[Federal Register Volume 65, Number 77 (Thursday, April 20, 2000)]
[Rules and Regulations]
[Pages 21128-21129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9850]


=======================================================================
-----------------------------------------------------------------------

FARM CREDIT ADMINISTRATION

12 CFR Chapter VI

RIN 3052-AB97


Regulatory Burden

AGENCY: Farm Credit Administration (FCA).

ACTION: Statement on regulatory burden.

-----------------------------------------------------------------------

SUMMARY: This is the second phase of our recent initiative to reduce 
regulatory burden on the Farm Credit System (FCS or System). Many 
System institutions responded to our August 1998 request for comments 
by identifying regulations that they considered burdensome. We deleted 
several unnecessary or obsolete regulations in the first phase of this 
project. This document informs the public of those regulations that we 
will retain without amendment because they either: Implement or 
interpret the Farm Credit Act of 1971, as amended (Act); or protect the 
safety and soundness of the System. We also identify pending or future 
actions that will respond to remaining regulatory burden issues.

FOR FURTHER INFORMATION CONTACT:

Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;

or

Richard A. Katz, Senior Attorney, or Beth Salyer, Attorney-Advisor, 
Office of General Counsel, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

    On August 18, 1998, we published a document in the Federal Register 
inviting you to identify existing regulations and policies that impose 
unnecessary burdens on the FCS. See 63 FR 44176. On November 18, 1998, 
we extended the comment period to January 19, 1999. See 63 FR 64013. We 
specifically asked you to focus on those regulations and policies that 
are ineffective, duplicate other governmental requirements, or impose 
burdens that are greater than the benefits received. We took this 
action in our continuing effort to improve the regulatory environment 
so System institutions can more effectively serve farmers, ranchers, 
aquatic producers, their cooperatives, and other rural residents.
    In the first phase of our effort to reduce regulatory burden on the 
FCS, we repealed or revised 16 regulations. See 64 FR 43046, Aug. 9, 
1999.
    The purpose of this document is to inform you of those regulations 
that we will retain without amendment. In most cases, these regulations 
are either required by statute or are necessary to ensure the safety 
and soundness of System institutions. For these reasons, the FCA will 
not make the suggested changes to the following regulations: 
Secs. 613.3020; 613.3030; 613.3300; 614.4200(b)(1); 614.4335(c)(1)(i); 
614.4359; and 614.4920. The next section explains our reasons for 
retaining these regulations.

II. Regulations that We Will Retain Without Revision

A. Farm-related Businesses

    Seven commenters asked us to amend Sec. 613.3020 so the FCS can 
finance farm-related businesses that supply only goods to farmers and 
ranchers. Sections 1.11(c)(1) and 2.4(a)(3) of the Act limit 
eligibility to businesses that furnish farm-related services to farmers 
and ranchers. Businesses that sell only farm-related goods to 
agricultural producers do not qualify for FCS financing under these 
provisions of the Act. Therefore, we cannot grant this request.
    Two Farm Credit banks and one association asked us to amend 
Sec. 613.3020(b)(2) to allow businesses that derive less than 50 
percent of their income from farm-related services to obtain System 
financing for all of their credit needs. The FCA updated this 
regulation in 1997 to expand financing opportunities for farm-related 
businesses that offer both goods and services. At that time, the FCA 
Board determined that a 50-percent threshold gave appropriate effect to 
the Act. See 62 FR 4429, Jan. 30, 1997. This standard ensures that only 
businesses that primarily provide farm-related services receive full 
financing from System lenders. The United States Court of Appeals 
recently upheld the provisions in Sec. 613.3020(b) that limit System 
financing to eligible businesses that derive less than 50 percent of 
their income from furnishing farm-related services to farmers and 
ranchers.\1\ We continue to believe that the current regulation strikes 
the best balance for securing the credit needs of farm-related business 
within the limitations of the Act.
---------------------------------------------------------------------------

    \1\ Independent Bankers Association of America v. Farm Credit 
Administration, 164 F.3d 661 (D.C. Cir. 1999).
---------------------------------------------------------------------------

B. Rural Housing

    Many System institutions assert that Sec. 613.3030 unnecessarily 
restricts the System's ability to finance housing for rural residents 
who are not farmers,

[[Page 21129]]

ranchers, or aquatic producers. Two FCS banks, an association, and the 
Farm Credit Council (Council) requested relief from 
Sec. 613.3030(a)(3), which allows System lenders to finance non-farm 
rural homes only in towns or villages with populations not exceeding 
2,500 inhabitants. Changing population patterns since Congress set this 
limit almost 30 years ago make it increasingly difficult for the System 
to meet the credit needs of homebuyers in rural areas. Because this 
restriction is statutory, however, we cannot grant the commenters' 
request.
    Three Farm Credit banks and the Council asked us to repeal 
Sec. 613.3030(c). Under this provision, FCS banks and associations can 
extend credit to eligible rural homeowners only for the purposes of 
buying, building, remodeling, repairing or improving rural homes, or 
refinancing the existing indebtedness on such homes. The commenters 
want us to remove this restriction so eligible non-farm rural 
homeowners can borrow against the equity in their homes and use the 
loan proceeds for any purpose. We thoroughly addressed this issue when 
we developed Sec. 613.3030 during an extensive rulemaking that ended in 
1997. See 62 FR 4429, Jan. 30, 1997. We are not inclined to change our 
policy at this time.

C. Similar Entities

    A Farm Credit bank requested changes to Sec. 613.3300, which 
governs FCS participation in loans that non-System lenders make to 
similar entities. Under sections 3.1(11)(B) and 4.18A of the Act, 
similar entities are parties that are ineligible to borrow directly 
from System banks and associations but derive most of their income 
from, or have most of their assets invested in, the same activities as 
eligible borrowers.
    The bank wants us to revise the rule so the FCS can make loans 
directly to similar entities. We cannot grant this request because 
sections 3.1(11)(B) and 4.18A of the Act do not authorize Farm Credit 
banks and associations to lend directly to similar entities. These 
statutory provisions specify that System institutions may only 
participate in credits that non-System lenders extend to similar 
entities. Further, sections 3.1(11)(B)(i)(bb) and 4.18A(b)(2) of the 
Act limit System participation in similar entity loans to less than 50 
percent of the principal.

D. First Lien Requirement

    Three Farm Credit banks, one association, and the Council asked us 
to repeal a provision in Sec. 614.4200(b)(1) that requires Farm Credit 
banks, Federal land credit associations, and agricultural credit 
associations to secure their long-term mortgage loans with a first lien 
on the borrower's real estate. Section 1.7(a)(1) of the Act expressly 
requires FCS long-term mortgage lenders to take a first lien on the 
borrower's property in a rural area as security for the loan. Thus, 
this regulation cannot be repealed. Additionally, failure to secure a 
long-term mortgage loan with a first lien on the security property may 
be an unsafe and unsound practice. However, long-term mortgage lenders 
may still take additional collateral without a first lien, as an 
abundance of caution.

E. Borrower Stock for Loan Sales Within the FCS

    Currently, Sec. 614.4335(c)(1)(i) allows borrowers whose loans are 
sold within the FCS to decide whether to hold voting stock in the 
association that bought or sold their loans. Two Farm Credit banks, two 
associations, and the Council requested a revision that would allow 
System institutions involved in the transactions, rather than the 
borrower, to make this choice. We believe it is the right of a 
stockholder to elect whether to hold stock in a selling or purchasing 
FCS institution. This shareholder right is a basic tenant of FCS 
cooperative principles and this provision ensures that farmers, 
ranchers, and aquatic producers have the right to participate in the 
affairs of the FCS association of their choice when their loans are 
sold within the System.

F. Attribution Rules for Lending Limit Calculations

    Two Farm Credit banks, one association, and the Council asked us to 
revise the attribution rules for calculating lending limits. These 
commenters claim that the current regulation, Sec. 614.4359, is 
confusing. The FCA is fully committed to the plain language goals of 
the National Performance Review. Therefore, we plan to rewrite these 
regulations so they are easier to understand and apply. However, we do 
not plan to make substantive changes to the attribution rules at this 
time. We believe they protect the safety and soundness of System banks 
and associations by limiting their exposure to risk from any one 
borrower or a group of related borrowers. Additionally, our existing 
regulation is consistent with the approach of other Federal bank 
regulatory agencies.

G. Flood Insurance

    Two Farm Credit banks asked us to exempt certain farm and ranch 
outbuildings and commercial agribusiness firms from flood insurance 
requirements. The National Flood Insurance Reform Act of 1994 (1994 
Reform Act) requires flood insurance for all buildings that secure 
loans made by the FCS, commercial banks, credit unions, and savings 
associations if those buildings are in areas that the Federal Emergency 
Management Agency deems to be in special flood hazard areas. The 1994 
Reform Act offers no flexibility for the FCA to make regulatory 
exclusions for farm and ranch outbuildings, or commercial agribusiness 
firms. Furthermore, we joined with five other Federal bank regulatory 
agencies to ensure that the same flood insurance rules apply to 
commercial banks, savings associations, credit unions, and the FCS. 
Therefore, we are unable to repeal Sec. 614.4920(b) because it is a 
statutory requirement.

III. Future Efforts to Reduce Unnecessary Regulatory Burdens on FCS 
Institutions

    We will address all remaining regulatory burden issues that System 
institutions raised during the comment period in separate regulatory 
projects. The comments indicate that some System institutions may need 
guidance about how some regulations mentioned in Part II of this 
statement apply in certain situations. We hope to clarify these 
regulations in the future. When we complete our efforts, the regulatory 
burdens on the System will be reduced. However, we will maintain those 
regulations that are necessary to implement the Act and are critical 
for the safety and soundness of the System. Our approach will enable 
the FCS to continue to provide much needed credit to America's farmers, 
ranchers, aquatic producers, their cooperatives and other rural 
residents.

    Dated: April 13, 2000.
Vivian Portis,
Secretary, Farm Credit Administration Board.
[FR Doc. 00-9850 Filed 4-19-00; 8:45 am]
BILLING CODE 6705-01-P