Pub. 1 2012 Issue 6

24 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE ©2012 Bert Ely B ankers justifiably complain about the FCS’s predatory loan pricing, based on examples bankers have sent to me. Not only does the FCS offer low-ball interest rates on long-term, fixed-rate real-estate loans, where the FCS has a decided tax advantage, but I am getting more reports of predatory rates on short- and medium-term loans to finance equipment purchases. The Farm Credit Act, which the FCS operates under, bars such aggressive loan pricing. The first section of the Act states in part: “In no case is any [FCS] borrower to be charged a rate of interest that is below competitive market rates for similar loans made by private lenders to borrowers of equivalent credit-worthiness and access to al- ternative credit.” Put another way, borrowers who can readily obtain credit from private-sector lenders, such as banks, must be charged a market rate of interest, but not less, on their FCS loans. Complaints to the FarmCreditAdministration (FCA) about the FCS’s predatory loan pricing fall on deaf ears because the FCAmakes no visible attempt to determine what market rates are for various types and terms of ag loans. More importantly, the FCA has not created a mechanism for bankers and other private-sector lenders to have complaints about FCS loan pricing formally adjudicated. That is not surprising given the FCA’s blind eye towards other types of FCS lending abuses. One solution to this problem would be for Congress to create a means by which complaints about FCS loan pricing would be adjudicated by a body independent of the FCA. However, that proposal would be a tough sell because of opposition from the FCS as well as FCS borrowers who now enjoy below-market-rate FCS loans. FCS lending to young, beginning, small farmers declines The FCS constantly tries to justify its existence by touting its lending to young, beginning, and small farmers (YBS), most recently in the FCA’s 2011 annual report on the FCS’s YBS lending. First, a primer: The FCA defines a YBS farmer as young (35 or younger) OR beginning (10 or less years of farming or ranching experience) OR small (gross annual farm sales of $250,000 or less when the loan was originally made). Hence, the FCA double and triple-counts its YBS lending; i.e., a loan to a 33-year old farmer who has been farming for seven years and had farm sales of $220,000 when he took out his land loan five years ago (even if his farm sales are $600,000 this year) will get counted three times in the FCA’s YBS loan data. Worse, as the FCA report noted, included in the YBS numbers are loans to “lifestyle and retirement farms,” i.e., not full-time farming operations. Despite FCA efforts to puff up the FCS’s YBS lending, the FCA report acknowledged that the FCS’s YBS lending has declined, stating that “the downward trend in the share of total new [FCS] lending made FCA turns a deaf ear towards FCS’s predatory pricing