Agricultural bankers are mobilizing against a movement to put them second in line behind some nonbank agricultural lenders when collecting debts from farmers.
The National Conference of Commissioners on Uniform State Laws, a group of 330 attorneys that reviews state laws and recommends uniform changes, is reviewing the portion of the Uniform Commercial Code that determines which lender takes a priority or "super" lien position on agricultural loans.
Article 9, which gives priority to bankers, was last revised in 1972. Since then bankers and agribusiness creditors have been fighting over it, said John McCabe, legal counsel and legislative director for the lawyers' conference.
Nonbank lenders "have to wait in line, and they don't like it," Mr. McCabe said. "This is the scheme of Article 9-who is first. Everyone always wants to be first."
Commercial bankers say they should keep their position because they take on more risk than so-called input agribusiness creditors. The bankers' foes on the issue are short-term lenders for seasonal purchases such as fertilizer and seed, said Mark K. Scanlan, agriculture/rural America representative for the Independent Bankers Association of America.
If such nonbank creditors were given priority lien status, they would be virtually guaranteed repayment, Mr. Scanlan said, because even in a poor crop year farmers would have enough revenue to cover the short-term loan payments. If short-term loans were paid off first, he said, bankers would have even less to collect from their agricultural borrowers.
Washington State already has a super lien law that puts banks behind creditors that make short-term loans for seasonal purchases. James H. Tribbett, president and chief executive officer at $93 million-asset Bank of Whitman in Colfax, Wash., said it must lend more carefully to its farm borrowers because of this added risk.
"Bankers should have priority when making a loan." he said. Mr. McCabe said the commissioners' Article 9 drafting committee was scheduled to meet over the weekend to review the issue. Nonbank creditors and commercial lenders were to have an opportunity to lobby the commissioners at Saturday's public meeting.
Agricultural bankers who attended the American Bankers Association's agricultural lending convention in Milwaukee last week signed resolutions urging the commissioners to recommend that Article 9 keep the bankers in front. The resolutions and other letters in support of the status quo were to be presented to the commissioners Saturday
The drafting committee is expected to meet two more times before the entire membership votes next summer on whether to recommend any changes to Article 9. Implementation depends on action by state legislatures.