Handing rural bankers a big win, the government has dumped a plan to let the Farm Credit System broaden its borrower base.
In a final rule approved Thursday, the Farm Credit Administration abandoned two proposed changes that bankers argued would have moved the system beyond its traditional role as a lender for strictly farm-related purposes.
"I am extremely happy to hear that they have pulled back from their proposal," said Rose Oswald Poels, vice president of the Wisconsin Bankers Association. "Farm Credit already enjoys such a big advantage over commercial banks. The proposal would have allowed them to expand far beyond what the system was originally intended for."
The Farm Credit Administration decided not to allow farmers to borrow money for non-agricultural purposes. The proposal would have permitted such loans up to the value of the farmer's agricultural assets.
The agency also decided not to change its definition of "farmer." The proposal would have increased the number of people eligible for Farm Credit loans by defining anyone who generates income from actively producing agricultural products as a farmer. Bankers had argued this definition would allow any backyard gardener to borrow from the system.
Rural bankers have long labeled the system an unfair competitor, but the proposal, issued in August, sparked an uproar. The industry flooded the agency with nearly 800 comment letters vehemently opposing the plan.
While Farm Credit Chairman Marsha P. Martin said bankers misunderstood the proposal, she acknowledged that the torrent of criticism persuaded the agency to back down.
"In the proposal, we had simply been trying to be more definitive ... but because of the overwhelming comments and response, we lifted the whole section (defining farmers) out and left it just as it was since 1972," Ms. Martin said in an interview Thursday.
The Farm Credit Administration came under congressional fire as well. House Banking Committee Chairman Jim Leach, in a Jan. 9 letter, described the proposal as an attempt to "unduly expand" the system's lending powers.
"I strongly believe the Farm Credit System must adhere closely to its mandate: serving farmers," Rep. Leach said.
Michael P. Smith, president of the New York Bankers Association, agreed.
"Whether you are a quasi-governmental entity or a credit union, at some point you go across the line in terms of unfairly encroaching on banks' customary business," said Mr. Smith. "We feel FCA's action retains that line very clearly."
Despite Thursday's victory, industry representatives are still concerned about a provision in the new rule, which becomes effective 30 days after it is published in the Federal Register later this month.
That provision would allow any company unlimited access to Farm Credit loans if more than 50% of its services are "agriculture-related."
"In rural areas, anything could be considered agriculture-related," said Mark Scanlan, agricultural lobbyist for the Independent Bankers Association of America. "This provision still lets the camel's nose under the tent."
The Farm Credit Administration regulates the Farm Credit System, a $75 billion-asset government-sponsored enterprise that lends to farmers and other rural borrowers. The system consists of six regional farm credit banks, two national banks for cooperatives, and 230 farmer-owned credit associations.