Before and after its bailout in the 1980s, the Farm Credit System’s (FCS) M.O. has been to expand its activities beyond what Congress has authorized. Most of the time, that’s meant lending for unauthorized purposes – loans to huge telecoms, technology real estate investment trusts (REITs) and customers looking to buy luxury houses.
But the FCS is constantly overstepping its bounds to make a profit. And one way it’s doing that is by taking deposits.
This has been happening for years. Farm Credit Services of America, one of the FCS’s largest associations, operates AgriPoint®, a system that allows borrowers to access cash-back dividends from funds held accounts – another way of saying that borrowers receive money for keeping funds with that FCS institution. And the Farm Credit Administration (FCA), the FCS’s regulator, admitted in an oversight hearing before the House Committee on Agriculture in December 2015 that “interest is paid on funds held [in funds held accounts].”
The FCS is not legally a deposit-taking institution. Institutions that take deposits, like community banks, are under the jurisdiction of the Federal Deposit Insurance Corporation (FDIC). These institutions are subject to the FDIC’s regulations, and pay premiums to the FDIC to protect customers’ deposits. And they do this for good reason – it gives customers peace of mind that their deposits are safe if a bank folds. This prevents runs on banks and the economic depressions that come with them.
On top of not being authorized to take deposits, the FCS has no insurance corporation like the FDIC to guarantee these “deposits”. FCS institutions do not pay an insurance corporation premiums to guarantee these “deposits”. If an FCS institution fails, there is no guarantee that customers will receive compensation for their “deposits”. Instead, taxpayers will be on the hook for repayment. In contrast, if a bank were to fail, the FDIC would compensate deposit-holders with premiums paid by authorized deposit-taking institutions. In short, FCS institutions want to have their cake and eat it too, leaving taxpayers with the bill if things go wrong.
The FCA has not taken action to end this blatantly unlawful and financially dangerous activity, and signs point to their not doing anything to stop it in the future. If that’s the case, Congress needs to step in, end this activity and protect America’s taxpayers, before it’s too late.