67074 Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / Proposed Rules 

1Section 617.7000 defines ‘‘qualified lender’’ as: 

(1) A System institution, except a bank for 

cooperatives, that makes loans as defined in part 

617; and (2) each bank, institution, corporation, 

company, credit union, and association described 

in section 1.7(b)(1)(B) of the Act (commonly 

referred to as an other financing institution), but 

only with respect to loans discounted or pledged 

under section 1.7(b)(1). The proposed waiver is 

intended to apply only to those situations where 

System institutions enter into loan syndications 

with non-System lenders that are otherwise not 

required by the Act (section 4.14A(a)(6)) to provide 

borrower rights.

FARM CREDIT ADMINISTRATION

12 CFR Part 617

RIN 3052–AC24

Borrower Rights

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

SUMMARY: The Farm Credit 

Administration (FCA) proposes to allow 

a borrower to waive borrower rights 

when receiving a loan from a qualified 

lender as part of a loan syndication with 

non-System lenders that are otherwise 

not required by section 4.14A(a)(6) of 

the Farm Credit Act of 1971, as 

amended (Act) to provide borrower 

rights. This proposal would provide 

qualified lenders needed flexibility to 

meet the credit needs of borrowers 

seeking financing from a qualified 

lender as part of certain syndicated 

lending arrangements.

DATES: Written comments should be 

received on or before December 16, 

2004.

ADDRESSES: Send us your comments by 

electronic mail to reg-comm@fca.gov or 

through the Pending Regulations section 

of our Web site, http://www.fca.gov or 

through the government-wide http://

www.regulations.gov portal. You may 

also send written comments to S. Robert 

Coleman, Director, Regulation and 

Policy Division, Office of Policy and 

Analysis, Farm Credit Administration, 

1501 Farm Credit Drive, McLean, 

Virginia 22102–5090, or by facsimile 

transmission to (703) 734–5784. You 

may review copies of all comments we 

receive at our office in McLean, 

Virginia.

FOR FURTHER INFORMATION CONTACT:

Mark L. Johansen, Senior Policy 

Analyst, Office of Policy Analysis, Farm 

Credit Administration, McLean, VA 

22102–5090, (703) 883–4498, TTY (703) 

883–4434; or Howard Rubin, Senior 

Attorney, Office of General Counsel, 

Farm Credit Administration, McLean, 

VA 22102–5090, (703) 883–4020, TTY 

(703) 883–2020.

SUPPLEMENTARY INFORMATION:

I. Background 

On January 17, 2003, FCA published 

a notice requesting comment on the 

regulatory treatment of loan 

syndications (68 FR 2540). After 

considering the comments, the FCA 

Board reaffirmed its long-standing 

interpretation that loan syndications 

come within a Farm Credit System 

(System) institution’s direct lending 

authorities and, therefore, loan 

syndications to eligible borrowers are 

subject to the borrower rights 

requirements of the Act, and 

corresponding regulations. (69 FR 8407, 

Feb. 24, 2004) 

In their comments on the notice, the 

Farm Credit Council (FCC) and other 

System institutions stated that borrower 

rights are an impediment to System 

involvement in loan syndication 

transactions. Loan syndications are 

multi-lender transactions, generally 

involving a lead lender and at least one 

other participating lender, where each 

lender has a direct contractual 

relationship with the borrower. 

Typically, the loan servicing and loan 

collection procedures are the same for 

each lender, and these activities are 

undertaken according to standard 

agreements among the lenders in the 

transaction. System institutions 

commented that it is difficult to enter 

into these transactions when they have 

unique disclosure requirements and 

have to provide distressed loan 

restructuring rights and the right of first 

refusal on repurchasing foreclosed 

property. The commenters stated that 

commercial lenders see fulfillment of 

these rights as a delay to loan servicing 

and collection and they would rather 

enter into loan syndication transactions 

with lenders that are not required to 

offer such rights. 

The commenters also stated that 

borrowers in syndications are generally 

sophisticated in financial transactions 

and represented by counsel. Thus, the 

commenters contend that these 

borrowers are in an equal bargaining 

position with qualified lenders and 

should be free to choose to waive their 

borrower rights. 

Subsequently, we received two 

petitions under 5 U.S.C. 553(e) asking 

us to amend § 617.7010(b) to allow 

borrowers to waive borrower rights in 

loan syndication transactions. These 

petitions cited reasons for granting a 

waiver similar to the previous 

commenters. 

II. Section-by-Section Analysis 

1. Waiver of Borrower Rights in Loan 

Syndications 

After reviewing System syndication 

transactions, we have determined that 

the borrower in these transactions 

generally possess a very high level of 

business sophistication. These 

borrowers are more likely than others to 

be able to provide a knowing and 

intelligent waiver of their rights. 

Therefore, we propose to amend 

§ 617.7010 to allow a borrower to waive 

borrower rights when receiving a loan 

from a qualified lender that is part of a 

loan syndication package with nonSystem lenders that are otherwise not 

required by the Act to provide borrower 

rights.1 To ensure that the borrower 

understands the borrower rights being 

waived and is freely and intelligently 

waiving those rights, we require that the 

borrower be advised by legal counsel at 

the time of the waiver.

We also invite comments on whether 

we should consider other criteria to 

further differentiate what borrower and 

what type of loan syndication 

transactions should be eligible for a 

waiver of borrower rights. 

The purpose of the waiver is to 

eliminate instances where borrower 

rights are an impediment to a borrower 

receiving credit from a qualified lender 

through a loan syndication with nonSystem lenders that are otherwise not 

required by the Act to provide borrower 

rights. As previously noted, borrower 

rights are not compatible with many 

loan syndication transactions because 

the servicing and collection practices 

must be the same for all lenders. 

The waiver provision in this proposed 

regulation is intended to be used only 

in addressing the problems qualified 

lenders have encountered in entering 

into loan syndications due to the 

requirement to provide the borrower 

with borrower rights. Section 

617.7010(c) provides that this waiver 

provision is not to be used as a means 

of circumventing the borrower rights 

requirements by creating a syndication 

relationship whose primary purpose is 

to avoid borrower rights. A syndicated 

lending package is typically sought 

when the total credit would exceed the 

lending institution’s lending limit or the 

risk associated with the total credit 

would exceed the risk tolerance of the 

individual lending institution. Our 

examination process will be mindful of 

this issue and will take appropriate 

action to address any abuses of this 

proposed waiver. 

III. Regulatory Flexibility Act 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), the FCA hereby certifies that the 

proposed rule will not have a significant 

economic impact on a substantial 

Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / Proposed Rules 67075

number of small entities. Each of the 

banks in the System, considered 

together with its affiliated associations, 

has assets and annual income in excess 

of the amounts that would qualify them 

as small entities. Therefore, System 

institutions are not ‘‘small entities’’ as 

defined in the Regulatory Flexibility 

Act.

List of Subjects in 12 CFR Part 617

Banks, banking, Criminal referrals, 

Criminal transactions, Embezzlement, 

Insider abuse, Investigations, Money 

laundering, Theft.

For the reasons stated in the 

preamble, part 617, chapter VI, title 12 

of the Code of Federal Regulations is 

proposed to be amended as follows:

PART 617—BORROWER RIGHTS 

1. The authority citation for part 617 

continues to read as follows:

Authority: Secs. 4.13, 4.13A, 4.13B, 4.14, 

4.14A, 4.14C, 4.14D, 4.14E, 4.36, 5.9, 5.17 of 

the Farm Credit Act (12 U.S.C. 2199, 2200, 

2201, 2202, 2202a, 2202c, 2202d, 2202e, 

2219a, 2243, 2252).

Subpart A—General 

2. Amend § 617.7010(a) by: 

a. Removing the reference, ‘‘paragraph 

(b)’’ and adding in its place, the 

reference ‘‘paragraphs (b) and (c)’’ in 

paragraph (a); 

b. Redesignating and revising existing 

paragraph (c) as new paragraph (d); 

c. Adding a new paragraph (c) as 

follows:

§ 617.7010 May borrower rights be 

waived?

* * * * *

(c) A borrower may waive all 

borrower rights provided for in part 617 

of these regulations in connection with 

a loan syndication transaction with nonSystem lenders that are otherwise not 

required by section 4.14A(a)(6) of the 

Act to provide borrower rights. For 

purposes of this paragraph, a ‘‘loan 

syndication’’ is a multi-lender 

transaction in which each member of 

the lending syndicate has a direct 

contractual relationship with the 

borrower, but does not include a 

transaction created for the primary 

purpose of avoiding borrower rights. 

(d) All waivers must be voluntary and 

in writing. The document evidencing 

the waiver must clearly explain the 

rights the borrower is being asked to 

waive and provide an explanation of 

such rights. Additionally, a borrower in 

a loan syndication must certify in 

writing that the borrower was advised 

by legal counsel prior to executing a 

waiver.

Dated: November 10, 2004. 

Jeanette C. Brinkley, 

Secretary, Farm Credit Administration Board.

[FR Doc. 04–25397 Filed 11–15–04; 8:45 am] 

BILLING CODE 6705–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service 

26 CFR Parts 1 and 31

[REG–155608–02] 

RIN 1545–BB64

Revised Regulations Concerning 

Section 403(b) Tax-Sheltered Annuity 

Contracts

AGENCY: Internal Revenue Service (IRS), 

Treasury.

ACTION: Notice of proposed rulemaking, 

notice of proposed rulemaking by crossreference to temporary regulations, and 

notice of public hearing. 

SUMMARY: This document contains 

proposed regulations under section 

403(b) of the Internal Revenue Code and 

under related provisions of sections 

402(b), 402(g), 414(c), and 3121(a)(5)(D). 

The proposed regulations would 

provide updated guidance on section 

403(b) contracts of public schools and 

tax-exempt organizations described in 

section 501(c)(3). These regulations 

would provide the public with guidance 

necessary to comply with the law and 

will affect sponsors of section 403(b) 

contracts, administrators, participants 

and beneficiaries. In the Rules and 

Regulations section of this issue of the 

Federal Register, the Treasury 

Department and IRS are issuing 

temporary regulations providing 

employment tax guidance to employers 

and employees on salary reduction 

agreements. This document also 

provides notice of a public hearing on 

these proposed regulations.

DATES: Written or electronic comments 

must be received by February 14, 2005. 

Outlines of topics to be discussed at the 

public hearing scheduled for February 

15, 2005, to be held in the IRS 

Auditorium (7th Floor) must be received 

by January 25, 2005.

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–155608–02), room 

5203, Internal Revenue Service, POB 

7604, Ben Franklin Station, Washington, 

DC 20044. Submissions may be hand 

delivered Monday through Friday 

between the hours of 8 a.m. and 4 p.m. 

to: CC:PA:LPD:PR (REG–155608–02), 

Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue, 

NW., Washington, DC, or sent 

electronically via the IRS Internet site at 

http://www.irs.gov/regs or via the 

Federal eRulemaking Portal at http://

www.regulations.gov (IRS–REG–

155608–02). The public hearing will be 

held in the IRS Auditorium (7th Floor), 

Internal Revenue Building, 1111 

Constitution Avenue, NW., Washington, 

DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations,

R. Lisa Mojiri-Azad or John Tolleris, 

(202) 622–6060; concerning the 

proposed regulations as applied to 

church-related entities, Robert Architect 

(202) 283–9634; concerning submission 

of comments, the hearing, and/or to be 

placed on the building access list to 

attend the hearing, Sonya Cruse, (202) 

622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collection of information 

contained in this notice of rulemaking 

has been previously reviewed and 

approved by the Office of Management 

and Budget in accordance with the 

Paperwork Reduction Act (44 U.S.C. 

3507) under control number 1545–1341. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number assigned by the Office of 

Management and Budget. 

Books or records relating to a 

collection of information must be 

retained as long as their contents may 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

Background 

Regulations (TD 6783) under section 

403(b) of the Internal Revenue Code 

(Code) were published in the Federal 

Register (29 FR 18356) on December 24, 

1964 (1965–1 C.B. 180). These 

regulations provided guidance for 

complying with section 403(b) which 

had been enacted in 1958 in section 

23(a) of the Technical Amendments Act 

of 1958, Public Law 85–866 (1958), 

relating to tax-sheltered annuity 

arrangements established for employees 

by public schools and tax-exempt 

organizations described in section 

501(c)(3). Since 1964, additional 

regulations have been issued under 

section 403(b) to reflect rules relating to 

eligible rollover distributions and 

minimum distributions under section 

401(a)(9). 

These proposed regulations would 

amend the current regulations to