Farm Credit System lenders are largely confined to making farmland loans, but they have begun to lay the groundwork for legislative and regulatory changes that would enlarge their lending powers.
On Tuesday the trade group representing the system's 101 lenders said in a report - which it plans to distribute to members of Congress - that farmers and other residents of rural areas need more options for financial services because traditional lenders are not meeting all of their needs.
The report, "21st Century Rural America: New Horizons for U.S. Agriculture," stops short of asking Congress or the Farm Credit System's regulator to let Farm Credit lenders make more types of loans. Kenneth E. Auer, the president of the Farm Credit Council, said the system's lenders do have specific policy recommendations in mind but want to promote discussion of the issues facing rural America before advocating any changes.
"We didn't want to have a debate about the specific policy options," Mr. Auer said in a telephone interview from Kissimmee, Fla., where the trade group is holding its annual convention this week. "We wanted to get people comfortable talking about the issues and then discuss specific policy recommendations down the road."
Bankers, though, say the report is a first step in a coordinated lobbying effort to widen the Farm Credit System's powers and use its tax-exempt status to steal business from banks.
"It's a well-choreographed fan dance where they reveal little pieces at a time," said John M. Blanchfield, the director of the American Bankers Association's Center for Agricultural and Rural Banking.
As evidence he pointed to a draft report written in October that lays out specific recommendations for letting Farm Credit lenders make all types of loans to their farm customers - such as automobile and home equity loans - and make loans to agribusinesses that are not entirely owned by farmers. (Currently, Farm Credit System lenders can lend only to cooperatives that are 100% owned by farmers.)
The October report also suggests that the definition of "rural communities" in the Farm Credit Act be changed so that Farm Credit System lenders can make home loans in communities with more than 2,500 residents. Farm Credit lenders are permitted to make home loans, but only in towns with a population of less than 2,500.
Congress created the Farm Credit System in 1916 to ensure that farmers had a reliable source of credit. Its lenders are exempt from paying taxes on the income they make from long-term farm real estate loans. Though they do pay state and local taxes, bankers say the real estate tax exemption gives system lenders an unfair advantage when pricing loans to farmers.
This week's 27-page report documents the official findings of the Horizons Project, which was started by the Farm Credit Council 18 months ago to look at changes in rural America. The October document was a draft used to promote discussion within the system, Mr. Auer said.
He said that the official document released Tuesday would be given to Congress, the press, and boards of Farm Credit System lenders.
Among the report's conclusions is that many farmers rely on off-farm income from other jobs and businesses to pay their bills, and says that many farmers own small, nonfarm businesses. Because of this, the report says that farmers "will be challenged to unlock the potential of current agricultural assets to reinvest in important off-farm businesses.
"The financial services providers of the future must adapt and change with the customer to deliver ongoing access to reliable, flexible financial products and services," the report said.
The October draft document recommends that the system push for regulatory changes to allow a farmer to borrow from the Farm Credit System for nonfarm businesses. It also recommends that farmers be able to pledge any real estate assets they own, including real estate of a nonfarm business, for longer-term loans.
Mark K. Scanlan, the director of agricultural finance for the Independent Community Bankers of America, said Tuesday's report is an argument against giving the system's lenders expanded powers because it shows they are not meeting their current mission.
"They give this example that in small rural communities there is less access to mortgages," Mr. Scanlan said. "Congress should ask them why they haven't done their job in making mortgages available to low-income people in areas under 2,500."
Mr. Auer said that bankers are overreacting to both reports.
"The system recognizes that we are one piece in the picture in order to meet the needs of these communities," Mr. Auer said. "Our folks work with community banks every day across the country; that is the only way that agriculture and the rural communities are going to have their full credit needs met."
