January 27, 1992
Randall M. Rumph, Esq.
Shinehouse & Duesing
First Interstate Bank Building
302 East Carson Ave.
Las Vegas, NV 89101-5905
Re: Federal Credit Union ("FCU") Leasing Residual Value Requirement (Your Letter of January 10, 1992)
Dear Mr. Rumph:
You requested an opinion regarding whether the residual value requirement in NCUA Interpretive Ruling and Policy Statement No. 83-3, FCU Leasing of Personal Property to Members ("IRPS 83-3") refers to the purchase price of the leased property or the total amount financed by the credit union. The residual value requirement relates to the original cost of the personal property leased by the FCU.
In pertinent part, IRPS 83-3 states: "The leases must be net, full payout leases, with a maximum limit of 25 percent residual value to be relied upon for the full payout requirement. Any reliance beyond the 25 percent is permissible if guaranteed." IRPS 83-3, 48 Fed. Reg. 52568, 52569 (Nov. 21, 1983) (For purposes of convenience, all references to IRPS 83-3 are to the enclosed copy of IRPS 83-3 as adopted by the NCUA Board on November 10, 1983. The quoted language appears on page 7).
The preamble to IRPS 83-3 discusses this requirement:
In [M & M Leasing Corp. v. Seattle First Nat. Bank, 563 F.2d 1377 (9th Cir. 1977), cert. denied 436 U.S. 956 (1978)] ... the court states that the residual value of the leased property at the expiration of the lease may contribute only insubstantially to the recovery under the lease. Following the example of the Office of the Controller of the Currency, the NCUA Board has determined that FCUs shall place a maximum limit of 25 percent of the original cost of the leased item on residual value estimates to be relied upon to meet the full payout requirement. Higher estimates will be allowed if the residual value is guaranteed by a financially capable party. The guarantor may be the manufacturer, the lessee or a third party who is not an affiliate of the FCU. In all cases, the residual value relied upon must be reasonable in light of the circumstances. This policy is adopted so that FCUs will not place excessive reliance on residual values that may be somewhat speculative and may, therefore, subject FCUs to increased risk. IRPS 83-3, pp. 3-4 (attached) (emphasis added).
The NCUA has also stated on other occasions that the 25 percent residual value requirement relates to a reasonable original cost of the personal property leased. In rendering this opinion the NCUA in no way expresses any opinion concerning the specific facts of the pending litigation you described in your letter.
Hattie M. Ulan
Associate General Counsel