Among other things, FSA is responsible for implementing USDA's direct and guaranteed loan programs. FSA's district office staff administer the direct loan program and have primary decision-making authority for approving loans. As of September 30, 2001, there were about 95,000 borrowers with direct loans outstanding, with an unpaid principal balance of about $8.5 billion. FSA farm loan managers are responsible for approving and servicing these loans. The factors FSA staff consider in approving or denying a loan include the applicant's eligibility, (i.e., he or she must operate a family-size farm in the area), credit rating, cash flow, collateral, and farming experience. Once a farm loan application is complete, FSA officials have 60 days to approve or deny the application and notify the applicant in writing of the decision. Once FSA approves a direct loan, it helps borrowers develop financial plans; collects loan payments; and, when necessary, restructures delinquent debt. Direct loans are considered delinquent when a payment is 30 days past due. When a borrower's account is 90 days past due, FSA county staff formally notify him or her of the delinquency and provide an application for restructuring the loan. To be considered for loan restructuring, borrowers must complete and return an application within 60 days. FSA staff process the completed application and notify borrowers whether they are eligible for loan restructuring. If a borrower does not apply or is not eligible for loan restructuring, and the loan continues to be delinquent, FSA notifies the borrower that it will take legal action to collect all the money owed on the loan (called loan acceleration). If the borrower does not take action to settle their account within a certain period of time, FSA may start foreclosure proceedings. When farmers believe that FSA has discriminated against them, they may file a discrimination complaint with USDA's OCR. For the complaint to be accepted, it must be filed in writing and signed by the complainant; be filed within 180 days of the discriminatory event; and describe the discriminatory conduct of a USDA employee or the discriminatory effect of a departmental policy, procedure, or regulation. Farmers may also seek compensation for violations of their civil rights by filing individual or class action lawsuits. In 1997, African-American farmers filed a class action against USDA (Pigford v. Glickman). In 1999, this suit resulted in a multimillion-dollar settlement agreement for the farmers. Since then, women and other minority farmers have also filed class actions against USDA. As you know, to elevate the attention of civil rights matters at USDA, the Congress created the position of Assistant Secretary of Agriculture for Civil Rights in the 2002 Farm Bill. In addition, in September of this year, the Secretary of Agriculture announced the creation of a new office within FSA to work with minority and socially disadvantaged farmers who have questions and concerns about loan applications filed with local offices. During fiscal year 2000 and 2001, the national average processing time for direct loans for Hispanic farmers was 20 days--4 days longer than for non- Hispanic farmers--but well within FSA's 60-day requirement. At the state level, loan processing time differences were more varied. For example, in the four states that account for over half of all Hispanic applications, processing times for Hispanic farmers were faster than for non-Hispanic farmers in three states and slower in the fourth state. However, all times fell well within FSA's 60-day requirement. Table 1 shows the average processing times of non-Hispanic and Hispanic farmers' applications nationwide and for the four states. The vast majority--91 percent--of all direct loan applications from Hispanic farmers were processed within FSA's 60-day requirement. However, the loan approval rate for Hispanic farmers was lower than for non-Hispanic farmers during this 2-year period: 83 and 90 percent, respectively. FSA officials maintain that approval rate differences were not significant and attribute them to differences in the applicants' ability to repay the loans they requested. Despite national differences, as shown in table 2, in three of the four states that received the largest number of Hispanic applications in fiscal year 2001, direct loan approval rates were similar. As part of FSA's assessment of its civil rights performance, the agency monitors differences between minority and nonminority loan processing times and approval rates at both the national and state levels. In addition, FSA sends teams to state offices to conduct civil rights reviews. The teams review loan files to verify compliance with FSA policies and procedures and, if warranted, provide written recommendations to remedy problems they find. Through fiscal year 2001, each state office was reviewed once every 3 years; beginning in fiscal year 2002, the offices will be reviewed every other year. While FSA monitors variations in loan processing times and approval rates for minorities and nonminorities, it does not have established criteria for determining when observed variations are significant enough to warrant further inquiry. In addition, while FSA conducts periodic field reviews of state offices' performance in civil rights matters and suggests improvements, it does not require the offices to implement the recommendations and does not monitor state office follow-up efforts. FSA is currently considering requiring state offices to provide information on how they have addressed weaknesses noted during reviews. USDA has a policy for issuing stays of foreclosure in cases when discrimination has been alleged in individual complaints filed with OCR, but not in response to individual or class action lawsuits with similar allegations. When an individual files an administrative discrimination complaint with OCR, FSA's policy is to automatically issue a stay of adverse action--including foreclosure-until the complaint has been resolved. During fiscal years 2000 and 2001, this policy was followed in 24 of the 26 applicable cases involving Hispanic borrowers. The policy was not followed in the remaining two cases because of miscommunication between OCR and FSA in reconciling their respective lists of complainants. When FSA learned that complaints had been filed with OCR, it stayed its foreclosure actions, and, as of August 2002, no further collection actions had been taken against the two farmers. Although future data system improvements should alleviate this problem, OCR and FSA officials acknowledge that improvements could be made in the interim. USDA does not have a similar policy for issuing stays related to discrimination claims raised in an individual or class action lawsuit. Instead, FSA makes decisions on whether to issue stays on a case-by-case basis based on the advice of USDA's General Counsel and the Department of Justice. Since 1997, USDA has issued stays of foreclosure related to African-American and Native American farmers' class action discrimination lawsuits involving FSA loan programs. In contrast, USDA did not issue stays of foreclosure for other class action discrimination lawsuits involving FSA loan programs because the department believed that the circumstances did not warrant a stay. These class action lawsuits and how USDA handled stays of foreclosure are discussed in greater detail below. In October 1997, African-American farmers filed a class action lawsuit against the Secretary of Agriculture (Pigford v. Glickman) alleging racial discrimination by USDA in its administration of federal farm programs. On October 9, 1998, the court certified the class--issued the criteria for class eligibility. On January 5, 1999, USDA entered into a 5-year consent decree with the claimants of the suit to settle it. The federal district court approved the consent decree and a framework for the settlement of individual claims in April of the same year. As of August 29, 2002, about 21,800 claims have been accepted for processing. As part of the consent decree, USDA agreed to refrain from foreclosing on real property owned by a claimant or accelerating their loan account.In November 1999, Native American farmers filed a class action lawsuit against the Secretary of Agriculture (Keepseagle v. Glickman) alleging that USDA willfully discriminated against Native American farmers and ranchers when processing applications for farm credit and farm programs. Further, claimants alleged that some class members had previously filed discrimination complaints with USDA and that the department had failed to thoroughly investigate the complaints. In December 1999, USDA issued a notice to FSA offices directing them not to accelerate or foreclose on any direct loans held by Native American borrowers unless the national office, with the concurrence of the Office of General Counsel, specifically authorized such action against an individual. As scheduled, this directive expired at the end of 2000. In October 2000, Hispanic farmers (Garcia v. Glickman) and women farmers (Love v. Glickman) each filed class action lawsuits against USDA alleging similar claims that USDA willfully discriminated against them in processing applications for farm credit and farm programs. Specifically, they alleged that loans were denied, provided late, or provided with less money than needed to adequately farm. In addition, the plaintiffs alleged that when they filed discrimination complaints about the handling of their loan applications, USDA failed to investigate them. The department has not issued stays of foreclosure in either of these lawsuits. In June 2001, USDA's Acting General Counsel wrote a memo that explained the department's reasoning for issuing stays of foreclosure in response to some class action lawsuits, but not others. According to the memo, the stay of foreclosure agreement included in the Pigford consent decree was reached only in the context of litigation and only to settle a lawsuit in which a class action had already been certified by the district court. The memo went on to say that the stay of foreclosure policy issued in response to the Keepseagle lawsuit was implemented during the infancy of the lawsuit while USDA and the Department of Justice were evaluating how to proceed in defending it. In addition, the memo stated that USDA did not intend to continue a stay of foreclosure beyond the evaluation. Further, the Acting General Counsel wrote that in all three of the pending lawsuits--Keepseagle, Garcia, and Love--no adequate factual bases had been alleged to support the claims of discrimination made by most of the named plaintiffs. As a result, the department saw no reason to implement a policy to halt foreclosures and other similar actions affecting borrowers potentially involved in these lawsuits. As of September 2002, a class has been certified for the Keepseagle lawsuit, but not for the Garcia suit. USDA has not issued any further stays of adverse action for participants in any of these lawsuits. Although USDA has not issued stays of foreclosure for potential class members in Garcia, relatively few Hispanic farmers have been affected by this decision. According to our survey of state offices, FSA accelerated the direct loans of almost 1,500 borrowers during fiscal years 2000 and 2001; only 41 of these borrowers were Hispanic. FSA also foreclosed on the loans of 6 of these 41 farmers during this period. In addition to these 41 borrowers, 10 other Hispanic borrowers who had their loans accelerated in prior years were foreclosed on during fiscal years 2000 and 2001. To put these figures into context, during this period, FSA foreclosed on the loans of approximately 600 borrowers, 16 (or 3 percent) of whom were Hispanic. During this period, Hispanic farmers made up about 4 percent of the agency's direct loan portfolio. FSA does not maintain historic information on accelerations or foreclosures in a manner for this information to be readily retrieved or analyzed. FSA officials acknowledged that such information is needed in light of the frequent charges of discrimination it faces. OCR has adopted many recommendations made in the past by USDA's Inspector General and agency task forces. For example, in 2000, a USDA task force identified 54 tasks to help address problems with OCR's organization and staffing, database management, and complaint processing. As of July 2002, the office had fully implemented 42, or nearly 80 percent, of these recommendations and plans to complete implementation of most of the others by October 2002. In addition, OCR has made some organizational modifications, such as creating separate employment and program directorates and adding three new divisions to the latter--Program Adjudication, Program Compliance, and Resource Management Staff. Further, from the beginning of fiscal year 2000 to the end of fiscal year 2001, OCR has made significant progress in reducing its inventory of complaints from 1,525 to 594. Despite these actions, however, OCR continues to fail to meet USDA's requirement that program complaints be processed in a timely manner. Specifically, USDA directs OCR to complete its investigative reports within 180 days after accepting a discrimination complaint. However, during fiscal years 2000 and 2001, OCR took on average 365 days and 315 days, respectively, to complete its investigative reports. Furthermore, as shown in figure 1, the 180-day requirement covers only a portion of the three major stages of the entire processing cycle. Accordingly, even if the 180- day requirement were met, OCR still take 2 years or more to complete the processing of a complaint. In fact, when all phases of the complaint resolution are accounted for, OCR took an average of 772 and 676 days in fiscal years 2000 and 2001, respectively, to completely process complaints through the entire complaint cycle and issue the final agency decision. OCR has made only modest progress in improving its timely processing of complaints because it has yet to address severe, underlying human capital problems. According to USDA officials, OCR has long-standing problems in obtaining and retaining staff with the right mix of skills. The retention problem is evidenced by the fact that only about two-thirds of the staff engaged in complaint processing in fiscal year 2000 were still on board 2 years later. OCR officials also pointed out that this staffing problem has been exacerbated because management and staff have been intermittently diverted from their day-to-day activities by such tasks as responding to requests for information from the courts. Furthermore, severe morale problems have exacerbated staff retention problems and have adversely affected the productivity of the remaining staff. Management officials told us that they spend an inordinate amount of time and resources addressing internal staff complaints. In fact, during fiscal years 2000 and 2001, OCR had one of the highest rates of employee- filed administrative complaints in the department. This atmosphere has led to frequent reassignments or resignations of OCR managers and staff. According to senior OCR officials, the problem has reached the point where some staff have even threatened fellow employees or sabotaged their work. Although OCR's Director believes that the situation has improved over the past few years, he acknowledges that some of the more serious morale problems have not been resolved. In conclusion, Mr. Chairman, USDA has continuously faced allegations of discrimination in its making direct loans to farmers over the past decade. To help guard against such charges, FSA needs to improve its monitoring and accountability mechanisms and make its systems and decision processes more consistent and transparent. Although FSA monitors variations in loan processing times and approval rates, it lacks criteria for determining when discrepancies warrant further inquiry. Similarly, while FSA conducts periodic reviews of its state offices' civil rights conduct and makes suggestions for improvement, it cannot ensure that these suggestions have been effective--or even adopted- without a requirement that state offices implement its recommendations or, if not, explain their reasons for not doing so. In addition, USDA has also been criticized for its handling of the allegations themselves--whether they were handled through litigation or the agency's complaint processes. In the case of class action lawsuits, USDA has been charged with treating different minority groups inequitably because it grants stays of foreclosures to some groups but not to others. Without a standard, transparent policy that lays out the factors USDA considers in deciding whether or not to issue stays, the department faces the continued problem of having its decisions viewed as unfair. Furthermore, if FSA and OCR do not improve their process for reconciling their respective lists of complainants, FSA runs the risk of violating its policy of not taking foreclosure actions against farmers with pending discrimination complaints. In addition, without maintaining historical information on foreclosures, USDA lacks an important tool to help it understand its equal opportunity performance.

Summary:
For years, some minority and women farmers have alleged that the Department of Agriculture's (USDA) Farm Service Agency (FSA) discriminates against them, treating them differently from other farmers during the loan approval or foreclosure process. During fiscal years 2000 and 2001, FSA took, on average, four days longer to process loan applications from Hispanic farmers than it did for non-Hispanic farmers: 20 days versus 16 days. The FSA's direct loan approval rate was somewhat lower for Hispanic farmers than for non-Hispanic farmers nationwide: 83 and 90 percent, respectively. USDA's policies for staying foreclosures when discrimination has been alleged depend on the method used to lodge complaints. When an individual's discrimination complaint is accepted by the Office of Civil Rights (OCR), FSA's policy is to automatically issue a stay of adverse action, such as foreclosure, until the complaint has been resolved. OCR has made modest progress in the length of time it takes to process discrimination complaints. USDA requires OCR to complete the investigative phase of processing a complaint within 180 days of accepting it. In fiscal year 2000, OCR took an average of 365 days to complete just the investigative phase. Although OCR slightly improved this average to 315 days in fiscal year 2001, this continues to exceed the department's internal 180-day requirement.