In Focus: Proposal Could Qualify Backyard Gardeners For Farm Credit

The banking industry is up in arms over what seems like a simple question: how to define the term "farmer."

According to the Farm Credit Administration, the answer is pretty straightforward. A farmer is someone who is generates income from actively producing agricultural products.

Yet that seemingly simple definition is at the heart of a Farm Credit Administration plan that has bankers riled.

In the Aug. 13 Federal Register, the agency proposed expanding the universe of people who are eligible for Farm Credit loans.

But the definition of a "bona fide farmer" is so vague that anybody making money off the tomatoes grown in the backyard could borrow from the system, industry representatives complain.

"You could grow vegetables for a hobby on a small plot of land and occasionally sell them at a farmers market to pass the test in this proposal," said Mark Scanlan, the Independent Bankers Association of America's agricultural lobbyist. "This will become a very serious competitive problem for rural bankers."

What's worse, lobbyists said, someone who qualifies as a bona fide farmer also would be eligible to receive Farm Credit System loans for "housing and domestic needs."

This throws the door wide open for the system to extend credit for nonagricultural reasons. Indeed, these "needs" could be interpreted to include summer homes, yachts, and family vacations, said John M. Blanchfield, associate director of the American Bankers Association's agricultural banking division.

"This is a government-sponsored entity that is getting into the commercial bank business," he said.

The industry is doing what it can to stop the plan.

Last week, the ABA sent a letter urging state association executives and agricultural bank members to flood the Farm Credit Administration with comments opposing on the proposal. The IBAA has made similar requests of its state executives. The comment deadline is Sept. 12.

But prospects for getting the Farm Credit Administration to withdraw the plan - or at least make significant changes - don't look good.

The industry had asked Congress to stop an earlier version of the proposal, which was set to be finalized on June 25. A last-minute letter from eight Senate Agriculture Committee members put the proposal on hold for a month.

However, after reviewing the plan, the committee chairman, Sen. Richard Lugar, provided little comfort to bankers.

"The proposed regulations do not appear to exceed the boundaries of the Farm Credit Act of 1971," the Indiana Republican wrote in an Aug. 2 letter to the agency. He told it to reissue the rule for public comment, which it did last week.

David Lavoy, the Farm Credit Administration's chief operating officer and a former examiner with the Comptroller's Office, said he understands the industry's concerns. But he added that his agency isn't proposing anything that Congress didn't intend.

"For me to tell you the banks' competitive concerns are not warranted would be wrong," Mr. Lavoy said. "But we've stayed well within the limits prescribed by statute."

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