|Legal Opinion Summary|
|Topic:||Incidental Authority: May an association provide third party loan administration services consisting of lock box, payment/disbursement and billing statement processing, and routine loan and accounting services? |
An association requested to provide third party loan administration services consisting of lock box, payment/disbursement and billing statement processing, and routine loan and accounting services. The association sought to provide these services for a state-funded rural development program, including developing bio-diesel and other projects. The association currently offers or performs these same lock box, loan accounting, payment processing, cash management, and information collection services for its loan customers. Providing the services for the program at issue would involve the same resources the association currently utilizes.
The Farm Credit Act of 1971, as amended (Act), authorizes System institutions to exercise "all such incidental powers as may be necessary or expedient" to carry on their business. Sections 1.5(21), 2.2(20), and 2.12(20) of the Act. These provisions provide the authority for an institution to engage in loan processing, loan servicing, and loan administration services for loans that it makes because these services are incidental to its express authority to make loans under the Act.
FCA's Office of General Counsel has previously concluded that an institution that engages in loan processing, loan servicing, and other similar services for its own loans has the incidental power to provide these services to third parties (even for ineligible loans), provided that the institution possesses, in good faith, excess capacity in its resources to provide the services. We conclude that, like the third party loan processing and loan servicing services we have previously determined are permissible under the Act, the third party loan administration services are a permissible exercise of an association’s incidental powers, as long as such association possesses, in “good faith,” excess capacity to provide these services.