Roderick R. Rovzar, Esquire
Norman, Hanson & DeTroy, LLC
415 Congress Street
P.O. Box 4600
Portland, Maine 04112-4600
Re: Credit Union Service Organization Leasing Activity.
Dear Mr. Rovzar:
You have asked whether it is a permissible credit union service organization (CUSO) activity for a CUSO to purchase a building from a federal credit union (FCU) and then lease one third back to the FCU and the other two thirds to entities that are not credit unions or members of affiliated credit unions. As explained below, the answer is no.
Fraser Federal Credit Union (Fraser) plans on establishing a wholly owned CUSO. The purpose of the CUSO is to purchase Fraser’s former office building and lease one third of the building to Fraser. You state that the remainder of the property would be leased as follows: to an insurance agency owned in part by a group of credit unions and whose clients would be primarily credit union members; to a financial services company owned in part by credit unions which will seek to include among its customers primarily credit union members; and a much smaller area to an independent insurance adjustment firm associated with the other insurance agency tenant.
You note that the leasing of excess CUSO property is a permissible CUSO activity. 12 C.F.R. §712.5(h)(2). As explained in the attached preamble to the final rule issued in 1998, this provision “covers real estate leasing only of premises acquired for CUSO business, and otherwise mainly used in CUSO business, that may later be used for future CUSO expansion.” 63 Fed. Reg. 10743, 10751 (March 5, 1998). The CUSO is not purchasing the building for CUSO business and the CUSO, itself, will not occupy any part of the property. Therefore, it may not lease the excess space under this provision.
In addition, your letter notes as authority for the proposed activity the provision of the CUSO rule that permits the leasing of the CUSO’s fixed assets as a permissible activity. 12 C.F.R. §712.5(f)(1). If you rely on this authority, the CUSO must primarily lease the property to credit unions and the members of affiliated credit unions.
Sheila A. Albin
Associate General Counsel
cc: Region I