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Farm Credit System makes a consumer push, and bankers push back

A new consumer-focused program with ties to the Farm Credit System is drawing bankers' ire.

Rural 1st, a program from Farm Credit Mid-America, will make make loans tied to lots, recreational land and construction, along with mortgages and home equity lines, to borrowers in rural markets across Indiana, Ohio, Kentucky and Tennessee.

Bankers view the move as further encroachment by an entity that is already cutting into their agricultural lending. The $334 billion-asset Farm Credit System, which lends in every state, funds about 40% of all U.S. farm business debt, according to data from the Department of Agriculture.

"I just don't understand why they feel the need to get into consumer loans," said Kreg Denton, a senior vice president at First Community Bank of the Heartland in Clinton, Ky. "That’s not what they were created for."

The $224 million-asset First Community competes with Farm Credit on a daily basis, added Denton, who is also a former chairman of the American Bankers Association's agricultural committee. If the Farm Credit System is going to offer the same services as banks, then its associations should be held to the same regulatory standards, including the Community Reinvestment Act, he said.

Bankers have asserted for years that, similar to credit unions, the Farm Credit System’s tax breaks give it an unfair competitive advantage.

“We would argue that the Farm Credit System should focus on farmers, which was the intended purpose when it was set up at the beginning of the last century," said James Thurston, a spokesman for the Ohio Bankers League. "Regulators need to ensure it is doing that and not going into direct competition with nonsubsidized entities such as banks and thrifts.”

The Farm Credit System has been making consumer loans for years, though it hasn't gotten that much attention.

Consumer loans made up about 4.4% of the Farm Credit System's $261 billion portfolio at June 30.. The creation of Rural 1st helps establish a specialization in the consumer business, said Art Whaley, senior vice president of consumer lending for Farm Credit Mid-America and Rural 1st.

Some believe Farm Credit is hoping to pull more people into the network by offering residential loans to nonfarmers living in, or moving to, rural areas, said Ed Elfmann, the ABA's senior vice president of agricultural and rural banking policy.

Farm Credit was formed in 1916 to serve farmers by providing long-term credit to develop and grow farms. Today, it serves a wide variety of clients — and banks believe it has gone too far, Scanlan said. In 2013, a Farm Credit System’s branch made a controversial $725 million loan to Verizon Wireless.

“The type of question we get from banks is, ‘Why do they get a tax exemption on income for providing home mortgages when banks have to pay taxes for serving the same customers?’ ” said Mark Scanlan, senior vice president of agriculture and rural policy at the Independent Community Bankers of America.

“It’s really becoming a bigger issue every year,” said Gus Barker, an executive vice president at First Community Bank in Newell, Iowa, who has shared his concerns in testimony before the Senate Committee on Agriculture, Nutrition and Forestry. “They seem to keep expanding. They have an unlimited budget and they keep hiring people to go out and solicit business away from us. It really is a problem for us in rural America.”

When a land auction takes place First Community’s territory, the $92 million-asset bank will send one or two bankers, while the Farm Credit System will often have 15 lenders in attendance, Barker said.

“Their offices are huge, beautiful and new, and they’ll send folks out in pickups to provide refreshments, make calls to everyone in the neighborhood," Barker said. "It’s a struggle for us to try to maintain the relationships with those big solid customers."

The Farm Credit System wants “to share the benefits and value of rural living with a wider audience," Whaley said in response to bankers' criticism.

“Whether we are helping a farmer to refinance their home for improvements, or providing financing to someone moving to a rural community, this type of financing supports the Farm Credit mission of securing the future of rural communities and agriculture,” Whaley said.

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