Equity or Venture Capital Funding CUSOs

The Michigan Commissioner of Financial and Insurance Regulation has issued an order that will expand the ability of state-chartered credit unions to serve Michigan small businesses.

The order will permit state-chartered credit unions to invest in a credit union service organization (CUSO) that provides investment administration and other services related to small business equity or venture capital funding.

The Office of Financial and Insurance Regulation concluded that allowing state-chartered credit unions to invest in CUSOs that offer these services will better enable state-chartered credit unions to compete with Michigan chartered banks and savings banks.

In addition while federal credit unions cannot exercise this power, the Commissioner noted that Iowa chartered credit unions have this authority.

The state regulator did impose limitations on the amount a state chartered credit union may invest in a CUSO offering small business or venture capital funding. No more than 10 percent of a credit union’s net worth can be invested in a CUSO providing this service and the aggregate investment in any entity or group of related entities cannot exceed 25 percent of the credit union's net worth.

The order has other limitations, including officers and directors of a state-chartered credit union with an ownership interest or investment in the CUSO shall not hold an equity position in a small business financed by the CUSO.

Read the order.