American Banker: Farm Credit System makes a consumer push, and bankers push back

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A new consumer-focused program with ties to the Farm Credit System is drawing bankers’ ire.

Rural 1st, a program from Farm Credit Mid-America, will make make loans tied to lots, recreational land and construction, along with mortgages and home equity lines, to borrowers in rural markets across Indiana, Ohio, Kentucky and Tennessee.

Bankers view the move as further encroachment by an entity that is already cutting into their agricultural lending. The $334 billion-asset Farm Credit System, which lends in every state, funds about 40% of all U.S. farm business debt, according to data from the Department of Agriculture.

“I just don’t understand why they feel the need to get into consumer loans,” said Kreg Denton, a senior vice president at First Community Bank of the Heartland in Clinton, Ky. “That’s not what they were created for.”

The $224 million-asset First Community competes with Farm Credit on a daily basis, added Denton, who is also a former chairman of the American Bankers Association’s agricultural committee. If the Farm Credit System is going to offer the same services as banks, then its associations should be held to the same regulatory standards, including the Community Reinvestment Act, he said.

Bankers have asserted for years that, similar to credit unions, the Farm Credit System’s tax breaks give it an unfair competitive advantage.

“We would argue that the Farm Credit System should focus on farmers, which was the intended purpose when it was set up at the beginning of the last century,” said James Thurston, a spokesman for the Ohio Bankers League. “Regulators need to ensure it is doing that and not going into direct competition with non-subsidized entities such as banks and thrifts.”

To be sure, the Farm Credit System has been making consumer loans for years.

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