Proposed Federal Credit Union FCU and Proposed Financial Institution Servicing Subsidiary

Les Alvis, Esquire
Riley, Ford, Caldwell & Cork
207 Court Street, P.O. Box 1836
Tupelo, Mississippi 38802

Re: Proposed Federal Credit Union (FCU) and Proposed Financial Institution Servicing Subsidiary, Your letter dated July 6, 1999.

Dear Mr. Alvis:

You have asked for a legal opinion on a "proposed financial institution servicing subsidiary" and a proposed FCU that are briefly described in attachments to your letter.

FCU chartering is handled by the National Credit Union Administration's (NCUA's) regional offices. Chartering requirements are found in NCUA's Chartering and Field of Membership Manual, IRPS 99-1. You propose a community charter credit union that would primarily serve the employees of a corporation. An FCU may be chartered as a community charter or an occupational charter, but not a combination as you have suggested. If you are still interested in chartering an FCU, you should contact our Region III Office, Division of Insurance, (678) 443-3000.

You also ask whether an FCU can contract with a third party, referred to in your letter as a "proposed financial institution servicing subsidiary," to provide services to the FCU and its members. An FCU can contract with a third party to provide services as long as the services are ones that the FCU is allowed to contract for and the FCU does not receive compensation in excess of that allowed in Part 721 of NCUA's regulations. 12 C.F.R. Part 721. The proposed contract requires the FCU to follow the contractor's advice. An FCU's board of directors is not allowed to abrogate its decision making responsibility. If this requirement is part of the contract, it is impermissible.