assessment of Federal Regulations and 

Policies on Families 

The NCUA has determined that this 

proposed rule will not affect family 

well-being within the meaning of 

section 654 of the Treasury and General 

Government Appropriations Act, 1999, 

Public Law 105–277, 112 Stat. 2681 

(1998).53

List of Subjects in 12 CFR Part 712 

Administrative practices and 

procedure, Credit, Credit unions, 

Insurance, Investments, Reporting and 

recordkeeping requirements. 

By the National Credit Union 

Administration Board on January 14, 2021. 

Melane Conyers-Ausbrooks, 

Secretary of the Board. 

For the reasons discussed above, the 

Board proposes to amend 12 CFR part 

712 as follows: 

PART 712—CREDIT UNION SERVICE 

ORGANIZATIONS (CUSOs) 

■ 1. The authority citation for part 712 

continues to read as follows: 

Authority: 12 U.S.C. 1756, 1757(5)(D) and 

(7)(I), 1766, 1782, 1784, 1785, and 1786. 

■ 2. Amend § 712.3 by revising 

paragraphs (d)(5)(i), (d)(5)(ii) 

introductory text, and (d)(5)(iii) to read 

as follows: 

§ 712.3 What are the characteristics of and 

what requirements apply to CUSOs? 

* * * * * 

(d) * * * 

(5) * * * 

(i) Credit and lending: 

(A) Loan support services, including 

servicing; and 

(B) Loan origination, including 

originating, purchasing, selling, and 

holding any loan as described in 

§ 712.5(q). 

(ii) Information technology: 

* * * * * 

(iii) Custody, safekeeping, and 

investment management services for 

credit unions. 

* * * * * 

■ 3. Amend § 712.5 as follows: 

■ a. Revise paragraph (a) introductory 

text; 

■ b. In paragraph (a)(4), add a semicolon 

at the end of the paragraph; 

■ c. Revise paragraph (b) introductory 

text; 

■ d. In paragraph (b)(11), remove the 

period and add a semicolon in its place; 

■ e. Remove paragraphs (c), (d), (n), and 

(s); 

■ f. Redesignate paragraphs (e) through 

(t) as paragraphs (c) through (p); 

■ g. Revise newly redesignated 

paragraphs (c) introductory text, (d) 

introductory text, (e) introductory text, 

(f) introductory text, (g) introductory 

text, and (h) introductory text; 

■ h. In newly redesignated paragraph 

(h)(3), remove the word ‘‘and’’; 

■ i. Revise newly redesignated 

paragraphs (i) introductory text, (j), (k), 

(l), and (m) introductory text; 

■ j. In newly redesignated paragraph 

(m)(3), remove the period and add a 

semicolon in its place; 

■ k. Revise newly redesignated 

paragraph (n); 

■ l. In newly redesignated paragraph (o), 

remove ‘‘CUSO investments in nonCUSO service providers:’’ and remove 

the last period and add a semicolon in 

its place; 

■ m. In newly redesignated paragraph 

(p), remove the period and add a 

semicolon in its place; and 

■ n. Add new paragraphs (q) and (r). 

The additions read as follows: 

§ 712.5 What activities and services are 

preapproved for CUSOs? 

* * * * * 

(a) Checking and currency services: 

* * * * * 

(b) Clerical, professional and 

management services: 

* * * * * 

(c) Electronic transaction services: 

* * * * * 

(d) Financial counseling services: 

* * * * * 

(e) Fixed asset services: 

* * * * * 

(f) Insurance brokerage or agency: 

* * * * * 

(g) Leasing: 

* * * * * 

(h) Loan support services: 

* * * * * 

(i) Record retention, security and 

disaster recovery services: 

* * * * * 

(j) Securities brokerage services; 


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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Proposed Rules 11651 

(k) Shared credit union branch 

(service center) operations; 

(l) Travel agency services; 

(m) Trust and trust-related services: 

* * * * * 

(n) Real estate brokerage services; 

* * * * * 

(q) Loan origination, originating, 

purchasing, selling, and holding any 

type of loan permissible for Federal 

credit unions to originate, purchase, 

sell, and hold, including the authority to 

purchase and sell participation interests 

that are permissible for Federal credit 

unions to purchase and sell; and 

(r) Once the NCUA has approved an 

activity and published that activity on 

its website, the NCUA will 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. 

[FR Doc. 2021–01398 Filed 2–25–21; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2021–0103; Project 

Identifier MCAI–2020–00604–E] 

RIN 2120–AA64 

Airworthiness Directives; Pratt & 

Whitney Canada Corp. Turboshaft 

Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to adopt a 

new airworthiness directive (AD) for all 

Pratt & Whitney Canada Corp. (P&WC) 

PW210A and PW210S model turboshaft 

engines. This proposed AD was 

prompted by a report from the 

manufacturer that the Automated 

Damage Tracking System (ADTS) may 

under-count the number of cycles 

accrued by the impeller and the highpressure compressor (HPC) rotor. The 

impeller and HPC rotor are both lifelimited components and exceeding their 

published life limits could result in the 

failure of these components. This 

proposed AD would require the use of 

the manual low-cycle fatigue (LCF) 

counting method in place of the ADTS 

counting method to determine the 

number of cycles accrued by the 

impeller and HPC rotor. The FAA is 

proposing this AD to address the unsafe 

condition on these products. 

DATES: The FAA must receive comments 

on this proposed AD by April 12, 2021. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (202) 493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE, 

Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

For service information identified in 

this NPRM, contact Pratt & Whitney 

Canada Corp., 1000 Marie-Victorin, 

Longueuil, Quebec, J4G 1A1 Canada; 

phone: (800) 268–8000. You may view 

this service information at the FAA, 

Airworthiness Products Section, 

Operational Safety Branch, 1200 District 

Avenue, Burlington, MA 01803. For 

information on the availability of this 

material at the FAA, call (781) 238– 

7759. 

Examining the AD Docket 

You may examine the AD docket at 

https://www.regulations.gov by 

searching for and locating Docket No. 

FAA–2021–0103; or in person at Docket 

Operations between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. The AD docket contains this 

NPRM, the mandatory continuing 

airworthiness information (MCAI), any 

comments received, and other 

information. The street address for 

Docket Operations is listed above. 

FOR FURTHER INFORMATION CONTACT: 

Barbara Caufield, Aviation Safety 

Engineer, ECO Branch, FAA, 1200 

District Avenue, Burlington, MA 01803; 

phone: (781) 238–7146; fax: (781) 238– 

7199; email: barbara.caufield@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

The FAA invites you to send any 

written relevant data, views, or 

arguments about this proposal. Send 

your comments to an address listed 

under ADDRESSES. Include ‘‘Docket No. 

FAA–2021–0103; Project Identifier 

MCAI–2020–00604–E’’ at the beginning 

of your comments. The most helpful 

comments reference a specific portion of 

the proposal, explain the reason for any 

recommended change, and include 

supporting data. The FAA will consider 

all comments received by the closing 

date and may amend this proposal 

because of those comments. 

Except for Confidential Business 

Information (CBI) as described in the 

following paragraph, and other 

information as described in 14 CFR 

11.35, the FAA will post all comments 

received, without change, to https://

www.regulations.gov, including any 

personal information you provide. The 

agency will also post a report 

summarizing each substantive verbal 

contact we receive about this NPRM. 

Confidential Business Information 

CBI is commercial or financial 

information that is both customarily and 

actually treated as private by its owner. 

Under the Freedom of Information Act 

(FOIA) (5 U.S.C. 552), CBI is exempt 

from public disclosure. If your 

comments responsive to this NPRM 

contain commercial or financial 

information that is customarily treated 

as private, that you actually treat as 

private, and that is relevant or 

responsive to this NPRM, it is important 

that you clearly designate the submitted 

comments as CBI. Please mark each 

page of your submission containing CBI 

as ‘‘PROPIN.’’ The FAA will treat such 

marked submissions as confidential 

under the FOIA, and they will not be 

placed in the public docket of this 

NPRM. Submissions containing CBI 

should be sent to Barbara Caufield, 

Aviation Safety Engineer, ECO Branch, 

FAA, 1200 District Avenue, Burlington, 

MA 01803. Any commentary that the 

FAA receives which is not specifically 

designated as CBI will be placed in the 

public docket for this rulemaking. 

Background 

Transport Canada Civil Aviation 

(Transport Canada), which is the 

aviation authority for Canada, has 

issued Transport Canada AD CF–2020– 

13, dated April 28, 2020 (referred to 

after this as ‘‘the MCAI’’), to address the 

unsafe condition on these products. The 

MCAI states: 

The engine manufacturer has discovered 

that the Automated Damage Tracking System 

(ADTS) may under-count the number of 

cycles accrued by the impeller and the High 

Pressure (HP) compressor rotor. The impeller 

and HP compressor rotor are both life limited 

components and exceeding their published 

life limits could result in the failure of these 

components. 

Failure of the impeller or HP compressor 

rotor could result in the uncontained release 

of the impeller or the HP compressor rotor, 

and subsequently could result in damage to 

the engine, damage to the helicopter, and loss 

of control of the helicopter. 

This [Transport Canada] AD mandates the 

use of the Manual Low Cycle Fatigue (LCF) 

Counting method to ensure that the impeller 

and HP compressor rotor do not exceed their 

published life limits. 


khammond on DSKJM1Z7X2PROD with PROPOSALS