Reform Farm Credit 2017 Year in Review

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Happy New Year! Reform Farm Credit (RFC) has been hard at work for three years, making sure that the Farm Credit System (FCS) follows the rules, stays within its mandate and helps the young, beginning and small farmers it was created to serve. 2017 was a momentous year for RFC, with RFC holding the Farm Credit Administration’s (FCA) feet to the fire and pressing it to regulate the FCS appropriately.

The latter half of 2017 saw explosive developments in the FCS, and RFC was there to take note. In July, RFC exposed an FCS institution’s rotten deal with a bankrupt college – a liberal arts college, not an agricultural college, to be clear. In August, three FCS associations in the Midwest combined to create Compeer Financial, a $19 billion institution with over 43,000 member-owners. Keep in mind, this development – consolidating into huge institutions and leaving smaller farmers and producers behind – is the vanguard, and is exactly what will happen to more institutions if the FCS isn’t reined in.

The growth of bigger and more disconnected FCS institutions isn’t the only trend that saw an uptick in 2017. In September, RFC chronicled the extreme financial “irregularities” in one FCS association, Lone Star ACA in Texas. Lone Star ACA’s “appraisal and accounting irregularities” meant that its financial statements, according to its board of directors, “should no longer be relied upon.”

Appraisal irregularities are par for the course when it comes to the FCS. In October RFC exposed an overlooked inequity in the FCS – in-house appraisers. In-house appraisers often have an incentive to appraise property in a way that may unfairly benefit the loan officer and the FCS institution itself. And as individual FCS institutions tap out the agricultural markets in a location, they begin to branch into unauthorized services – providing de facto, uninsured checking accounts and expanding into the health care market.

At the beginning of the year, RFC laid bare the FCS’s numerous legal messes. In March, AgSouth Farm Credit was sued after issuing a demand letter to a farm in Florida to “apply for refinancing for the remainder of [their] loan at $400,000 or face foreclosure.” The rub? “The plaintiffs noticed that it affixed their forged signature and was signed from a branch they had never been to.” Whoops.

But that’s among the least of the FCS’s concerns. In February, a probate judge in Connecticut found – as a matter of legal fact – that Farm Credit East aided a party to the probate case in walking him “through a process to set up a new LLC in order to get additional funds from the federal government that were not available to the business while the estate was being settled…there is serious question as to whether this was appropriate or even legal since it was nothing more than a shell corporation to funnel federal money [emphasis added].”

And like 2015 and 2016, 2017 saw Congress take the first steps to reining in the FCS. In late February, the House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies held an oversight hearing, demanding answers from the FCA. Not to be outdone, the House Committee on Agriculture held an additional oversight hearing in March.  Both times, the FCA and the FCS’s defenders could not provide substantive answers to the problems pointed out by members of Congress – and the committee members knew it.

The Reform Farm Credit team worked throughout 2017 to return the FCS to its original purpose, but we can’t do it without your help. Keep visiting Reform Farm Credit to learn more about how you can help us continue the fight to hold the FCS accountable to its mission, to farmers and to taxpayers!