The herald and news. [volume] (Newberry S.C.) 1903-1937, 1916-07-28
BIRDsS.EYE VIEW OF
RURAL CREDIT ACT
What the New Law Proposes to Do
terest Never to Exceed 6 Per Cent.
News and Courier.

News and Courier.
Washington, July 25.-Many long
and complicated explanations of the
Rural Credits Act have been publish
ed. These have wearied or confused
the average reader. On the other
hand. most of the brief descriptive
references to the Act have been too
general to give clear idea OF the
modus operandi.
What the ordinary citizen would
like to know is how the new farm
loan system is to work and how the
farmer is to secure access to its Dene-
fits. The main features and the pr1n-
ciple can be shown in few words
as follows:
Under the Rural Credit Act the
country is divided into twelve dis
sricts, each of which has a federal
land bank. These banks which back
each others loans, form the divisional
links of a system which is centrally
supervised by a federal farm loan
board of five members, appointed by
the President.
The Government supplies s9,00O,000
to start each of the twelve farm land
banks with s75O,eOo capital, the money
being returned to the Government as
the banks become, gradually the prop
erty of the farmers themselves, as
will be explained later in this article.
The federal land banks lend through
local farm loan associations in
amounts from S100 to $4,000 on ap-
proved farm lands estimated to be
worth twice the amount of the loan.
These farm loan associations are real
lv banks, except that they cannot re-
ceive deposits. Neither can the fed
eral land banks.
1t takes ten or more farmers in a
community to form local assoc1a~
ton, and they must desire to borrow
at least $4,000 from the federal land
bank of their district. If the charac-
ter of these men and the lands they
offer as security are approved by the
officers of the federal system, a char
ter is issued to them.
After being chartered, each local as
sociation can receive application for
loans from as many farmers in its
territory as have land to cover the
amount. To get the money, however,
each applicant must become member
Of the local association and take
stock in it to the extent of per cent
of his borrowings. Similarly, the as
sociation itself must take stock in the
farm land bank of the district to the
extent of 5 per cent of the money
loaned through the association by the
bank.
Thus it will be seen that the local
associations will gradually acquire, by
the automatic operation of the sys-
tenn, al of the stock of the twelve
district banks, and that the borrow
ers through the local associations will
in the same way acquire all of the
stock of the associations. In other
words, the borrower in few years
will own the entire system, the Gov
ernment being left with no functions
except protective regulation,
Borrowers will be required to pay
certain proportion of the principal OF
their loans every year This annual
payment, constituting what is called
amortization" will be smaller in pro-
portion to the length of time the loan
is to run, which time is never to be
more than forty years nor less than
i've
The rate of interest IS not to ex>
ceed 6 per cent in any case. ard is
never to be more than 1 per cent more
than the rate of interest carried by
the last bond sold by the land banh
when the loan was made.
Additional capital necessary to op-
crate and expand the system is to be
obtained from the sale OF bonds based
on the mortgages owned by the land
banks, all of these banks being joint
1y responsible for the bonds. Being
thus backed, these securities are ex-
pected to be in such demand as safe
investments that in few years the