WASHINGTON -- A proposal to expand the Farm Credit System's lending authority is drawing fire from agricultural bankers who fear the changes will undercut them in one of their traditional markets.
The Rural Credit and Development Act of 1994 would broaden the definition of the word "rural." Currently, the Farm Credit System can lend only in communities with populations of 2,500 or less. The legislation expands the agency's lending authority to communities with populations of up to 20,000 people.
The bill was introduced March 24 by Rep. Eva Clayton, D-N.C.
Worries Expressed
Agricultural lenders fear that lifting existing restrictions on the Farm Credit System, a congressionally chartered private enterprise much like Fannie Mae or Freddie Mac, would introduce a player with loads of cash into a market already being served by the private sector.
"The Farm Credit System is looking to expand outside of its original charter," said Jeff Plegge, chairman of the agricultural bankers division of the American Bankers Association.
"They are basically looking to move away from production agriculture to suburban America to do home lending. We don't see that as serving the needs of agriculture at all."
Mr. Plegge is also president of the $85 million-asset First National Bank in Waverly, Iowa.
$54 Billion Outstanding
The Farm Credit System System provides $54 billion in loans to more than a half-million borrowers, raising funds through the sale of bonds in the capital markets.
Through a system of eight Farm Credit Banks, the proceeds are made available to farmers and ranchers and agricultural, electrical, and telephone cooperatives, as well as rural utility and water systems.
Although members of the Farm Credit System are quick to point out that this is a rural economic development bill, not a farm credit bill, they are pleased with its potential to expand the system's competitive reach.
"There isn't anything in this bill that doesn't reflect changes occurring in the world of agricultural and rural America," said Bill Weber, president of the Farm Credit Council, the national trade association of the Farm Credit System.
Says Farmers Need More
"Today, farmers are processing, marketing and becoming more capital and technology intensive. Way back when, it was all about production agriculture, but now the typical farm operation goes beyond the farm gate."
The bill is awaiting action by the House Agriculture Committee's environment, credit and rural development subcommittee. The Farm Credit Council, the system's trade association, is relatively confident the bill will pass. But bank industry lobbyists do not feel the legislation will pass in its present form.
"I don't think this is going anyplace soon," said Ron Ence, director of agricultural finance at the Independent Bankers Association of America.
Mr. Ence acknowledged the Farm Credit System is likely to get more involved in rural development, but he said the agency should not get a free ride.
"If they want to have bank-like powers, they should have to go out and get a bank charter," he said.
Congress created the Farm Credit System through the Federal Loan Act of 1916 to provide dependable credit to agricultural producers at competitive rates.
