Check the Record – Farm Credit’s Checking Account Scheme 

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Note: This is the third in a series examining the Farm Credit Administration’s (FCA) responses to questions submitted for the record by members of the House Committee on Agriculture following its oversight hearing of the Farm Credit System (FCS) in December 2015.

The Farm Credit System (FCS) and its advocates often make the point that FCS institutions can’t take deposits, as though that were the end all be all of whether or not they overstep their legal boundaries and act like community banks. And it’s important for FCS institutions and their advocates to say this – if they didn’t, customers might rightly think that the FCS is a government-sponsored enterprise (GSE) that’s sprawling over its boundaries.

So it came as no surprise when the Farm Credit Administration (FCA) insisted during the House Committee on Agriculture oversight hearing last December that while the FCS doesn’t take deposits, it provides an easy way for its customers to functionally have a checking account. The FCA’s answers to Ranking Member Collin Peterson’s (D-MN) supplemental questions shed light on this backdoor mechanism:

Ranking Member Peterson: There is information on the Farm Credit Services of America’s website that promotes something called CashPlus that says, “CashPlus offers a convenient way to handle your cash flow through one interest-bearing account – make deposits and pay bills anytime without penalty or fee.” During the hearing it was indicated that an account such as this is allowed and that it can be interest bearing. I just wanted to clarify on the interest bearing ability as well as the ability to write checks from such an account. Are these actions allowed?

The FCA’s response, technical and obscure as always, noted that FCS institutions are authorized to allow customers with outstanding loans to write checks on that loan.

But the devil’s always in the details.

The FCA noted that these accounts, Voluntary Advanced Conditional Payment (VACP) accounts, are “expressly authorized by sections 1.5(6) and 2.2(13) of the Farm Credit Act.” Indeed they are. What is not expressly authorized, though, is interest paid on the funds held in those accounts. And the FCA fully admits that “interest is paid on funds held”!

What first started as a means for farmers to easily pay for supplies and business expenses has now morphed into a functional checking account. All that a prospective customer need do is show up to an FCS institution, apply for a loan (for a vacation home, investments, an automobile etc.), get a checkbook and reap interest!

The FCS was created with a prime goal in mind: keep America’s farmers solvent so that they would be able to sustain their communities and feed the nation. The FCS was not created to provide functional checking accounts for anyone who could qualify for a loan.

If the FCA can’t, or won’t, recognize that FCS institutions are overstepping their bounds then who will? Both the House and the Senate Committees on Agriculture need to intervene and let the FCA and the FCS know – they’re watching, and they know past and current congressional intent.



Photo Courtesy of Wikimedia Commons