Rule2023-27929
Loan Policies and Operations
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 27, 2023
Effective
February 1, 2024
Issuing agencies
Farm Credit Administration
Abstract
The Farm Credit Administration (FCA, we, or our) is amending regulations governing young, beginning, and small farmers and ranchers (YBS). The final rule clarifies the responsibilities of funding banks in the review and approval of direct lender association YBS programs, strengthens funding bank internal controls, and bolsters YBS business planning.
Full Text
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<title>Federal Register, Volume 88 Issue 247 (Wednesday, December 27, 2023)</title>
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[Federal Register Volume 88, Number 247 (Wednesday, December 27, 2023)]
[Rules and Regulations]
[Pages 89280-89286]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27929]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 614 and 620
RIN 3052-AD54
Loan Policies and Operations
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, or our) is amending
regulations governing young, beginning, and small farmers and ranchers
(YBS). The final rule clarifies the responsibilities of funding banks
in the review and approval of direct lender association YBS programs,
strengthens funding bank internal controls, and bolsters YBS business
planning.
DATES: This regulation will be effective the later of February 1, 2024,
or at least 30 days after publication in the Federal Register during
which either or both Houses of Congress have been in session. We will
publish a notice of the effective date in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Technical information: Jessica
Tomlinson-Potter, Senior Policy Analyst, Office of Regulatory Policy,
(703) 819-4667, TTY (703) 883-4056, <a href="/cdn-cgi/l/email-protection#1b6b746f6f7e69715b7d787a357c746d"><span class="__cf_email__" data-cfemail="b5c5dac1c1d0c7dff5d3d6d49bd2dac3">[email protected]</span></a> or Legal
information: Hazem Isawi, Senior Attorney, Office of General Counsel,
(703) 883-4022, TTY (703) 883-4056, <a href="/cdn-cgi/l/email-protection#056c7664726c6d456366642b626a73"><span class="__cf_email__" data-cfemail="2c455f4d5b45446c4a4f4d024b435a">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Objectives of the Final Rule
The objectives of this final rule are to:
<bullet> Increase direct lender associations' YBS activity to a
diverse population of borrowers;
<bullet> Reinforce the supervisory responsibilities of the funding
banks, authorized by section 4.19 of the Farm Credit Act; and
<bullet> Require each direct lender association to enhance the
strategic plan for their YBS program.
When developing YBS programs, direct lender associations should
consider marketing to all populations of YBS farmers and ranchers.
Underserved communities and groups can be overlooked or excluded from
marketing efforts and education outreach, leaving out a potential
borrowing base.
Underserved groups include those who have been subjected to racial,
ethnic, or gender prejudice because of their identity as members of the
group without regard to their individual qualities. Examples of
underserved communities include, but are not limited to, Black or
African American, American Indian and Alaskan Native, Hispanic, Asian
and Pacific Islander, LGBTQIA+, women, veterans, and persons with
disabilities. These are examples of communities with a high potential
for individuals who may fall into the Y, B, and/or S categories of
borrowers, and direct lender associations should target such
communities specifically to reach the entire universe of potential
borrowers. Underserved communities can often be reached in schools and
universities, professional and social organizations, at community
gatherings, and local events.
Every effort should be made to reach the entire universe of
potential Y, B, and S borrowers. Direct lender associations should also
work with their local Farm Service Agency representatives to assist the
Farm Credit System with its directive to serve all creditworthy Y, B,
and S borrowers by breaking down bureaucratic barriers to entry.
II. Background
The Farm Credit Act of 1971, as amended (Act),\1\ establishes the
Farm Credit Administration as the safety and soundness regulator of the
Farm Credit System (FCS or System). As stated in the FCA Strategic Plan
for FYs 2018-2023, our mission is to ensure that System institutions
are safe, sound, and dependable sources of credit and related services
for all creditworthy and eligible persons in agriculture and rural
America. The System has a unique mission to serve YBS farmers and
ranchers. Section 4.19 of the Act \2\ requires each direct lender
association to establish a program to furnish sound and constructive
credit and related services to YBS farmers and ranchers.
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\1\ Public Law 92-181, 85 Stat. 583.
\2\ 12 U.S.C. 2207.
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We continue to believe the System's YBS mission is important to
enable small and start-up farmers and ranchers to make successful
entries into agricultural production. Also, we believe it is important
to ensure marketing and outreach efforts include all eligible and
creditworthy persons, with specific outreach to achieve diversity and
inclusion. The System's YBS mission is also critical to facilitate the
transfer of agricultural operations from one generation to the next. We
remain committed to ensuring the System fulfills its important mission
to YBS farmers and ranchers.
We published a proposed rule on June 16, 2022 (NPRM), recommending
updates to FCA's YBS regulations, which were last updated almost 20
years ago. This final rule largely adopts the proposal with certain
changes made in response to comments, with a particular focus on
reducing an increased administrative burden. Comment letters, along
with our responses are discussed below.
III. Comments and Our Responses
The comment period ended August 15, 2022. We received 67 comment
letters. Most comments came from System institutions or persons
affiliated with the System, with one letter from the Farm Credit
Council (Council) acting on behalf of its membership. We also received
three letters from trade groups representing commercial banking.
Most commenters requested we withdraw the proposed rule and keep
the existing regulations in place. Some commenters offered solutions to
bolster practices such as continued
[[Page 89281]]
collaboration with FCA and System workgroups without changes to the
existing regulation. Commenters stated that the rule was
administratively burdensome, human capital intensive, difficult for
smaller direct lenders to implement, and did not achieve the shared
goal of increasing YBS activity.
We also received comments in support of the proposed rule that
agreed with the framework and accountability the rule requires, stating
the rule changes should be done with more than incremental progress in
mind. Another comment supported the idea of increased reporting.
Specific Issues
A. YBS Program Uniformity
System commenters expressed concern that the prospect of a YBS
rating system and the proposed requirements relating to funding bank
oversight may encourage all YBS programs to ``look alike'' or to fit
into a ``cookie cutter'' mold. While one of the proposed rule's stated
objectives was to provide elements that will be evaluated as part of a
rating system to measure year-over-year YBS progress, we did not
propose to create any such rating system itself through the rulemaking.
For clarity, however, this final rule omits rating system matters in
its statement of objectives.
Next, we disagree that the proposed changes to bank oversight
responsibilities will lead to ``cookie cutter'' YBS programs. We have
long encouraged direct lender associations to tailor YBS programs to
serve the specific needs of borrowers in the different lending
territories. Existing FCA regulation Sec. 614.4165(c), which is
redesignated paragraph (d) in this final rule, states that each direct
lender association ``must establish a program to provide sound and
constructive credit and services to YBS farmers and ranchers in its
territory.'' The reference to ``its territory'' illustrates that each
YBS program should reflect the credit and service needs of YBS
borrowers within that lending territory. While this rulemaking enhances
and strengthens bank oversight responsibilities and direct lender
association YBS program standards, it does not prescribe or encourage
uniformity of content among YBS programs. We continue to expect varying
approaches among the direct lender associations, appropriate to the
needs of borrowers in each lending territory.
B. Definitions [Sec. 614.4165(a)]
The proposed rule had no substantive changes to the definitions in
current paragraph (a). We proposed grammatical changes, including
removing the word ``and'' between farmers and ranchers, and adjusting
punctuation. We received one comment on the definition of a
``beginning'' farmer; however, that term is not defined in regulatory
text. The definitions in paragraph (a) will be finalized as proposed.
C. Farm Credit Banks Oversight [Proposed Sec. 614.4165(b)]
Commenters frequently raised concerns on the topic of bank
oversight. Two non-System commenters supported the concept of increased
bank oversight, stating they would like to see reform in reporting and
tracking, and that they believe bank review and approval will help with
this. System commenters opposed increased bank oversight for a variety
of reasons, which will be discussed as they relate to each section of
the rule text. The proposed preamble stated that we believed funding
banks were in a unique position to know the YBS activities of their
affiliated direct lender associations and see how those associations
respond to the needs of their respective borrowers. Commenters strongly
disagreed, stating funding banks do not have ``boots on the ground''
and are not familiar with local YBS markets and needs. We considered
this feedback as we drafted the final rule, which removes certain
elements of the proposed bank oversight requirements.
Proposed paragraph (b)(1) required each bank, among other things,
to adopt written policies directing direct lender associations to
establish YBS programs, ensure direct lender association coordination
with others, and report to FCA. A bank trade group commented that the
proposed rule lacked a requirement for direct involvement or
representation of YBS farmers and ranchers in the process of creating
and reviewing YBS programs. To address this, the commenter recommended
that each bank be directed to adopt a written policy requiring the bank
and any affiliated direct lender association to form a committee
comprised of local YBS farmers and ranchers. The commenter further
recommended that these committees be vested with authority over YBS
programs, independent of the board of directors of each institution. We
decline to adopt this recommendation because it is outside the scope of
the proposal. Moreover, because Farm Credit is a cooperative system run
by member-borrowers who elect their respective System institutions'
boards of directors, YBS farmers and ranchers are structurally situated
to be heard and represented at the board level. We also note that as a
matter of practice, many direct lender associations have various YBS
committees and advisory groups that provide input and are involved in
program development. We do not believe this additional involvement and
representation from YBS farmers and ranchers is necessary at the bank
level given the current involvement of member borrowers in System
governance at their direct lender associations.
Proposed paragraph (b)(1)(i) required each funding bank to adopt
written policies that direct their affiliated direct lender
associations to establish an annual strategic YBS plan. While we did
not receive comments on this specific paragraph, we received many
comments on the YBS strategic plan itself, which are addressed in
section D. Direct lender association YBS strategic plan. Because the
proposal for an independent YBS strategic plan is not being adopted in
this final rule, the requirement for bank policy direction on such plan
has been removed.
The proposed rule redesignated paragraph (b)(2) of the current
regulation as paragraph (b)(1)(ii). The text of this coordination
requirement remained unchanged, but nonetheless we received three
comments from the System stating it is unclear how much coordination
between organizations is acceptable and how coordination can be
objectively evaluated. Although these comments are outside the scope of
the proposal's substantive changes, coordination efforts are generally
sufficient if they accomplish the objective that YBS programs ``shall
assure that such credit and services are available in coordination with
other institutions of the Farm Credit System serving the territory and
with other governmental and private sources of credit.'' Act Sec.
4.19(a). We expect that specific coordination efforts will be devised
on an institution-by-institution basis. Paragraph (b)(1)(ii) will be
finalized as proposed.
Proposed paragraph (b)(1)(iii) required each bank to establish a
policy to direct each affiliated direct lender association to submit a
YBS strategic plan and any other information regarding its YBS program
deemed necessary by the bank. We received two System comments and one
comment from the Council on this requirement. In summary, the comments
stated that ``any other information deemed necessary by the bank'' was
vague, arbitrary, and therefore burdensome. There was concern over
inconsistency of requirements between the banks and the stifling of
creativity for the direct
[[Page 89282]]
lender. Further, there was commenter concern on the relationship with
the direct lender and bank being damaged, with various reasons listed.
We received many comments on the strategic YBS plan itself, which are
addressed in that section. Because we are not adopting the proposal's
requirement for an independent YBS strategic plan, we are removing
proposed paragraph (b)(1)(iii) from this final rule.
Proposed paragraph (b)(1)(iv) is redesignated as paragraph
(b)(1)(iii) and finalized as proposed. Although we only proposed a
redesignation from the current paragraph (b)(4) and a replacement of
``agency'' for ``FCA,'' we still received four comments. Commenters
agreed that no changes were needed to the data reporting requirement of
``complete and accurate'' in the rule text, but they did mention
concerns surrounding subjectivity of criteria, which has not been a
material issue in the past. Commenters did not provide reasons this
would be a concern going forward.
A trade group for commercial banks commented that ``achievements''
may be interpreted as denoting completion and success. The commenter
stated that since success should not be presumed, we should add
``shortfalls'' as an element for the bank to report on in addition to
``operations'' and ``achievements.'' We decline to adopt this specific
change because paragraph (c)(2)(ii) as finalized requires the
operational and strategic business plan to discuss variances and
reasons for the results. We expect that both positive and negative
variances will be discussed in the plan. Reporting of negative
variances thus addresses the commenter's suggestion.
We received 46 comments on proposed paragraph (b)(2). Two
commenters supported funding bank oversight and approval while the rest
opposed this requirement. Those in favor wanted to see reform in
reporting and tracking and believed that bank oversight would help in
that area. They stated that oversight and accountability are necessary,
and this rule is a step in the right direction for critical
accountability.
Those opposed to the proposed changes relating to funding bank
oversight raised the following issues:
<bullet> cost and administrative burden;
<bullet> negative impacts on cooperative structure and local
control;
<bullet> no appeal or resolution process;
<bullet> expansion of current funding bank duties;
<bullet> lack of funding bank personnel expertise regarding
individual YBS markets;
<bullet> biased, preferential, or inconsistent evaluation among the
four funding banks;
<bullet> lack of guidance on goal standards or what is considered
acceptable/successful;
<bullet> no value added to YBS programs;
<bullet> homogenization of YBS programs resulting from a
``uniform'' bank approval process; and
<bullet> exam findings and communication to the System not
warranting increased bank oversight.
To address these comments, we made changes to the rule by:
<bullet> removing the requirement for an independent YBS strategic
plan and associated funding bank approval and review,
<bullet> providing that funding bank review and approval shall
solely be to determine whether the YBS program contains all required
components,
<bullet> updating the reference from paragraph (c) in the current
regulation to paragraph (d) in the final rule, and
<bullet> stating that funding bank communication of an incomplete
plan must be in writing and sent to FCA within 30 days.
The statute provides that association YBS programs are ``[u]nder
the policies of the Farm Credit Bank board,'' and that ``[e]ach program
shall be subject to review and approval by the supervising bank.'' The
System's comments and representations about funding bank lack of
expertise, staff knowledge and capability with respect to YBS programs
suggest there is room for the banks to improve their capabilities in
this area.
As in the existing regulation, banks will still be required to
review and approve each direct lender association's YBS program. This
rule clarifies that such review and approval must be performed
annually. We find this requirement complements--and is logically
connected to--the bank's responsibility for creating and submitting the
operations and achievements report to FCA. Specifically, annual review
and approval of direct lender association YBS programs will give each
bank a better understanding of the programs in their territories and
ultimately result in more accurate reporting to FCA.
To address concerns about the scope of bank review, however, we are
revising the regulatory text so that review and approval shall solely
be to determine whether the YBS program contains the components of
finalized paragraph (d). As a result, the finalized text more closely
tracks the scope of review specified in the current regulation.
Notwithstanding the revision, we encourage open dialogue between the
bank and direct lender to continually improve program content.
With slight changes from the proposal, this final rule provides
that where a bank concludes a YBS program is incomplete, it must
communicate that fact in writing to both the direct lender association
and FCA within 30 days.
Proposed paragraph (b)(3) required internal controls. Since banks
are the main YBS reporting entity to FCA, having a strong internal
control environment is critical to safety and soundness. We received
four comments from the System, the Council, and a commercial bank trade
group. The commercial bank trade group stated that, in the past,
internal controls over YBS data reporting processes have been weak.
They stated this resulted in inaccurate reporting to FCA. They went on
to state weak reporting is a concern they'd like to see addressed. The
System and Council stated that establishing new internal controls will
create redundancy and inefficiencies. As discussed in sections above
and below, direct lenders are not required to have an independent YBS
strategic plan in the finalized rule. Therefore, bank internal control
requirements in the proposed rule for direct lender YBS plans have been
removed. The Council commented that banks should be able to rely on the
internal controls of the direct lender. The bank's responsibilities for
review and approval of YBS programs and data compilation and reporting
to FCA are independent of direct lenders. For this reason, it is
necessary that each bank has internal controls over the processes they
perform, just as direct lenders do. Each organization in the System
should have internal controls over their respective YBS
responsibilities.
D. Direct Lender Association YBS Strategic Plan [Proposed Sec.
614.4165(c)]
Proposed paragraph (c)(1) required each direct lender association
to adopt an independent 3-year YBS strategic plan to guide the direct
lender's required YBS program. We received 31 comments on this
requirement from the System and a commercial bank trade group, all of
whom were opposed for a variety of reasons.
Many stated that YBS borrowers are critical to the System's
sustainability, are an integral part of direct lender's operations, and
are a key component of the overall business plan. As such, YBS
components are woven into almost every aspect of a direct lender's
annual business plan. Commenters went on to say that YBS borrowers
should be considered in the context of the whole business and included
as part of the overall business plan rather than
[[Page 89283]]
separated out. The FCS commenters stated that creating an independent
plan outside of the business plan would create disconnected, redundant,
and unnecessary administrative burdens. The FCS commenters noted that
staff's time could better be used serving YBS borrowers directly rather
than duplicating the business plans.
We considered this input and will not finalize the requirement for
an independent YBS strategic plan. We agree that YBS is an integral
part of direct lenders' operations and should be incorporated as part
of overall business planning. The intent of our proposal was that an
independent planning document would put increased emphasis on YBS.
However, the same goal can be achieved without creating a separate
document. It is our intent that direct lenders give thoughtful
consideration into their strategic lending to YBS borrowers, in both
current and potential markets.
While we are not changing the existing requirement for a 3-year
planning period in the operational and strategic business plan, we
still received comments on this area. Some commenters stated that a 3-
year plan is not reasonable given volatility and uncertainty, making
future years a guess. We believe it is important to be forward looking
and innovative in strategic business planning. Three years has been
established as a minimum planning period. We continue to believe that
three years is appropriate for planning. Some commenters stated the
requirement to adopt a 3-year plan within 30 days after the
commencement of the year is not enough time to analyze the past year's
data and conflicts with other business planning activity. While we
understand that the period around the new calendar year may be
particularly busy, the timeframe for adoption of the plan is specified
in the existing regulation, and we have not proposed a change in this
regard. We believe the new calendar year continues to be an appropriate
time to conclude activity and begin reporting processes.
Paragraph (c)(2) of the proposed rule required that the strategic
plan must detail the operations of the YBS program including all
components in paragraph (d). We received no comments specific to this
section. This requirement has been combined into the finalized (c)(1).
In proposed paragraph (c)(3)(i), direct lenders were required to
analyze performance from the previous year in achieving components of
their YBS program listed in proposed paragraph (d). We received a
comment from a banking trade group that analyzing only performance and
effectiveness but not identifying areas to improve upon is not a
balanced approach. While we understand the commenter's point, it is our
expectation that direct lenders take a balanced approach when analyzing
performance. If a goal is not achieved, it must still be reported on.
Proposed paragraph (c)(3)(ii) received no comments. We redesignated
and finalized it as paragraph (c)(2)(ii). Proposed paragraph
(c)(3)(iii) received no comments, and we redesignated and finalized it
as paragraph (c)(2)(iii). We replaced the word, ``efforts,'' with
``qualitative factors and quantitative goals.'' We added the words,
``expand access to,'' which derived from proposed paragraph (c)(3)(iv).
We received seven comments from the FCS opposing proposed paragraph
(c)(3)(iv). The requirement proposed that direct lenders assess the
effectiveness in providing efforts resulting in credit provided to new
and expanding YBS operations. Commenters discussed the high
subjectivity of such data and stated they are unclear how effectiveness
is measured. Examples were given of a person attending a seminar and
several years later becoming a borrower. How would direct lenders track
and record such activity? Commenters stated databases are not currently
in place to collect such data and it is cost prohibitive with little
value added to create a database. Commenters also believed that
tracking this data provided no value to YBS borrowers. After assessing
comments, we added the words ``and expand access to'' which derived
from proposed paragraph (c)(3)(iv) to finalized paragraph (c)(3)(iii)
and removed the other requirements of proposed paragraph (c)(3)(iv). We
believe that tracking such data and identifying how direct lender
association YBS programs are assisting and expanding access to credit
and education for YBS farmers and ranchers does provide value to YBS
farmers and ranchers by strengthening and improving lender's YBS
programs. To comply with this provision, direct lenders must assess how
their YBS program components assist and expand access to credit and
education for YBS farmers and ranchers.
E. Direct Lender Association YBS Program [Proposed Sec. 614.4165(d)]
We received one comment on proposed paragraph (d) from a commercial
banking trade group in support of the requirement. There were no
opposing comments. The comment stated that the components have been
long awaited and both qualitative and quantitative factors play
important roles in YBS lending. Paragraph (d) is finalized as proposed.
We received one comment from a commercial banking trade group
regarding the mission statement requirement in proposed paragraph
(d)(1)(i)(A). The commenter stated that the mission statement should
explicitly recognize the importance of YBS and ensure support at the
direct lender level. We believe the requirement is satisfactory as
drafted in accomplishing this purpose, and finalized it as proposed.
Proposed paragraph (d)(1)(i)(B) is finalized as proposed. We
received two comments on the direct lender internal controls
requirement in proposed paragraph (d)(1)(i)(B). One System commenter
stated that adding internal controls adds additional time, energy, and
costs to reporting. Internal controls are an existing requirement that
direct lenders should already have in place. Another commenter asked
that internal controls clarify the extent to which staff must take
stakeholder input into account. While encouraged, the rule does not
require stakeholder input, nor is it necessarily a component of an
internal controls system.
There was one comment from a commercial banking trade group,
supporting the use of credit enhancement tools. Proposed paragraph
(d)(1)(ii)(A) is finalized as proposed.
Proposed paragraph (d)(1)(ii)(B) is finalized as proposed. It
requires credit and related services coordination with System
institutions, governmental and private sources. This is a continuation
of requirements in existing paragraph (c)(3)(ii). We received nine
comments on this requirement. One comment from a commercial banking
trade group supported third-party coordination on credit and related
services. Eight commenters, all from the System, opposed this existing
requirement. Commenters stated that where direct lender associations
are over-chartered within the same market, coordination efforts will
entice competition rather than healthy collaboration. Another System
commenter stated that the prospect of interterritorial competition was
untenable and would potentially damage their association and members.
Some commenters stated that collaboration is already occurring, and a
regulatory requirement is not needed. System commenters were worried
that this requirement may be interpreted by funding banks to force best
practices for one lender onto another lender, even if the practices may
not apply or work, to achieve bank approval. Commenters stated that
statutory borrower rights requirements were not in the
[[Page 89284]]
commercial banks' interest and, as such, posed a barrier to
coordination. Another commenter mentioned that agencies such as FSA or
other national YBS organizations already experience time constraints.
When multiple direct lender associations request collaboration at the
same time, particularly in over-chartered areas or small towns, these
resource issues will be compounded. Lastly a commenter stated that the
System does not have an adequate portal to capture and highlight the
depth of the collaboration efforts that occur. As an existing
requirement, we have seen the importance and benefit of third-party
coordination. The requirement leaves the option open to direct lenders
in choosing with which parties they coordinate. We understand that some
relationships work better than others. Nonetheless, we encourage direct
lenders to continue outreach and third-party coordination, for the
betterment of YBS farmers and ranchers.
Proposed paragraph (d)(1)(iii) is finalized as proposed. It
requires implementation of outreach programs, which may include
marketing and education. This is a continuation of requirements in
existing paragraph (c)(3)(iii). We received seven comments on this
requirement. One comment from a commercial banking trade group
supported minimum requirements for marketing, outreach, and education.
Six commenters, all from the System, opposed this existing requirement.
Commenters stated that the rule is silent on criteria to determine
effectiveness and that measuring effectiveness is subjective. One
commenter stated that it would frustrate and confuse potential
customers and business partners when a direct lender comes to an event
with predetermined measurers for effectiveness. Another commenter asked
if the board, management, or banks would be determining the
effectiveness of activities, going on to say that this requirement is
redundant and burdensome. In the existing requirement, the agency has
not identified material weaknesses with direct lenders implementing
effective outreach, marketing, and educational programs.
We are unclear as to why carrying this requirement forward into the
finalized rule would be burdensome. Results have shown for a direct
lender YBS program to be successful, it is critical to have more
components than merely the extension of credit. Some of these
components include marketing to underserved segments, providing new
borrower education, and listening to feedback from YBS farmers and
ranchers.
Proposed paragraph (d)(2)(i) strikes the word ``reasonably'' and is
finalized as proposed. It requires using reliable demographic data in
developing quantitative goals, along with identifying the sources of
the data. We received seven comments on this requirement. One comment
from a commercial banking trade group stated that quantitative goals
must be bolstered with additional requirements and that more than one
goal should be used. This commenter did not like basing the
understanding of goals on reasonably reliable demographic data and
stated that sources should be recognized and not arbitrary. The six
opposing commenters were all from the System. Commenters who opposed
this requirement shared concerns on the term ``reasonably reliable,''
saying it provides uncertainty and results in highly subjective
interpretations, asking who is to have final determination if the data
is reasonably reliable or not. Validation of such data and timeliness
were also raised as concerns. Opposing commenters stated validating
data would raise significant time and resource concerns. They also
stated that USDA census data is several years old before release, not
making it the most up-to-date and reliable. Commenters questioned
whether direct lenders would be expected to contract with third parties
while awaiting USDA data availability to meet this requirement.
Opposing commenters also raised concerns that requiring additional
quantitative goals will increase the potential for compromises to be
made to existing programs that are effective as a means to meet new
goals, adding that there is no incentive for direct lenders to set
aggressive goals which may not be met and then result in a lower FCA
rating. We believe that striking the word ``reasonably'' addresses
these comments. Reliable data is a key component in developing
effective goals. It is our expectation that the direct lender
associations obtain the best data available to them when developing
goals.
Proposed paragraphs (d)(2)(i)(A), (d)(2)(i)(B), (d)(2)(i)(C), and
(d)(2)(i)(D) are finalized as proposed. They identify the minimum
quantitative goals that a direct lender must establish annually. These
requirements carry over unchanged from existing paragraphs (c)(2)(i)
through (iv). We received one comment from a commercial banking trade
group on proposed paragraphs (d)(2)(i)(A) through (C), stating the
goals are arbitrary and unmoored and should be bolstered with
additional requirements. We did strengthen this existing requirement by
requiring direct lenders to use at least one of the goal categories
listed as opposed to the existing requirement that states that such
targets may include one of the goal categories listed. Historically,
direct lenders rarely used categories other than those listed in the
regulation. Keeping the same categories ensures that data can be
compared consistently over a range of time periods. Further, databases
are already in place in the System to track these categories, which
helps minimize regulatory burden and costs. We note these are only
minimums and some direct lenders can and do use a combination of these
goals or other categories.
Proposed paragraph (d)(2)(i)(D), pertaining to goals for capital
committed to loans made to YBS borrowers, is finalized as proposed. It
is an unchanged requirement compared with existing paragraph
(c)(2)(iv), however, we did receive two opposing comments from a
commercial bank trade group and the System. Both commenters had similar
observations that the requirement was arbitrary and unmoored. One
commenter went on to say there is a lack of criteria to determine how
much capital a direct lender should allocate to YBS. There was concern
that both FCA and the funding bank will have difficulty determining
where a program is deficient in the capitalization goal. The final rule
does not require direct lenders to have a capital goal. Paragraph
(d)(2) only requires each direct lender to have one of the listed
goals, not all. Nonetheless, we believe a capital commitment is a best
practice and is one method of allowing direct lenders to serve YBS
borrowers who may have a higher risk profile, while at the same time
mitigating the lender's overall risk in the credit relationship.
F. Annual Report Information Concerning YBS [Proposed Sec.
620.5(k)(2)]
We received no comments on the renumbering changes in proposed
Sec. 620.5(k)(2). It will be finalized as proposed.
G. Other Matters
One system commenter concluded that because the NPRM states that
``YBS components will no longer be required as part of Sec.
618.8440,'' FCA is impermissibly trying to modify Sec. 618.8440
through the proposed rule. No part of this rulemaking revises Sec.
618.8440 or changes its requirements. Our statement in the NPRM merely
observed the effect of the proposed deletion of paragraph (e) of Sec.
614.4165, which requires each direct lender
[[Page 89285]]
association's YBS program targets and goals to be included in its
operational and strategic business plan (as separately required under
Sec. 618.8440). In any case, since the final rule does not adopt the
proposed rule's wholesale deletion of paragraph (e) of Sec. 614.4165,
and instead moves it with minor changes to paragraph (c)(1), the
substantive requirement to include YBS program components in the
operational and strategic business plan will remain intact. As a
result, the commenter's concern is addressed.
IV. Regulatory Flexibility Act and Congressional Review Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that this final rule will not
have a significant economic impact on a substantial number of small
entities. Each of the banks in the Farm Credit System, considered
together with its affiliated direct lender associations, has assets and
annual income in excess of the amounts that would qualify them as small
entities. Therefore, Farm Credit System institutions are not ``small
entities'' as defined in the Regulatory Flexibility Act.
Under the provisions of the Congressional Review Act (5 U.S.C. 801
et seq.), the Office of Management and Budget's Office of Information
and Regulatory Affairs has determined that this final rule is not a
``major rule,'' as the term is defined at 5 U.S.C. 804(2).
List of Subjects
12 CFR Part 614
Agriculture, Banking, Banks, Flood insurance, Foreign trade,
Reporting and recordkeeping requirements, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banking, Banks, Reporting and
recordkeeping requirements, Rural areas.
PART 614--LOAN POLICIES AND OPERATIONS
0
1. The authority citation for part 614 continues to read as follows:
Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2,
2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10,
3.20, 3.28, 4.12, 4.12A, 4.13B, 4.14, 4.14A, 4.14D, 4.14E, 4.18,
4.18A, 4.19, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17,
7.0, 7.2, 7.6, 7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12
U.S.C. 2011, 2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074,
2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131,
2141, 2149, 2183, 2184, 2201, 2202, 2202a, 2202d, 2202e, 2206,
2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252,
2279a, 2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5);
12 U.S.C. 2121 note; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
0
2. Section 614.4165 is revised to read as follows:
Sec. 614.4165 Young, beginning, and small farmers and ranchers.
(a) Definitions.
(1) For purposes of this subpart, the term ``credit'' includes:
(i) Loans made to farmers, ranchers, and producers or harvesters of
aquatic products under title I or II of the Act; and
(ii) Interests in participations made to farmers, ranchers, and
producers or harvesters of aquatic products under title I or II of the
Act.
(2) For purposes of this subpart, the term ``services'' includes:
(i) Leases made to farmers, ranchers, and producers or harvesters
of aquatic products under title I or II of the Act; and
(ii) Related services to farmers, ranchers, and producers or
harvesters of aquatic products under title I or II of the Act.
(b) Farm Credit banks oversight.
(1) Each Farm Credit Bank and Agricultural Credit Bank must adopt
written policies that direct:
(i) The board of each affiliated direct lender association to
establish a program to provide sound and constructive credit and
related services to young, beginning, and small farmers, ranchers, and
producers or harvesters of aquatic products (YBS farmers and ranchers
or YBS);
(ii) Each affiliated direct lender association to include in its
YBS program provisions ensuring coordination with other System
institutions in the territory and other governmental and private
sources of credit; and
(iii) The bank to provide the FCA a complete and accurate annual
report summarizing the YBS program operations and achievements of its
affiliated direct lender associations.
(2) Annually, the YBS program of each direct lender association
must be reviewed and approved by its funding bank, provided review and
approval shall solely be to determine whether the YBS program contains
all required components as set forth in paragraph (d) of this section.
Any conclusion by the bank that a YBS program is incomplete must be
communicated in writing to the direct lender association and to the FCA
within 30 days.
(3) Each Farm Credit Bank and Agricultural Credit Bank must
implement internal controls for requirements in paragraphs (b)(1)(iii)
and (b)(2) of this section.
(c) Direct lender association YBS plan.
(1) YBS program components outlined in paragraph (d) of this
section must be included in each direct lender association's
operational and strategic business plan for at least the succeeding 3
years (as set forth in Sec. 618.8440 of this chapter).
(2) The YBS portion of the operational and strategic business plan
must:
(i) Analyze the direct lender association's performance in the
previous year toward achieving the components in paragraph (d) of this
section;
(ii) Discuss variances and reasons for the results; and
(iii) Identify how the qualitive factors and quantitative goals in
paragraph (d) of this section assist and expand access to credit and
education for YBS farmers and ranchers.
(d) Direct lender association YBS programs. The board of directors
of each direct lender association must establish a program to provide
sound and constructive credit and services to YBS farmers and ranchers
in its territory. Each YBS program must operate in a safe and sound
manner and within the direct lender association's risk-bearing
capacity, while meeting the unique needs of YBS farmers and ranchers.
Such a program must include the following minimum components:
(1) Qualitative factors--
(i) Corporate governance.
(A) A mission statement describing program objectives and specific
means for achieving such objectives.
(B) Internal controls that establish clear lines of responsibility
for YBS strategic plan development and the corresponding YBS program
implementation, tracking YBS program performance, and YBS quarterly
reporting to the direct lender association's board of directors.
(ii) Credit and related services.
(A) Efforts to offer credit and related services, either directly
or in coordination with others, that are responsive to the needs of the
YBS farmers and ranchers in the territory. Examples include customized
loan underwriting standards, loan guarantee programs, fee waivers, or
other credit enhancements commensurate with the credit risk approved by
the board of directors.
(B) Coordination with other System institutions in the territory
and other governmental and private sources who offer credit and
services to YBS farmers and ranchers.
[[Page 89286]]
(iii) Marketing, outreach, and education. Implementation of
effective outreach programs to attract and retain YBS farmers and
ranchers, which may include the use of advertising campaigns,
educational programs, and advisory committees comprised of YBS farmers
and ranchers and/or a YBS mentoring program to better serve and
understand the needs of this lending segment.
(2) Quantitative goals--
(i) Annual quantitative goals. Annual quantitative goals for credit
to YBS farmers and ranchers based on an understanding of reliable
demographic data for the lending territory. Direct lender associations
must identify the sources of data used to establish the goals. Such
goals must include at least one of the following:
(A) Loan volume and loan number goals for YBS farmers and ranchers
in the territory;
(B) Percentage goals representative of the demographics for YBS
farmers and ranchers in the territory;
(C) Percentage goals for loans made to new borrowers qualifying as
YBS farmers and ranchers in the territory; or
(D) Goals for capital committed to loans made YBS farmers and
ranchers in the territory.
(ii) Board of directors approval and review. Goals must be approved
by the direct lender association's board of directors and reviewed
quarterly with adjustments made as needed.
PART 620--DISCLOSURE TO SHAREHOLDERS
0
3. The authority citation for part 620 continues to read as follows:
Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm
Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec.
424, Pub. L. 100-233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note);
sec. 514, Pub. L. 102-552, 106 Stat. 4102, 4134.
0
4. Revise Sec. 620.5 (k)(2) to read as follows:
Sec. 620.5 Contents of the annual report to shareholders.
* * * * *
(k) * * *
(2) Each direct lender association must provide a description of
its YBS program, including a status report on each program component as
set forth in Sec. 614.4165 (d) of this chapter and the definitions of
``young,'' ``beginning,'' and ``small'' farmers and ranchers. The
discussion must provide such other information necessary for a
comprehensive understanding of the direct lender association's YBS
program and its results.
* * * * *
Dated: December 14, 2023.
Ashley Waldron,
Secretary, Farm Credit Administration.
[FR Doc. 2023-27929 Filed 12-26-23; 8:45 am]
BILLING CODE 6705-01-P
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</html>Indexed from Federal Register on December 27, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.