Rural community bankers may have to drastically reduce lending on agriculture if the federal government cracks down on 20,000 farmers who aren't paying back federal loans.
A Department of Agriculture rule that took effect in August cuts off government cash aid to farmers who are delinquent on federal loans.
However, six senators and the Independent Bankers Association of America have asked the agency to continue providing the aid funds because they fear already beleaguered farmers and the banks that lend to them would be harmed.
"It's going to make bankers shy away from ... marginal borrowers," said Mark Scanlan, IBAA's agricultural lobbyist.
"The assurance of those ... payments gives the bankers enough comfort to extend loans to the farmer," said Terry Jorde, president and chief executive officer of Towner County State Bank, Cando, N.D. "It makes it especially difficult for bankers to find a way to keep the farmers on the farm."
The IBAA lobbied senators in the Upper Midwest, who then wrote to Agriculture Secretary Dan Glickman. The senators said the rule may "cause undue hardship on already stressed family farms and disrupt credit relationships in rural America."
The letter was signed by Democrats Tom Harkin of Iowa, Byron L. Dorgan and Kent Conrad of North Dakota, Robert J. Kerrey of Nebraska, and Thomas A. Daschle and Tim Johnson of South Dakota.
But the department is not backing down.
Marlyn Aycock, a USDA spokesman, said the new collection system is "not negotiable." The Debt Collection Improvement Act of 1996 requires all agencies to recoup delinquent loans, he said.
"I know there's some concern from the banking community," Mr. Aycock said. "But the law says we do it-period.
"At some point the person who owes money has to have a reckoning," he said. "They have to come to grips with their delinquency."
Farmers face losing semiannual cash payments from several assistance programs, including one that guarantees farmers who signed up last year a sum based on planting history. Another, the Conservation Reserve Program, gives farmers cash if they agree not to plant a piece of land for 10 years.
Meanwhile, the American Bankers Association is taking a different stance. John M. Blanchfield, the association's manager of agricultural banking and rural development, said the government should notify lenders before cutting off credit to farmers. Without this warning, he said, banks may continue to extend credit in the mistaken belief that farmers are still eligible for aid payments that can be used as collateral.
"If we're going to have this, fine-let's collect those loans," Mr. Blanchfield said. "But let's have access to this information." u