Federal credit unions could soon have more leeway to rent out orsell unoccupied space if a new NCUA rule takes effect asexpected.

Proposed in April and now open for public comment, the changewould eliminate the current requirement that federal credit unionsand any CUSOs they control must occupy 100% of thepremises they acquire for future expansion. Instead, federalcredit unions would only have to occupy at least half of theirspace on a full-time basis within six years of acquiring it.Branches, offices, service centers, parking lots and any other realestate where the federal credit union does business all count aspremises.

The NCUA said it would continue to limit the sale or lease ofexcess equipment or services, including employee sharing and dataprocessing for third parties.

“We definitely think it's a step in the right direction,”Michigan Credit Union League EVP/COO Ken Ross said. “It makes a lotof sense, because everybody knows that credit unions are under increasing stress as it relates toadditional regulatory burden, which essentially requiresadditional member assets to be allocated toward regulatorycompliance.”

Today, if a federal credit union acquires premises for futureexpansion but doesn't occupy 100% of that space within a year, itsboard must put a resolution in place by the end of that year withplans for full occupation. The proposed rule ditches thefull-occupancy requirement, the one-year deadline and theboard-resolution requirement. Instead, federal credit unions wouldneed to occupy at least 50% of their premises within six years ofacquisition.

That opens the door to new sources of noninterest income,because credit unions could rent out more of their unused orunnecessary space, Ross noted.

“Providing people with extra little streams of income here andthere that can be grouped together add up at the end of the day ina positive way on a balance sheet,” he said.

The NCUA — which has received comments on thissubject since at least 2013 — said the change could also help credit unions get better space.

“Commenters have noted that some local zoning or mixed-useordinances, city entitlements, or other use requirements mayrequire a portion of the property to be dedicated to retailbusiness,” it said in the proposed rule.

Lurking in the proposal, however, is the temptation for federalcredit unions to speculate on real estate, become de facto propertydevelopers or full-time landlords.

“The proposed change is required to avoid unnecessarily imposingundue hardship on federal credit unions that may have difficulty realizing their growth potential and member servicestrategies under the current rule,” it added. “The boardemphasizes, however, that it maintains its current view that thereis no authority in the Federal Credit Union Act for a federalcredit union to invest in real estate for speculative purposes orto otherwise engage in real estate activities that do not generallysupport its purpose of providing financial services to itsmembers.”

That shouldn't be a problem, according to Ross.

“I think the experience is that credit unions are planners, andthey plan for thoughtful allocation of resources,” he said. “Nobody's reallybeating down the door to invest huge amounts in brick and mortarthat they don't need. What this proposal is about is if you havegot a few extra square feet of space can I reasonably plan to rentthat out or lease that out to a third party with a resultingfinancial benefit to the credit union? That's, at the end of theday, all this is really about in my view.”

The window for public comment closes on June 27. See theproposed rule here.