The reasons for using a CUSO are as follows:

1. A CUSO is still needed to legally provide some services. For example, if a credit union desires to provide nondepository trust services or to be engaged as an active mortgage broker, these services require powers that credit unions do not have and therefore the services must be through a CUSO. This is also true for a credit union that wants to be an active property and casualty insurance agency. If the goal is to have direct appointments from insurance carriers and actively sell insurance, this is not an activity that credit unions are empowered to do, so an active insurance agency must be a CUSO. Note that the credit union is permitted to enter into an agreement with an insurance agency for the sole purpose of referring business to the insurance agency. If the credit union had an insurance license or is otherwise permitted to receive commissions under state insurance laws, the insurance agency could send a portion of the commissions to the credit union as a referral commission. This situation would not require the credit union to be an active insurance agency.

2. There is a desire to leverage the advantages of scale by having other credit unions join in a cooperative model. CUSOs are the model for cooperative arrangements among peer credit unions. If you intend to bring in other credit unions as partners in the delivery of a service, the CUSO model should be used. Note that a credit union has the option of providing services to other credit unions without the need of a CUSO but the other credit unions would not be able to have an ownership interest without a CUSO. Sometimes the ownership interest is a necessary strategic step to attract and retain key credit unions as customers of the CUSO. These cooperative arrangements can be very powerful tools to create economies of scale and economic power in the marketplace.

3. There is a need to raise capital outside of the credit union. Credit unions are limited by regulation as to the amount of capital that it can invest in its CUSOs. By having multiple investors, credit unions may draw upon the capital of others. These other investors could be other credit unions or even non-credit unions. Caution should be taken with non-credit union investors as their goals, especially on the importance of the profit margin, may ultimately conflict with the credit union investors. Also note that senior officials of the credit union may not own CUSO shares under the conflict of interest prohibitions.

4. There is a desire to build equity that the credit union can sell in whole or in part at a future time. A successful CUSO will generate equity growth, which can be sold in whole or in part as other investors buy in. This can be very profitable to the credit union, as many credit unions have happily learned.

5. There is a desire to create a for-profit, entrepreneurial sales culture that can attract and retain a talented and creative staff and complement the credit union’s mission. There are only so many opportunities to advance within the credit union. A CUSO provides alternate and additional career paths to attract and retain quality staff. A for-profit CUSO can attract a sales oriented staff that can assist the credit union compete in the highly competitive financial services marketplace.

6. The target market includes significant non-member business. A CUSO may serve non-members as long as the majority of its business is with members. If your target sales market includes non-member business, a CUSO should be used. Note that the property and casualty business could have persons or companies clients who cannot qualify for membership in the credit union. Since Incidental Powers does not permit the sharing of revenue for non-member business with a credit union, the revenue from the non-member business can only be realized in a CUSO.

7. There is a desire to isolate liability away from the credit union. If the credit union has liability risk concerns for these ancillary services, a CUSO can help manage the risk outside of the credit union.

The reasons to use the credit union Incidental Powers and not a CUSO are as follows:

1. The credit union wants to receive a referral fee for offering the alternative financial services to its members without it actually providing the alternative financial services.. Incidental Powers permits a Finders Activity fee that is paid by a third party vendor to a credit union for access to its members. Incidental Powers do not empower credit unions with the ability to provide any expanded financial services. Note that credit unions may be required to obtain appropriate licenses to receive income for some services, e.g. insurance commissions.

2. The credit union thinks that the integration of alternative financial products can be better achieved by having the services “in the credit union”. As separate entities, CUSOs where often a structural hindrance in achieving full integration of the alternative financial services with the traditional credit union financial services. The removal of the CUSO is regarded as a plus by many credit unions in their quest for full integration. It removes some psychological barriers.

3. If the credit union desires to provide some services to other credit unions as customers but does not want to take on partners, there is no need for a CUSO.

4. The credit union is comfortable with the risk management issues of running the services within the credit union.

5. The credit union’s target market is overwhelmingly member only business.

6. Forming and running a CUSO is a distraction that the credit union desires to avoid.