By Ray Birch
WASHINGTON—The National Association of Credit Union Service Organizations (NACUSO) has launched what could become one of the credit union industry’s most significant long-term legislative fights in decades: an effort to convince Congress to dramatically raise—or potentially eliminate—the statutory cap limiting how much credit unions can invest in CUSOs, arguing the decades-old restriction is increasingly preventing cooperatives from keeping pace with rapid advances in artificial intelligence, fintech and digital banking.
NACUSO has already secured support from America's Credit Unions and the Defense Credit Union Council and hired a Washington-based advocacy firm to coordinate outreach on Capitol Hill. The effort centers on a statutory provision limiting federal credit unions’ cumulative investments in CUSOs to 1% of assets—a cap industry advocates argue was created for a vastly different financial services era and now threatens credit unions’ ability to collaborate on emerging technologies, digital infrastructure and future payment systems.
Former NCUA Chairman Dennis Dollar said the issue is becoming increasingly urgent as AI and fintech investments reshape financial services competition.
“CUSOs help credit unions share risk and build scale, both of which are crucial to competitiveness today,” stated the principal of Dollar Associates, based in Birmingham, Ala. “The statutory investment cap for CUSO investments will soon—and I would argue already has—put credit unions behind the AI and fintech eight ball.”
Randy Salser
NACUSO President and CEO Randy Salser said the organization believes the current framework no longer reflects modern competitive realities, particularly as banks and fintech firms pour billions into AI, automation and digital platforms.
“The innovation requires capital, and credit unions need to be able to invest and have a seat at the table in shaping these technologies,” Salser said. “That constraint has become an obstacle.”
Salser said the current regulatory framework governing CUSO investments was created “for an incredibly different era,” long before the Internet, artificial intelligence and modern digital financial infrastructure reshaped the competitive landscape.
He noted the issue gained traction on Capitol Hill last fall during discussions surrounding stablecoin legislation, because any credit union seeking to issue stablecoins would likely need to do so through a CUSO structure, quickly consuming the existing investment cap alongside other CUSO investments tied to insurance, business lending or back-office operations.
That requirement was reinforced in the NCUA’s latest proposal implementing the GENIUS Act. NCUA’s proposal states that federally insured credit unions themselves would still be prohibited from directly issuing payment stablecoins under the GENIUS Act. Instead, issuance would have to occur through a separately organized credit union subsidiary or CUSO that receives NCUA approval as a licensed payment stablecoin issuer.
Salser added that state leagues and credit union leaders across the movement have been collaborative, describing the effort as an opportunity for the industry to “play a little offense instead of defense all the time on Capitol Hill.”
While Salser said it remains unclear how quickly legislation could move, he expressed optimism there could be momentum within the next 18 months, while cautioning that NACUSO wants to avoid broader legislative compromises that could attach additional regulatory burdens to credit unions.
No Change In Nearly 50 Years
Dennis Dollar
Dennis Dollar pointed out the current 1% cap has remained essentially unchanged for nearly half a century despite dramatic changes in technology and market structure.
“The CUSO cumulative investment limit for federal credit unions has been at the very arbitrary number of 1% of a credit union’s assets for decades,” Dollar said. “A number of states have a higher limit for their state-chartered credit unions and the banks have a much larger and more flexible investment authority through their holding company rules. As AI and increased fintech presence emerges, credit unions as relatively smaller financial institutions are going to be challenged in their ability to compete if they cannot collaborate cooperatively through the CUSO model that shares risk and better enables the scale that many credit unions cannot achieve on their own.”
Dollar insisted the CUSO investment cap at 1% of assets in cumulative CUSO investments will soon become a major deterrent to remaining competitive as AI and fintech investment becomes more and more essential.
“The credit unions that are most progressive are the ones that have already invested in multiple CUSOs and, therefore, their capacity for more investments in AI and fintech CUSOs becomes limited when they look at the 1% cap,” he explained.
The 1% investment cap is in the law, not regulation, pointed out Dollar.
“It literally requires an act of Congress to get it removed or increased,” he said. “NACUSO is wise and far-sighted to begin educating Congress today about the challenges this CUSO investment limit is going to create for long-term credit union competitiveness in a marketplace that is literally changing daily.”
Dollar contended the cap needs to be increased to around 10% if there is to be a statutory cap at all.
“The best option would be to remove an arbitrary one-size-fits-all cap from the law or regulation, let credit unions develop their own CUSO investment policies and then the federal and state regulators can monitor the safety and soundness of those policies through the examination and supervisory process,” Dollar said.
For some credit unions, 10% may not be enough and for others one percent may be too much, noted Dollar.
“It depends on the balance sheet, capital position and risk management abilities of each credit union,” he explained. “The 1% statutory investment cap needs a good look from Congress as it’s been in effect for almost a half century. NACUSO is doing CUSOs and credit unions a huge service by raising this issue."
Outdated Rule
Brian Lauer, of Messick Lauer & Smith, and general counsel to NACUSO, concurred the current 1% cap on credit union investments in CUSOs is based on an outdated framework that lacks any meaningful policy justification.
“We’re looking at a rule that’s 40 to 50 years old, and there’s really no justification for the 1% cap,” Lauer said. “If you look at the legislative history, there’s no discussion explaining why 1% was chosen. It’s really just an arbitrary number.”
Lauer said NACUSO has been encouraged by conversations with congressional offices, despite broader concerns over legislative gridlock in Washington.
“One fascinating thing is that many congressional offices initially don’t fully understand what CUSOs are or how they impact the credit union industry,” he said. “But once we explain it and discuss the issue, we really haven’t received pushback. We haven’t heard arguments that this wouldn’t be good for credit unions, the industry or members.”
While acknowledging it is difficult to predict how quickly Congress could act, Lauer said the response from Capitol Hill staff has given him optimism.
“We’ve seen real energy from congressional staff around this issue and a recognition that the 1% cap is arbitrary and needs to be updated,” he said. “That’s what makes me hopeful.”
Lauer added NACUSO expects banking trade groups could eventually oppose the effort, though he said no direct pushback has surfaced so far.
“Typically, bankers push back on anything they believe benefits credit unions,” he said. “We assume that may happen here, but at this point we really haven’t heard anything.”