|Legal Opinion Summary|
|Topic:||Credit Delivery: May an association provide credit through a VISA credit card issued by a commercial bank?|
An association asked whether it could enter into a proposed alliance with a commercial bank that would enable the association to offer eligible borrowers financing through a VISA credit card issued by the bank. Under the program, the association's loan officers would evaluate loan applications for credit underwriting and eligibility purposes and offer approved applicants the opportunity to obtain a VISA credit card for delivery of all or part of the loan proceeds. The association would then forward VISA applications for those who wanted VISA cards to the bank, which would evaluate the applications. Upon the bank's acceptance of a VISA application, all required borrower rights would become part of the VISA card agreement. Borrowers could use the credit card for all eligible purchases, just as they could use a line of credit from the association. Each time a borrower made a purchase with the VISA card, the association would reimburse the bank through a general settlement account. The individual borrower's account would be debited monthly. Any necessary stock purchase requirements would be satisfied when the borrower's account is debited. The association would have all rights to collection of accounts from borrowers although, for risk of loss purposes, the bank would agree to accept a five percent risk of loss.
A VISA card is a new delivery method for Farm Credit System credit. Regardless of the delivery method -- whether by VISA card, trade credit through a vendor, or a credit line from an association -- all loans must meet applicable eligibility, stock purchase, borrower rights, security, and other requirements of the Act and FCA regulations. The association's proposed VISA program takes into account compliance with eligibility, borrower stock, and borrower rights requirements. In addition, the association's loan officers will make individual credit decisions and approve maximum limits on the VISA card within approved credit limits. Under the VISA program, the bank will provide monthly statements to borrowers, but the association has ultimate collection authority on the loans, which will allow them to comply with borrower rights requirements. Because the VISA credit delivery program meets all of the requirements for extensions of credit by the association, we concluded it complies with the Act and FCA regulations.