Community banks are urging Congress to consider specific
revisions to the Farm Credit Adjustment Act, which is intended to aid rural credit
institutions in providing critical financial support to farmers and producers
throughout the country. The financial industry generally supports many of the
bill’s provisions but has concerns regarding aspects applying to non-farm
financing authorities within the Farm Credit System (FSC).
Commonly referred to simply as the “farm bill,” the
legislation is designed to help both rural lenders and their farm and ranch
customers as they establish business plans for the next several years. Reps.
Abigail Spanberger (D-Va.) and Doug LaMalfa (R-Calif.) introduced the
bipartisan legislation in December.
The representatives said the new farm bill would help “cut
red tape” by reducing “unnecessary burdens and costs” facing rural credit
issuers and raising caps on loans issued to rural financial institutions and
regulated by the U.S. Department of Agriculture (USDA). In doing so, the
lawmakers contend the bill will help farmers and ranchers access the credit
needed to invest in modernizing their operations, new equipment and expanding
their businesses, according to a press release accompanying the bill’s
introduction.
Among the changes included in the legislation is a reduction
in the frequency with which the Farm Credit Administration (FCA) is required to
conduct audits of low-risk farm credit institutions from every 18 months to
every 24 months. The representatives called this change a “straightforward,
six-month extension” that would provide rural lenders with more bandwidth to
serve the needs of their customers.
The Independent Community Bankers of America (ICBA) and
state community banking associations recently sent a letter to House
leaders, urging them to consider their recommended changes to the bill as it
makes its way through Congress.
“We believe the current USDA guaranteed loan limits are out
of touch with the needs of farmers and ranchers,” the trades wrote. “We support
raising the loan caps to $3.5 million for guaranteed ownership and $3 million
for operating loans. Raising loan limits will allow commercial lenders to
continue meeting the needs of small to mid-size family farmers and ranchers.”
Additionally, the approximately 50,000 community banks
represented by the collective trade groups urged Congress to incorporate
another bipartisan measure, H.R. 5877, the “USDA Express Loan Act” into the
farm bill. The letter asserts that the program described in the measure could
act as an advance of up to $1 million against a producer’s overall guaranteed
loan and would provide for much quicker approval than a traditional USDA loan.
The trades detailed concerns that the reduction in the
examination cycle for rural institutions, as described in the legislation,
would create a discrepancy in market competition standards.
“We understand that exams can be costly and burdensome for
any institution; however, exams on rural community banks are more arduous given
their smaller staffing levels and limited resources,” the trades wrote. “Banks
and FCS institutions should be on the same exam timeline, otherwise competitive
advantages are given to the FCS. The combination of these FCS non-farm lending
grabs represents an assault on the community bank industry which will lead to
fewer community banks serving rural America and thus fewer access points for
rural Americans to obtain credit.”
The trade groups detailed their strong opposition to the
bill’s policies aimed at expanding the non-farm financing authorities of the
Farm Credit System (FCS) to increase the among of financing available to essential
community facilities (ECF) from 10 percent of total loans to 15 percent of
assets. The letter notes that the provision would allow for a potential
increase of 75 percent to 100 percent or more and would remove the regulator’s authority
to grant approval on a case-by-case basis.
“Contrary to what the FCS stated in their 2023 Senate
Agriculture Committee testimony, the proposal does not require participation
with local community banks,” the trades wrote. “Additionally, we oppose efforts
to increase FCS lending to non-farm businesses including those that only
tangentially service aquaculture. We also question the need for expanded FCS
equity financing for non-farm purposes. These are community bank loans that
would be siphoned away, into the swelling portfolios of a largely tax-exempt government-sponsored
enterprise with significant tax and funding advantages over community banks.”
Community bankers expressed support for the bill’s provisions
exempting rural institutions from the CFPB’s 1071 small business lending rule,
as well as a congressional resolution to overturn the 1071 regulation, which
passed in both the Senate and House but was vetoed by the president in December.
“However, we oppose a special carve-out allowing the FCS to
only supply data related to sex, gender and ethnicity, three data points, when
community banks must comply with 81 data points regarding their customers,” the
trades wrote. “Community bank agriculture lenders should receive the same or
similar compliance regime as the FCS. FCS’s carve-out would also only apply to
their definition of a ‘small farmer,’ specifically those with less than $250,000
in annual income. The CFPB’s definition would apply to institutions of $5
million or less.”
The 2024 farm bill is intended to replace the 2018 farm
bill, which is set to expire in September, following an extension proposed by
Congress and approved by the Biden administration in November.