New FCA Regulation Could Leave Farmers with Balloon Payments and Cash Flow Problems

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The Farm Credit System (FCS), the United States’ first government-sponsored enterprise (GSE), exists to provide credit to America’s farmers, especially its young, beginning and small farmers. Its regulator, the Farm Credit Administration (FCA), exists ostensibly to keep the FCS true to its mission. It does this by taking account of agricultural credit markets, updating its regulations so they’re current and applicable, and enforcing them.

This month, one of the FCA’s newest regulations – or rather, deregulations – will take effect. In plain English, Production Credit Associations (PCAs) may now extend the length of time that a borrower can take to pay back a loan beyond 15 years. PCAs extend loans to “borrowers for basic processing and marketing activities, and to farm-related businesses.” Because these loans are primarily to fund production, rather than to simply purchase land or real estate, they have a shorter repayment period.

The policy grounds for opposing this deregulation are strong: it could leave farmers with balloon payments at the end of the extended loan period, and historically low interest rates are bound to increase, meaning farmers will face problems with cash flow. When that happens, the FCS will see an increase in loan losses. These are serious concerns that should only be swept aside if there are compelling reasons.

But there aren’t. If there were, then surely the FCS and its defenders would have raised them as justification. Instead, during the rule’s open comment period, the Farm Credit Council, the FCS’s lobbying group, submitted this shamefully short statement: “we support the proposed repeal of the amortization limit for PCA loans and commend the agency for taking this action.” No reasons. Nothing. Two of the FCS’s major institutions added comments, but not much more.

Public comment periods serve an important role in the process of creating regulations: industry experts, stakeholders and other related parties have the opportunity to provide nuance and inform the regulator of the potential consequences of any given regulation. That was clearly not the case here. Instead, the FCA pushed ahead with its deregulatory program.

And it’s doing this at a time when the FCS is performing poorly and begging for reform and regulation. The FCS has failed young, beginning and small farmers. It extended a loan to a multinational energy company building solar panels to power Facebook. It completely bungled its part in the rollout of the Paycheck Protection Program (PPP). This isn’t an entity that needs deregulation and a hands-off approach. It hasn’t shown it can handle itself.

The FCA needs to halt its deregulatory program until the FCS has been held accountable for its failures – now’s not the time to let it compound them. If the FCA won’t take action, then Congress must.