Trying to stop what they call unfair competition, two trade groups Tuesday appealed a court ruling allowing the Farm Credit System to expand its lending.
The American Bankers Association and the Independent Bankers Association of America contend a federal judge erred when he gave the government- sponsored enterprise permission in December to extend credit to businesses that serve farmers, such as seed and equipment dealers.
They asked the U.S. Court of Appeals for the District of Columbia to overturn the judge's decision and block a January 1997 rule expanding the Farm Credit System's operations.
"A lot of bankers have said, 'Enough is enough,'" said Mark K. Scanlan, agricultural lobbyist for the IBAA. "They want to challenge the Farm Credit System."
Marsha Pyle Martin, chairman of the Farm Credit Administration, said she expects to prevail. "This regulation is well within the original intent of the law," she said. "It is therefore very unfortunate that the ABA and IBAA chose to expend even more resources to challenge such a strongly stated opinion."
"We fully expected that they would appeal," said Stephen T. Phelps, senior vice president and general counsel of the Farm Credit Council, the trade group for Farm Credit banks. "It doesn't surprise us, nor does it concern us."
The controversy centers on a Farm Credit Administration rule allowing member institutions to extend credit to companies that derive more than 50% of net income from farm-related services. The loans must be used to finance portions of the businesses that serve farmers.
Previously, Farm Credit institutions could lend to such companies only if almost all their net income came from farm-related businesses. As a result, these lenders extended credit mostly to ranchers and farmers, with only 1% of loans going to farm-related businesses.
The bank groups claim that Congress never intended the Farm Credit System to compete head-to-head with commercial banks. Rather, they argued, lawmakers wanted it to serve farmers and ranchers in rural America who had difficulty obtaining credit elsewhere.
The IBAA's Mr. Scanlan called the rule "unenforceable," saying it is often difficult to determine how much of a company's net income comes from farm-related services.
