Having been a defendant in four lawsuits in connection with loans guaranteed by the Farm Service Agency, Gold Banc Corp. Inc. of Leawood, Kan., has filed a suit of its own — against the agency.
The $4.3 billion-asset company claims in its suit, filed June 7, that the regulatory language on the rates banks can charge borrowers on FSA-guaranteed loans are “unconstitutionally vague.”
“People of common intelligence must necessarily guess at their meaning and differ as to their application,” Gold said in documents filed in federal court in Kansas City, Kan.
A company representative, asked to discuss the matter, would not go beyond the disclosure in a Securities and Exchange Commission filing.
As defendants the suit names the FSA; the Department of Agriculture, of which it is a part; and Agriculture Secretary Mike Johanns.
The FSA’s handbook says the interest rate on a loan with a guarantee cannot exceed the rate the lender charges its “average” agricultural loan customer. “Average,” however, is not defined.
Bankers who use the loan-guarantee program said they will be following the suit closely. Some said they do not mind the vagueness because it gives them flexibility — which they said they could lose if the suit went forward.
The agency provides loan guarantees to farm lenders for as much as 95% of the principal amount. The program is aimed largely at borrowers who might not otherwise get credit. Borrowers must apply for loans through traditional lenders, which then request the guarantees.
Interest rates on guaranteed loans first became a problem for Gold when it was trying to sell itself to Silver Acquisition Corp. last year.
Last June, Gold revealed that it was the defendant in a qui tam lawsuit — a secret suit filed by a private individual on behalf of the government. The suit accused the company of charging excessive rates on FSA-guaranteed loans.
The suit was settled in principle last August for $16 million, but the settlement contributed to the termination of the sale, under a material-adverse-effects clause. And that suit was only the beginning of Gold’s FSA headaches.
In a September suit, another group of plaintiffs alleged the same overcharging. That suit was dismissed in January.
The plaintiffs refiled in another court. That suit was dismissed with prejudice in May; the plaintiffs can appeal.
And on June 7, Gold announced that another suit claiming it had overcharged on FSA-guaranteed loans had been certified as a class action. Gold said it planned to appeal the class-action order.
Other bankers say they have not had such problems with their guaranteed loans. They say the suit could make the program harder to use if it forced the agency to become more specific on how lenders may set rates.
Michael Jorgensen, the president of the $30 million-asset Nebraska State Bank in Oshkosh, said that though he would like protection from the kinds of lawsuits Gold has faced, he does not want the government dictating what he can charge on guaranteed loans. In other words, he has no problem with the ambiguous language in the regulations.
“By limiting the rate” Nebraska State can charge, Mr. Jorgensen said, the FSA would make it “noncompetitive with other lenders.”
Gary F. Sipiorski, the president of the $101 million-asset Citizens State Bank of Loyal, Wis., said he also likes the flexibility of the loan program. Though he is grateful that it enables Citizens to help farmers who might otherwise not get a loan, he said banks should set the rates.
“I certainly don’t want FSA telling me what to charge,” Mr. Sipiorski said. “They don’t know what my funding sources are,” so guaranteed loans could cease to be profitable if Citizens State could not set its own rates.
