A federal appeals court has rejected most of the industry's challenge to a Farm Credit Administration rule that expands the types of borrowers that qualify for credit.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia said Tuesday that the Farm Credit System may generally extend credit to companies that serve farmers.

But the court did clamp down on one type of lending. Farm Credit institutions may make rural housing loans only if the borrower will live in the dwelling. Under a rule issued two years ago, the Farm Credit System did not have a residency requirement.

"That's a clear victory for us," said John M. Blanchfield, manager of agricultural banking for the American Bankers Association, which had sued the government along with the Independent Bankers Association of America in 1997. "That greatly restricts what Farm Credit was trying to do."

The decision partially overturns dismissal of the case by a lower court judge in November 1997. Both sides may appeal.

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