[Federal Register Volume 60, Number 226 (Friday, November 24, 1995)]
[Proposed Rules]
[Pages 57962-57963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28586]



=======================================================================
-----------------------------------------------------------------------

FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AB52


Loan Policies and Operations

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit 
Administration Board (Board), proposes to amend the regulations 
governing disclosure of loan information. The FCA proposes to remove 
the requirement that Farm Credit institutions give borrowers 10 days 
prior notification of a change in the interest rate on their variable 
rate loans and replace it with a 10-day post notification. This action 
would reduce the burden on institutions of a delay in interest rate 
changes while still providing borrowers with timely notice of a change. 
The proposed regulation would also make a technical amendment regarding 
eligible borrower stock.

DATES: Comments should be received on or before December 26, 1995.

ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio, 
Associate Director, Regulation Development, Office of Examination, Farm 
Credit Administration, McLean, Virginia 22102-5090. Copies of all 
communications received will be available for examination by interested 
parties in the Office of Examination, Farm Credit Administration, 
McLean, Virginia.

FOR FURTHER INFORMATION CONTACT:

Robert Child, Policy Analyst, Regulation Development, Office of 
Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 
883-4498, TDD (703) 883-4444,
      or
Joy E. Strickland, Senior Attorney, Regulatory Operations Division, 
Office of General Counsel, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4019, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION: Section 614.4367(c)(3)requires qualified 
lenders 1 to provide written notification to borrowers of a change 
in the interest rates on their adjustable rate loans. For decreases in 
rates, the notification must be provided not later than the effective 
date of the decrease. For increases in rates, the notice must be 
provided not later than 10 days before the effective date of the 
increase in the rate.

    \1\  A qualified lender is: (1) A Farm Credit institution that 
makes loans as defined by Sec. 614.4366(e), except a bank for 
cooperatives; and (2) each other entity described in section 
1.7(b)(1)(B) of the Farm Credit Act of 1971, as amended (Pub. L. 92-
171), but only with respect to loans discounted or pledged under 
section 1.7(b)(1) of the Act. See, Act, Sec. 614.4366(g).
---------------------------------------------------------------------------

    On June 23, 1993, the FCA Board published a ``Statement on 
Regulatory Burden'' (58 FR 34003) that requested comments regarding how 
the FCA could lessen the regulatory burden on Farm Credit institutions. 
In response, three institutions commented that the 10-day prior 
notification requirement was a burden that should be addressed by the 
Agency. One institution commented that the prior notification was a 
burden for variable rate loans that are tied to an external index, such 
as the prime rate, because borrowers have ready access to timely 
information about changes in such indexes. The other two commenters 
objected to the requirement for advance notification of borrowers for 
all variable rate loans, including those not tied to an external index.
    The FCA is cognizant that delaying an adjustment in a variable 
interest rate can result in losses to an institution in situations in 
which an index increases or funding costs increase, but the institution 
is prohibited from increasing the interest rate charged to borrowers 
until a waiting period expires. In addition, the FCA recognizes that 
there are costs associated with mailing written notification of changes 
in interest rates. There may also be an unnecessary burden associated 
with the prior notice requirement where increases and decreases in loan 
rates are tied to indexes that are readily available in financial 
publications. The FCA considered these factors in attempting to balance 
the need of borrowers for timely information and the burden on Farm 
Credit institutions.

[[Page 57963]]

    In consideration of the competing aims of reducing burden and 
providing timely information to borrowers, the FCA proposes to modify 
the notification requirements in Sec. 614.4367. The proposed amendment 
would require written notification to be provided to borrowers with 
adjustable rate loans not later than 10 days after a change in the 
interest rate on the loans. Thus, for decreases in rates, the proposal 
would change the notification from not later than the effective date of 
the change, to not later than 10 days after the decrease. More 
significantly, the proposal would change the notification requirements 
for increases in interest rates from 10 days advance notification to 10 
days after the change in rates. The FCA is proposing to change the time 
period applicable to both notices of increases and decreases in order 
to have a single notification, and thus simplify the requirement for 
all changes in adjustable interest rates.
    The FCA believes that a 10-day post notification will provide 
borrowers with timely information on rate changes and will 
significantly reduce the burden on institutions, including the costs 
associated with delaying interest rate changes. Savings to lenders 
ultimately may be passed on to borrowers in the form of lower interest 
rates; however, the absence of a prior notice is a disadvantage to 
individual borrowers because they will not be in a position to react as 
quickly to refinancing opportunities. The disadvantage should be 
minimal, however, because borrowers have ready access to changes in 
financial markets and trends in interest rates through the news media 
and other sources. Administered rate loans have historically followed 
changes in the prime rate because the costs of funds to the 
associations generally follow shifts in market rates. Borrowers who 
follow the interest rate market would seldom be surprised by a change 
in interest rates charged by associations.
    Although the FCA believes that the proposal is an appropriate 
balance between the needs of the institutions and borrowers, the FCA 
seeks comment on several issues. First, the FCA seeks comment on 
whether notices of rate changes tied to publicly available external 
indexes should be required within 30 days, rather than 10 days as 
proposed. Specifically, would permitting a longer time for such notices 
accrue additional cost-savings to System lenders that would exceed the 
potential cost to borrowers of added delay in receiving notice of the 
rate increase? Such cost savings may occur, for example, if lenders 
regularly send monthly statements to a significant number of borrowers 
having variable rate loans tied to an external index. In these 
situations, the notification of rate increase could be incorporated in 
the monthly statement, thereby eliminating the need for a separate 
notice. Second, is a notice necessary for decreases in interest rates, 
and if so, is 10 days or 30 days a more appropriate time limit?
    The FCA is also proposing a technical amendment to 
Sec. 614.4367(a)(4) which addresses disclosures to purchasers of 
protected eligible borrower stock. Because only stock in existence at 
the time of enactment of the Agricultural Credit Act of 1987 (Pub. L. 
100-233, Jan. 6, 1988) or stock issued within 9 months of enactment 
meets the definition of eligible borrower stock in section 4.9A of the 
Act, no further eligible borrower stock may be issued. Thus, all stock 
issued by Farm Credit institutions since 1988 is at risk. The proposal 
would delete the reference to eligible borrower stock in 
Sec. 614.4367(a)(4) as unnecessary.

List of Subjects in 12 CFR Part 614

    Agriculture, Banks, banking, Foreign trade, Reporting and 
recordkeeping requirements, Rural areas.

    For the reasons stated in the preamble, part 614 of chapter VI, 
title 12 of the Code of Federal Regulations is proposed to be amended 
to read as follows:

PART 614--LOAN POLICIES AND OPERATIONS

    1. The authority citation for part 614 continues to read as 
follows:

    Authority: 42 U.S.C. 4012a, 4014a, 4104b, 4106, and 4128; Secs. 
1.3, 1.5, 1.6, 1.7, 1.9., 1.10, 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, 
4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36, 
4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 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, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122, 
2123, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202, 
2202a, 2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244, 
2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1, 
2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 
1639.

Subpart K--Disclosure of Loan Information


Sec. 614.4367  [Amended]

    2. Section 614.4367 is amended by removing the words ``Except with 
respect to eligible borrower stock under section 4.9A of the Act,'' and 
capitalizing the word ``a'' in paragraph (a)(4); and by removing the 
words ``the effective date of a decrease in the interest rate and not 
later than 10 days before the effective date of an increase'' and 
adding in its place the words ``10 days after the effective date of a 
change'' in the second sentence of paragraph (c)(3).

    Dated: November 17, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-28586 Filed 11-22-95; 8:45 am]
BILLING CODE 6705-01-P