Pub. 2 2013 Issue 4

June 2013 21 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 customers of those dealers, including customers who may not be eligible to borrow directly from an FCS association. The equipment dealer makes the loan and then sells a 100% “participation” in that loan (in effect, the entire loan) to AgDirect. AgDirect in turn resells that loan to AgriBank, the FCS bank which funds FCSA, with FCSA servicing the loan. The borrower under a loan purchased by AgDirect does not have to buy stock in an FCS association, does not receive patronage dividends, and is not protected by the FCA’s borrower-rights regulations.   Organized as a “limited liability partnership” owned by the FCS associations participating in the AgDirect program, AgDirect operates in the shadows of the FCS – it does not file a call report with the FCA nor does it publish financial statements. What can be parsed from the FCSA and AgriBank annual reports is that outstanding loans generated by AgDirect totaled $2.1 billion at year-end 2012, up from $1.3 billion at year-end 2011. Those loans accounted for approximately 1.1% of total outstanding FCS loans at the end of 2012, up from approximately .7% at the prior year-end. If AgDirect were an FCS association, it would have ranked at the end of 2012 as the fifteenth largest association, based on outstanding loans, yet because AgDirect files no call reports, its performance cannot be assessed. At the end of 2012, only nine associations, including four outside the AgriBank district, were generating loans through the AgDirect program. As more associations join AgDirect, this “shadow” association will grow even larger within the FCS. One can reasonably wonder how well the FCA understands, examines, and monitors AgDirect’s financial performance and its compliance with the lending restrictions Congress has imposed on the FCS. FCS association accepts uninsured deposits A banker recently brought to my attention a very disturbing situation – 1 st Farm Credit Services, headquartered in Normal, Illinois, is engaged in a very abnormal practice – accepting what effectively are uninsured deposits in its cash management program. Worse, 1 st FCS (www.1stFarmCredit. com) does not disclose that fact to its member/borrowers. Other FCS associations run similar “cash management” programs. Essentially, at those times when a member/borrower maintains a debit balance under a revolving line of credit at 1 st FCS (in effect 1 st FCS owes money to the member), 1 st FCS invests those funds in a “member investment bond” issued by AgriBank, which is the funding bank for 1 st FCS. As AgriBank’s 2012 annual report states, these bonds “are an unsecured obligation of AgriBank and are not insured or guaranteed by any other entity.”   However, on the 1 st FCS webpage describing its Farm Cash Management (FCM) & Funds Held program, absolutely no mention is made that “funds held” represent an unsecured, uninsured, unguaranteed obligation of AgriBank. The FCA has at least a moral obligation to insist that FCS institutions accepting such funds from their members publicly disclose that those funds are not insured by the FDIC or by any other federal entity. Bankers are continuing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting preserves. Email reports of similar lending abuses in your market to: green-acres@ely-co.com.  Please provide as much detail as possible about any loan which violates the spirit, if not the law, governing FCS lending.