- change ups
Credit unions diversifying product offerings
Credit unions aren’t just about savings accounts, auto loans and home equity loans anymore.
Thanks to credit union service organizations, many credit unions now are finding ways to increase their product offerings to fit the full scope of members’ financial needs.
A CUSO is a separate entity from a credit union, but it shares the same membership and is housed within the credit union.
A CUSO can offer such things as insurance products, financial planning services, income tax services and real estate services.
Varnum attorney Steve Buquicchio said credit unions have really started to compete in the last decade with banks and other financial institutions for customers, which has increased the number of CUSOs out there.
“As credit unions are looking for ways to diversify their products and member offerings, CUSOs are one way to do that.”
He said the advantage to credit unions is the opportunity to generate positive income while at the same time providing a greater benefit to members.
“CUSOs are definitely a topic credit unions should look at in determining whether or not they want to expand products and services to their memberships,” Buquicchio said. “One, as a way of offering that membership more services, and two, as a way to generate more income that will lead to additional benefits to the membership base, because that money gets thrown right back into the credit union and ultimately benefits the members.”
Because credit unions are a highly regulated industry, CUSOs must meet strict criteria.
“They have to be separately capitalized. They can only engage in business up to a certain percentage of assets, and there are a number of things that the CUSO has to attest to regarding separateness,” Buquicchio said.
“What it really comes down to is, essentially, protecting the assets of the credit union because the assets of the credit union are made up of, in large part, member funds.”
Despite being a generally good idea, Buquicchio said there are still a number of things a credit union needs to think about when deciding to enter into a relationship with a CUSO.
“Number one, there is a statute in the state of Michigan under the Michigan Credit Union Act that provides regulations on the types of industries and services that can be provided under the CUSOs.”
Credit unions need to make sure the services and industries being covered fall within what’s allowable under the statute.
“The other pitfall is there are restrictions on how much of an investment in the CUSO a credit union can make,” Buquicchio said. “It’s typically a percentage of assets of the credit union.
“You need to be aware, depending on what service industry or service you are offering through the CUSO, you meet the financial regulations regarding maximum level of investment.”
Finally, Buquicchio said credit unions should seek out references from other credit unions before signing a contract agreement.
“You have to make sure you are partnering with companies that are respected and have a lot of stability in the credit union world,” he said. “Get references from other credit unions.”
Buquicchio said credit unions experienced strong growth following the bank bailout, and he expects that trend to continue even as the economy rebounds.
“Credit unions were looked at as neighborhood- or community-based financial institutions, where the decisions were being made within the community, and members felt like they were in partnership with these credit unions during tough times,” he said.
He noted that banks and other financial institutions were reevaluating their loan products and underwriting, while credit unions had money to lend and were still providing those services to members.
Overall, Buquicchio said that as long as a credit union applies the proper due diligence, CUSOs are generally a good business decision.