Re:  Organization; Standards of Conduct and Referral of Known or Suspected Criminal Violations; Eligibility and Scope of Financing; Loan Policies and Operations; Regulatory Burden

Dear Mr. Van Meter:

My name is Chris Williston, and I am the CEO of the Independent Bankers Association of Texas (IBAT), a trade association of approximately 500 community and independently owned banks and savings banks located in and doing business in their local communities in the State of Texas.  About 90% of IBAT’s member banks engage in agricultural lending to at least some degree.  I'm writing this letter to respond to the FCA's request for public comments on reducing regulatory burdens on FCS institutions.  There are two items which we believe are inappropriate or inconsistent with the clear language of the Farm Credit Act. 

Removing Limitations on Dividends

First, I disagree with FCA's blatant cave-in to CoBanks request to eliminate the 10-percent limit on dividends in determining the eligibility of a cooperative that CoBank may lend to.  The Act states, "(2) does not pay dividends on stock or membership capital in excess of such per centum per annum as may be approved under regulations of the Farm Credit Administration" (emphasis added).  Yet, FCA proposes to delete the 10-percent dividend limitation and instead simply require that to be eligible, a cooperative restrict dividends on stock or membership capital to the maximum percentage per year permitted by applicable State law (emphasis added)."

Clearly, FCA's proposal is inconsistent with what the statute says in section 3.8.  It is quite amazing that FCA would simply cede its regulatory authority to all 50 states that may have differing cooperative laws.  The Act says the annual percent limitation is to be approved by the "Farm Credit Administration", NOT transferred to each state.  FCA is supposed to be the arms-length, federal regulator of the FCS.  It is FCA's responsibility and mandate to set a percentage requirement under the Act.  FCA should desire to set the percentage of dividends limit to avoid a range of eligibility requirements based on varying cooperative laws adopted by different states. 

Further, the wording of the Act clearly implies a "limit" when it says that dividends paid are not to be in excess of a percentage approved by FCA.  Yet, FCA ignores this wording and proposes to allow CoBank eligibility to be based on the "maximum percentage per year permitted by applicable State law."  This suggests the potential for an unlimited dividends payout, especially if a State's law would have no limitation on dividend payout. 

A basic principal of cooperatives is to have a limitation on dividend payout to enable the cooperative to retain capital for future growth.  FCA's proposal flies in the face of this long-standing cooperative principal.  Further, in this section, the Act requires eligibility to be based on four provisions.  FCA is allowing one of these four provisions, inconsistent with the statute's wording, to be transferred to individual States.

The statute's clear intent is to ensure the FCA enforce all four of these provisions and in the case of a dividend limitation, to actually set the annual percentage.  While the Act may not define cooperatives, the provisions of Section 3.8 are clearly based on requirements in the Capper Volstead Act, which lays out specific, legal requirements for federal recognition of farmer cooperatives. 

This is not a matter of "imposing additional restrictions on lending eligibility" as FCA states, but rather a matter of being consistent in federal regulations with other federal statutes that relate to farmer owned cooperatives.  The statute does not allow FCA to grant its authorities to individual states and in fact the Act ensures that FCS, as federal government sponsored enterprises, is NOT subject to regulation by the States.  FCA's proposal is inconsistent with the Act's exemption from state laws. 

Real Estate Appraisals

Second, FCA proposes to eliminate the requirement for a Uniform Standards of Professional Appraisal Practices (USPAP) compliant real property appraisal for business loans between $250,000 and $1 million that are not otherwise exempt under FCA's rules.  FCA proposes to delete § 614.4265(c).

Agricultural lending is simply too risky to allow speculative an unreasonable appraisals simply because FCS lenders want to inflate assets to 'justify' higher loan amounts to customers.  Obviously, this is a maneuver to also set the stage for the FCS's goal of being able to make non-farm loans based on the value of agricultural real estate as well as non-agricultural real estate. 

Conclusion

For the reasons cited above, IBAT requests that FCA drop its proposed rules in the two areas referenced - the 10 percent limit on dividends and raising the requirements on outside appraisals to "real property business loans" by 400 percent, from $250,000 to the newly proposed $1 million level.  Please drop both of these proposals. 

Thank you for considering our views.