Rural banks scored a victory Tuesday in their fight to stave off an effort by the Farm Credit Administration to expand the role of government-backed agricultural lenders.

A last-minute letter from eight members of the Senate Agriculture Committee persuaded the agency to delay action on a controversial rule that would loosen restrictions on who is eligible to borrow from the system, and for what reasons.

Instead of approving the rule as expected, the Farm Credit Administration agreed to give Congress 30 days to evaluate it. The agency already gave Congress a month to consider the plan. Following the second review, the agency is expected to reissue the rule for a 30-day public comment period.

"The delay is certainly a positive sign," said John M. Blanchfield, associate director of the American Bankers Association's agricultural banking division.

The Farm Credit System is a government-sponsored enterprise that lends to farmers and other rural borrowers. Rural bankers have labeled the system an unfair competitor, although it has been losing market share steadily during the past few years.

"The system has been taking business away from private-sector banks," said Phil Burns, president of Farmers and Merchants National Bank, West Point, Neb. "I don't see how they can define any need for this expansion of power other than to continue their existence."

The rule, which originally was proposed last summer, would allow a farmer to borrow money for nonagricultural purposes in an amount equal to the value of the farmer's agricultural assets. This change has the industry crying foul.

"This provision moves the system away from agriculture and into nonfarm lending, and that has us very concerned," said Mark Scanlan, the Independent Bankers Association of America's agricultural lobbyist.

In their June 24 letter to the agency, the eight Senate Agriculture members stressed that they do not necessarily oppose the changes, but need time to evaluate them.

"We want to be certain that the proposal is clearly understood by Congress and is in the best interest of farmers, taxpayers, and the rural credit markets," the senators wrote.

The Farm Credit Administration did throw a bone to bankers. Originally, the proposal would have allowed the system to provide housing loans to nonfarmers in small communities situated within metropolitan statistical areas. The agency on Tuesday proposed to limit these loans to rural communities with 2,500 or fewer people.

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