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Legal Opinion Summary
Topic:Incidental Authority/Excess Capacity: May an agricultural credit association process rural home loan application packages for a non-Farm Credit System lender?
ID Number:98-01
Issue Date:03/27/1998

An agricultural credit association (ACA) inquired whether it is authorized to take and complete loan applications, verify application information, provide required disclosures and otherwise complete loan submission packages for rural home loans for a non-Farm Credit System (FCS) lender. The ACA has incidental authority under the Farm Credit Act (Act) to perform these services for loans that it makes, and has, in good faith, obtained excess capacity to perform these activities. OGC therefore concluded that the ACA may process the loan application packages as long as it continues to maintain its excess capacity in good faith.

FCS associations have express authority under the Act to make and participate in rural home and other loans. Processing loan applications is not expressly authorized by the Act, but is necessary for associations to carry out the business of making loans. The ACA is therefore authorized to process its own loan applications pursuant to its incidental powers under section 2.2(20) of the Act (12 U.S.C. 2073(20)). Processing and packaging eligible rural home loans for another lender is also within the ACA’s incidental authority because it will enable the ACA to fully utilize its excess loan processing capacity and extensive branch network which it acquired and maintained in good faith. In reconsidering a 1997 opinion, OGC noted that the Office of the Comptroller of the Currency (OCC) had issued a recent decision finding that a national bank’s purchase of a printing company, which provided services convenient and useful to the bank’s business, was authorized under the bank’s incidental authority. The OCC further determined that if a bank, in good faith, has excess capacity in an asset used to conduct its banking business (such as the printing company), the bank may make full economic use of that capacity (including providing printing services to nonaffiliated entities) under its incidental authority.

(March 27, 1998)