Reform Farm Credit has already taken a look at the FCA’s proposed regulation on reducing regulatory burden. Among other regulations the FCA is rolling out this year is one on new “criteria for reinstating non-accrual loans”
A non-accrual loan is a loan which is not generating its established interest rate due to nonpayment by the borrower. As you can imagine, regulating these is of the utmost importance: farmers, ranchers and producers with loans in non-accrual are in dire financial straits, and they need support from the System as long as is possible, even if that means the FCS does not make as much off of the loan.
But right now, all an FCS institution needs to do to return a loan to accrual status – to squeeze more money out of a vulnerable farmer, rancher or producer – is to affirm that “no reasonable doubt remains regarding the willingness and ability of the borrower to perform in accordance with the contractual terms of the loan agreement.”
Finally, the FCA is cracking down on this lax, imbalanced standard. The FCA has announced that the goal of the proposed regulation is to “provide more objective criteria related to the reasonable doubt of the borrower’s willingness and ability to pay.”
Good. The FCS needs to be held accountable, and that extends to its interactions with its customers. The financial success of too many farmers – especially young, beginning and small farmers – is held captive by the whims of whichever Farm Credit association they’re tethered to. And if that association wants to make more interest on a loan from a farmer in an uncertain financial position, all it needs to do is say that there is no reasonable doubt that the borrower can’t pay. But if the FCA’s proposed regulation goes through, that association won’t be able to lean on that vague standard. It will have to prove it according to objective, transparent criteria.
For once, it looks like the FCA is doing its job to hold the FCS accountable. But this is only the beginning – the regulation has not been finalized, and any attempt by the FCA at actual enforcement will face opposition from the FCS. Lawmakers, take note and keep a watchful eye: for once, the regulator is trying to regulate and keep the FCS on the right path. Please make sure it follows through.