Farm Credit Needs Independent Regulators to Watch the Watchmen

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Farm Credit System (FCS) institutions span the country, extending questionable loans, raking in gobs of cash, and doing so with only light regulation by the Farm Credit Administration (FCA), an independent agency within the executive branch. Congress, in turn, oversees the FCA’s regulatory program.

As an independent agency, the FCA issues regulations which affect not just the FCS but agricultural credit markets broadly. And according to a recent opinion issued by the Department of Justice, the FCA’s most significant regulations could be forced to stand scrutiny from another oversight body: the Office of Information and Regulatory Affairs (OIRA).

OIRA, within the Executive Office of the President, oversees the implementation of regulations issued by executive departments. And under Executive Order 12866, issued almost 30 years ago, OIRA must review proposed “significant regulatory actions,” which:

Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.

As part of its review, OIRA and the agency initiating the regulatory action must carry out a detailed assessment identifying the costs and benefits of the proposed regulation, which must be quantified if possible. Beyond just the analysis, OIRA and the agency must also assess whether there are reasonably feasible alternatives to the regulatory action.

It’s not hard to imagine how this might apply to the FCA’s regulatory program. The FCA oversees a network of lenders with more than $365 billion in total assets. Even relatively minor regulatory actions could yield an impact in excess of $100 million.

More importantly, regulatory actions which should receive more scrutiny would undergo a defined and detailed process of review by an office which is not an entrenched member of the stakeholder community. The Farm Credit Council, the FCS’s lobbying group, would not be taken seriously when it submits a three-sentence comment on a regulation that could have wide-reaching implications. Instead, experts would weigh the costs and benefits of the regulation and make a more removed and informed appraisal of the regulation.

But right now, the regulatory actions of independent agencies like the FCA are not subject to review by OIRA. That could easily be changed with the stroke of a pen. President Biden could – and should – clarify by executive order that the FCA’s regulations are also subject to review by OIRA. That way, there will be accountability from technical experts who can determine whether there are reasonable alternatives to the FCA’s proposed rules –  alternatives that actually help farmers.