December 23, 2002
Mr. Thomas G. McKenzie
Director, Regulation and Policy Division
Office of Policy Analysis
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
Dear Mr. McKenzie:
The Independent Community Bankers of America (ICBA)1 welcomes the opportunity to comment on the Announced Notice of Proposed Rulemaking (ANPR) concerning young, beginning, and small (YBS) farmers and ranchers. We appreciate the Farm Credit Administration (FCA) conducting a YBS farmer and rancher public meeting in Kansas City, Missouri on November 13, 2002. This is an extremely important matter as the ages of America's farmers and ranchers increase and our rural populations grow smaller at an alarming rate. Efforts need to be made to bring new farmers into the business if we have any hope of slowing or stopping the trend towards continually fewer and larger farms.
There has been heightened scrutiny over the Farm Credit System's (FCS) YBS program due to the experience of many commercial lenders who have witnessed FCS repeatedly engage in predatory pricing activities to steal away their best customers while ignoring the credit needs of young or beginning or small farmers. The recent General Accounting Office (GAO) report issued in March 2002 entitled (Farm Credit Administration: Oversight of Special Mission to Serve Young, Beginning, and Small Farmers Needs to be Improved (GAO-02-304)) further validated what many community bankers have known for years. GAO's report was critical of FCS's YBS program and recommended the FCA board: promulgate a regulation that outlines specific activities and standards that constitute an acceptable program to implement YBS statutory requirements; ensure that examiners fully execute and document examinations; and publicly disclose the results of individual YBS compliance examinations.
In testimony we presented at the YBS public forum in Kansas City, ICBA responded to several of the key questions the FCA posed for the ANPR in terms of how to improve the FCS's YBS program. The attachment to this letter includes several of those suggestions. Again, we want to stress the importance of utilizing credible definitions for the YBS program since the way the FCA and FCS defines YBS farmers will determine whether the FCS truly meets the Congressional intent of the federal mandate requiring a YBS program. We noted the objectives of FCA in developing appropriate guidelines were commendable and we offered several suggestions in terms of accurately reporting YBS data by all FCS institutions in ways accessible by the public. Accurate and transparent reporting of this data is important given that the FCS is a government sponsored enterprise that is unique as a retail lender and that is ultimately backed by the U.S. taxpayer, as was evidenced in the 1980's bailout of the System.
We also stressed in our testimony that it was essential for the FCA to finally develop strict regulations to constrain the System's penchant for engaging in predatory pricing of prime customers of community banks. The federal statute contains language prohibiting predatory pricing, however, FCA has chosen to ignore the statute and not hold FCS institutions accountable to their legal mandate. This has also facilitated the practice of FCS institutions ignoring the needs of YBS farmers and ranchers. Strictly prohibiting FCS's predatory pricing practices would undoubtedly cause FCS institutions to shift more time and attention to YBS farmers.
Regulations should simultaneously be pursued to prohibit predatory pricing practices by System institutions as part of regulations to implement revised YBS policies as they are two sides of the same coin.
Similarly, we recommend FCA also include in this proposed regulation, a section that includes the final proposal to enhance the OFI program. FCA issued an ANPR on the OFI program but has done nothing with the recommendations made to the ANPR and those submitted as part of the FCA's public meeting in Des Moines, IA. There is no reason there should be a multi-year delay to following up on ways to enhance the OFI program and issue a proposed rule following the input to the OFI ANPR. Congress intended for the OFI program to be a funding sources for community banks and other agricultural lenders serving the needs of farmers, ranchers and their rural communities.
We also are strongly opposed to allowing FCS institutions expanded powers as several FCS representatives asked for in the YBS public meeting. The failure of FCS institutions to adequately implement a YBS program should not be rewarded by expanded powers, which would be completely inappropriate.
FCS needs to keep focused on serving the needs of agriculture and not be allowed to expand their lending authorities for non-agricultural purposes as was suggested by several FCS institution witnesses at the YBS public meeting. FCS institutions need to focus on YBS farmers and ranchers, as the law requires them to do. We believe our suggestions represent a balanced approach and follow the intent of Congress.
Contrary to the suggestion made by some FCS representatives at the YBS public meeting, we strongly believe the FCA has the legal authority to issue regulations on the YBS program and regulate and monitor its effectiveness.
ICBA will provide additional comments when FCA issues a YBS proposed rule. In the meantime, our suggestions should go a long way towards helping FCA lay the groundwork for addressing the YBS issue. Again, FCA should simultaneously include regulations to constrain FCS predatory pricing practices and should add the final proposed rule to enhance the OFI program.
Thank you for the opportunity to comment. We look forward to working with FCA on future proposed regulations and urge inclusion of our recommendations. If you have questions regarding ICBA's comments, please contact Mark Scanlan, director of agricultural finance, at (202) 659-8111 or firstname.lastname@example.org or Richard Gupton, deputy director of agricultural finance at Richard_gupton@icba.org.
A. Pierce Stone
1 ICBA is the nation's leading voice for community banks and the only national trade association dedicated exclusively to protecting the interests of the community banking industry. ICBA has 5,000 members with branches in 17,000 locations nationwide. Our members hold nearly $511 billion in insured deposits, $624 billion in assets and more than $391 billion in loans for consumers, small businesses, and farms. They employ more than 231,000 citizens in the communities they serve.