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Legal Opinion Summary
Topic:Incidental Authority/Excess Capacity: May an association engage in promotional activities for itself and another business by incorporating a hyperlink to the other business on its website and by permitting the other business to lease out its office space from time to time?
ID Number:02-04
Issue Date:06/12/2002

In order to make available expanded services to its borrowers and to attract new borrowers, an association has entered into an alliance with a business that sells financial planning and insurance products and services. The association, which plans to provide a hyperlink on its website to connect its visitors to the other business, will earn a small fee for each referral. The association will also permit the other business to conduct sales seminars on association premises from time to time and will provide the administrative support necessary for these seminars. The other business will compensate the association for the use of its office space and staff.

We concluded that the proposed alliance and activities in which the association proposes to engage are permissible under the Farm Credit Act of 1971, as amended. The association has express authority to enter into contracts, exercise all the usual incidents of real and personal property, and make loans. See Act, 2.2(3), (5), (13), 12 U.S.C. 2073(3), (5), (13). The association also has incidental authority to engage in other activities that are necessary or expedient to carrying on its business. See Act, 2.2(20), 12 U.S.C. 2073(20). Engaging in promotional activities to attract new borrowers and making additional services available to existing borrowers are necessary or expedient to the association’s business.

The modest income that the association will derive from these activities will help it recoup its website maintenance costs and the costs of paying its clerical staff. As we have frequently opined, an association may make full use of its excess capacity in real estate, equipment, or staff to avoid waste or economic loss so long as it has acquired and maintains the excess capacity “in good faith,” – i.e., in the good faith expectation that these resources are required for the conduct of business and cannot feasibly be reduced. The minimal website space, office space, and staff support that the association will provide in connection with this business alliance can fairly be characterized as excess capacity acquired and maintained in good faith. Thus, we concluded that the proposed activities are within the association’s authority to pursue.