[Federal Register Volume 62, Number 245 (Monday, December 22, 1997)]
[Rules and Regulations]
[Pages 66816-66818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33260]


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FARM CREDIT ADMINISTRATION

12 CFR Part 614

RIN 3052-AB81


Loan Policies and Operations; Interest Rates and Charges

AGENCY: Farm Credit Administration.

ACTION: Direct final rule with opportunity for comment.

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SUMMARY: The Farm Credit Administration (FCA), through the FCA Board 
(Board), issues a direct final rule amending its regulations concerning 
interest rates and charges. This action is consistent with the FCA's 
continuing efforts to reduce regulatory burden and unnecessary prior 
approval requirements whenever possible. The amendments eliminate the 
prior approval requirement for changes in interest rate policies at 
banks for cooperatives (BCs), eliminate unnecessary or duplicative 
regulatory requirements, clarify existing requirements that are 
retained.
    The effect of the amendments is to enable BCs to revise rate 
policies for discounting negotiable paper without prior FCA approval, 
to eliminate the requirement that fees charged by an association are 
subject to bank approval, and to clarify that, in all Farm Credit 
System (FCS or System) banks and direct lender institutions, the board 
of directors is responsible for setting interest rates and annually 
reviewing interest rate plans in conjunction with the review and 
approval of the institution's annual business plan.

DATES: If no significant adverse comment is received on or before 
January 21, 1998, these regulations shall be effective upon the 
expiration of 30 days after publication in the Federal Register during 
which either or both Houses of Congress are in session. Notice of the 
effective date will be published in the Federal Register. If 
significant adverse comment is received, the FCA will publish a notice 
of withdrawal of the regulations and indicate how the Agency expects to 
proceed with further rulemaking.

ADDRESSES: Comments may be submitted via electronic mail to ``reg-
[email protected]'' or facsimile transmission to (703) 734-5784. Comments 
also may be mailed or delivered to Patricia W. DiMuzio, Director, 
Regulation Development Division, Office of Policy Development and Risk 
Control, Farm Credit Administration, 1501 Farm Credit Drive, McLean, 
Virginia 22102-5090. Copies of all communications received will be 
available for review by interested parties in the Office of Policy 
Development and Risk Control, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT: Linda C. Sherman, Policy Analyst, 
Regulation Development Division, Office of Policy Development and Risk 
Control, (703) 883-4498, TDD (703) 883-4444; or Rebecca S. Orlich, 
Senior Attorney, Regulatory Enforcement Division, Office of General 
Counsel, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Background

    The regulations in 12 CFR part 614--subpart G pertain to interest 
rates and charges by FCS institutions. Most of the regulations in 
subpart G were originally promulgated by the FCA in 1972 following 
Congress' modernization and consolidation of existing farm credit law 
in the Farm Credit Act of 1971. The structure of the System has changed 
considerably in the past 25 years, and the regulatory relationship 
between FCS institutions and the FCA has become an arm's-length 
relationship. The amendments set forth below reflect those changes, as 
well as the FCA's current regulatory philosophy of removing prior 
approval requirements not mandated by the current Farm Credit Act of 
1971, as amended (Act), and unnecessary to the safe and sound operation 
of an institution. The FCA will continue to hold FCS institution boards 
and management accountable for their internal operations through the 
examination process. Likewise, regulatory language that merely restates 
statutory provisions is eliminated.
    Five sections in 12 CFR part 614--subpart G are eliminated, and the 
two remaining sections are renumbered and moved to 12 CFR part 614--
subpart D. Because the changes conform existing regulations to the 
statute and make only minor changes to the regulatory language, the FCA 
believes the rule to be noncontroversial and anticipates no significant 
adverse comment from the public.

II. Description of Amendments

1. Section 614.4270--Policy

    The provisions in this section are nearly identical to provisions 
in sections 1.8(b), 2.4(c), and 3.10(a) of the Act and are therefore 
removed, as they are duplicative and unnecessary.

2. Section 614.4280--Interest Rates

    The FCA is amending existing Sec. 614.4280, which concerns interest 
rate plans and policy, to make it applicable to direct lender 
associations as well as to banks. This change will clarify that the 
board of directors of every System direct lender is responsible for 
establishing interest rates or interest rate plans. This change is 
consistent with the underwriting regulation adopted earlier this year, 
Sec. 614.4150, which requires the boards of directors of both banks and 
associations to adopt written policies and procedures that, at a 
minimum, prescribe prudent loan pricing practices.
    Although no other substantive changes are made to existing 
Sec. 614.4280, the FCA makes two technical changes to the final 
sentence. The first clause, which states that the board ``may not 
delegate its ultimate responsibilities for setting interest rates,'' is 
deleted as unnecessary. Because the boards of

[[Page 66817]]

System institutions cannot delegate their ``ultimate responsibility'' 
for any policy decision, the FCA believes that the deleted clause adds 
nothing to the regulation. At the end of the final sentence, the FCA 
has replaced the reference to ``fiscal plan and long-range financial 
plan'' with the words ``operational and strategic business plan,'' to 
conform with the terms used in Sec. 618.8440 and elsewhere in FCA 
regulations. The revised regulation is redesignated as Sec. 614.4155.

3. Section 614.4281--Discounts and Related Fees

    The FCA is deleting Sec. 614.4281, which authorizes BCs to 
``discount or rediscount notes, drafts, acceptances, and other 
negotiable paper at such rates as may be determined by bank management 
under policies of the bank board as approved by the Farm Credit 
Administration.'' The FCA has concluded that the language in 
Sec. 614.4281 is not necessary to authorize BCs to engage in any of the 
activities listed, as they are already authorized pursuant to section 
3.7(a) of the Act. The prior approval is not required by the Act or 
necessary to the safe and sound operations of the institution.

4. Section 614.4290--Interest on Past Due Loans

    Section 614.4290, which allows banks and production credit 
associations (PCAs) to provide for the collection of interest at a 
higher rate after maturity, is deleted as unnecessary. This deletion 
will not affect the ability of a System direct lender to provide for a 
default interest rate in its loan documents, nor will it diminish the 
rights of borrowers. Section 4.13(a)(4) of the Act, Sec. 614.4376(c) of 
the regulations, and the provisions of Regulation Z (Truth-in-Lending) 
require that any change in the interest rate applicable to an 
individual borrower's loan be disclosed to the borrower within certain 
stated periods of time. These requirements would apply to interest rate 
changes after maturity and, therefore, provide sufficient protection 
for individual borrowers.

5. Section 614.4300--Other Charges and Fees

    The FCA is deleting Sec. 614.4300, which states that banks and 
associations may impose reasonable charges or fees on members, 
borrowers, or applicants in connection with loans or other services 
rendered. It also provides that the fees charged by an association are 
subject to bank prior approval. Regulatory authority to charge fees is 
unnecessary because such authority is provided expressly in sections 
1.5(6), 2.2(13), and 3.10(a) of the Act.
    Consistent with the FCA Board's regulatory philosophy of repealing 
regulations that prescribe needlessly detailed management and 
operational practices, the FCA is deleting the requirement that banks 
give prior approval to affiliated associations' fees. Bank approvals 
that are appropriate to the debtor-creditor relationship of a bank and 
an association may be set forth in the general financing agreement 
between the institutions. Therefore, the prior approval provision is 
unnecessary.

6. Section 614.4320--Production Credit Associations

    The FCA is deleting Sec. 614.4320, which states that ``the rate of 
interest charged by an association shall be the rate authorized by the 
bank, within programs prescribed by the bank board'' and allows for 
different computations of interest payments authorized under such 
programs. This regulation in part restates section 2.4(c) of the Act, 
which provides for PCAs to charge interest rates ``under standards 
prescribed by the board of the bank'' and is thus unnecessary. The 
regulatory direction on the computation of interest payments was driven 
by limitations in computer accounting systems that no longer exist; 
thus, it is now obsolete.

7. Section 614.4321--Differential Interest Rate Programs

    Section 614.4321 describes the types of interest rate programs that 
System banks and associations may adopt under policies of their boards 
of directors. This section was recently updated by amending outdated 
language and removing an unnecessary prior approval. See 61 FR 67186 
(December 20, 1996). The FCA continues to believe that it is important 
to set forth the principle of nondiscrimination among similarly 
situated borrowers in setting differential interest rates. Therefore, 
the language in this section is retained, and the regulation is 
redesignated as Sec. 614.4160 and moved to part 614, subpart D.

III. Direct Final Rulemaking

    The FCA is using a ``direct final'' procedure for this rulemaking. 
In a direct final rulemaking, an agency gives notice that a rule will 
become final at a specified future date unless the agency receives 
significant adverse comment on the rule during the comment period 
established in the rulemaking notice. Direct final rulemaking is 
justified under section 553(b)(B) of the Administrative Procedure Act, 
5 U.S.C. 551-59, et seq. (APA). Section 553(b)(B) is the APA's ``good 
cause'' exemption for omitting notice and comment on a rule where an 
agency finds ``that notice and public procedure thereon are 
impracticable, unnecessary, or contrary to the public interest.'' 
However, rather than eliminating public comment altogether, as would be 
permissible under section 553(b)(B), in a direct final rule the FCA 
gives the public adequate opportunity to comment on or object to a 
rule. For a full explanation of direct final rulemaking, see 62 FR 
63644 (December 3, 1997).
    The FCA believes that the changes to 12 CFR part 614--subpart G fit 
the category of rules appropriate for direct final rulemaking. These 
changes delete unnecessary approvals, remove duplicative language, and 
incorporate prudent oversight standards that the FCA already applies to 
all institutions. As such, the amendments are straightforward and 
noncontroversial. For these reasons, the FCA does not anticipate that 
there will be significant adverse comment on this rulemaking.
    This rule has a 30-day comment period. If, during that period, the 
FCA receives a significant adverse comment on the rule, the FCA will 
withdraw the rule and may either issue another direct final rule or 
promulgate the rule in proposed form. A significant adverse comment is 
defined as one where the commenter explains why the rule would be 
inappropriate, including challenges to the rule's underlying premise or 
approach, or would be ineffective or unacceptable without a change. In 
general, a significant adverse comment would raise an issue serious 
enough to warrant a substantive response from the FCA in a notice-and-
comment proceeding.
    If no significant adverse comment is received, the FCA will publish 
its customary notice of the effective date of the rule following the 
required Congressional waiting period under section 5.17(c)(1) of the 
Act.

List of Subjects in 12 CFR Part 614

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

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

PART 614--LOAN POLICIES AND OPERATIONS

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

    Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 
1.3, 1.5, 1.6, 1.7, 1.9,

[[Page 66818]]

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, 4.3A, 4.12, 4.12A, 4.13, 4.13B, 
4.14, 4.14A, 4.14C, 4.14D, 4.14E. 4.18, 4.18A, 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, 8.9 
of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 
2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 
2122, 2124, 2128, 2129, 2131, 2141, 2149, 2154a, 2183, 2184, 2199, 
2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2207, 2219a, 
2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 
2279f, 2279f-1, 2279aa, 2279aa-5, 2279aa-9); sec. 413 of Pub. L. 
100-233, 101 Stat. 1568, 1639.

Subpart D--General Loan Policies for Banks and Associations

    2. Sections 614.4280 and 614.4321 in subpart G are redesignated as 
Secs. 614.4155 and 614.4160 in subpart D, and Sec. 614.4155 is revised 
to read as follows:


Sec. 614.4155  Interest rates.

    Loans made by each bank and direct lender association shall bear 
interest at a rate or rates as may be determined by the institution 
board. The board shall set interest rates or approve individual 
interest rate changes either on a case-by-case basis or pursuant to an 
interest rate plan within which management may establish rates. Any 
interest rate plan shall set loan-pricing policies and objectives, 
provide guidance regarding the circumstances under which management may 
adjust rates, and provide the upper and lower limits on management 
authority. Any interest rate plan adopted shall be reviewed on a 
continuing basis by the board, as well as in conjunction with its 
review and approval of the institution's operational and strategic 
business plan.

Subpart G--Interest Rates and Charges

Subpart G [Removed and Reserved]

    3. Subpart G, consisting of Secs. 614.4270, 614.4281, 614.4290, 
614.4300 and 614.4320, is removed and reserved.

    Dated: December 16, 1997.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 97-33260 Filed 12-19-97; 8:45 am]
BILLING CODE 6705-01-P