Threat to Rural America

Article excerpt


This March, rural community bankers may face yet another set of obstacles in their ongoing efforts to be the catalysts for economic growth in rural America.

As the U.S. economic recession began spreading in 2008 due to bad housing investments, the Farm Credit Administration (FCA), at the behest of the Farm Credit System (FCS or System) institutions it regulates, decided that the situation presented a good opportunity to pursue an unprecedented expansion of the System's lending powers.

The perplexing feature of the FCA proposal? It abandons the System's historic mission-agricultural lending-and the very reason Congress created the government-sponsored enterprise in the first place.

The FCA's proposal, dubbed "Rural Community Investments," was released in May, just days before Congress passed the 2008 farm bill. The proposed rule throws wide open the gate to greener lending pastures for the System's lenders by allowing them to make a virtually unlimited scope of non-farm loans. The proposal is listed on the FCA's agenda for adoption at its March 2009 board meeting.

From the FCA's perspective, one minor detail stood in its way-the law. The Farm Credit Act does not allow the FCS lenders to do what the FCA had proposed. But such a little thing as the law isn't a barrier to the System's creative lawyers and imaginative board members. The FCA simply decided to call the illegal FCS loans "investments" and argue that it is entitled to adopt its dramatic expansion-one never authorized or even considered by Congress-because the law contains a sentence allowing the FCA to regulate the System's investments. Never mind that this reference to investments is contained in the Act's administrative procedures section, not in the lending powers sections.

The FCA veiled the intent of its rural community investments proposal, suggesting it amounted primarily to allowing the System's lenders to finance much needed facilities, such as schools, roads and hospitals, even though those lending purposes are not sanctioned in the law. The FCA approved more than 30 pilot projects starting in 2005 (refusing to release details of these projects when ICBA requested them under the Freedom of Information Act) that involved a wide variety of commercial business loans granted by the System's institutions.

The loan purposes included financing light manufacturing, non-agricultural businesses, multi-family housing and apartment complexes, building construction, hotels, industrial development parks, outpatient surgery centers, hospitals, physician and dental offices and venture capital funds. …