[Federal Register Volume 66, Number 101 (Thursday, May 24, 2001)]
[Rules and Regulations]
[Pages 28641-28643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-13132]


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FARM CREDIT ADMINISTRATION

12 CFR Part 613

RIN 3052-AB90


Eligibility and Scope of Financing

AGENCY: Farm Credit Administration.

ACTION: Direct final rule with opportunity to comment.

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SUMMARY: The Farm Credit Administration (FCA) through the FCA Board 
(Board) issues a final rule amending two regulations that govern 
eligibility and scope of financing for farm-related service businesses 
and non-farm rural homeowners. The amended rule implements the decision 
that the United States Court of Appeals for the District of Columbia 
issued on January 19, 1999. As a result of these amendments, Farm 
Credit System (FCS or System) banks and associations that extend long-
term mortgage credit will be able to finance only necessary capital 
structures, equipment and initial working capital for eligible farm-
related service businesses. Additionally, the revised rule allows 
System banks and associations to finance only homes that people who 
live in rural areas own and occupy as their principal residences.

DATES: Unless we receive significant adverse comment on or before June 
25, 2001, 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. We will publish notice of 
the effective date in the Federal Register. If we receive significant 
adverse comment on an amendment, paragraph, or section of this rule, 
and that provision may be addressed separately from the remainder of 
the rule, we will withdraw that amendment, paragraph, or section and 
adopt as final those provisions of the rule that are not subject of a 
significant comment. In such a case, we would then tell you how we 
expect to continue further rulemaking on the provisions that were the 
subject of significant adverse comment.

ADDRESSES: You may mail or deliver written comments to Thomas G. 
McKenzie, Director, Regulation and Policy Division, Office of Policy 
Analysis, Farm Credit Administration, 1501 Farm Credit Drive, McLean, 
Virginia 22102-5090 or send them by facsimile transmission to (703) 
734-5784. You may also submit comments by electronic mail to ``[email protected]'' or through the Pending Regulations section of our Web 
site at ``www.fca.gov.'' You may review copies of all comments that we 
receive in the Office of Policy and Analysis, Farm Credit 
Administration.

FOR FURTHER INFORMATION CONTACT: Robert Donnelly, Senior Accountant, 
Regulation and Policy Division, Office of Policy Analysis, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4450, TDD (703) 883-
4444; or Richard A. Katz, Senior Attorney, Regulatory Enforcement 
Division, Office of General Counsel, Farm Credit Administration, 
McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444.

[[Page 28642]]


SUPPLEMENTARY INFORMATION:

I. Background

    On January 30, 1997, we adopted new regulations that govern 
eligibility and scope of financing for FCS customers. See 62 FR 4429. 
These regulations expanded the availability of affordable credit to 
farmers, ranchers, aquatic producers and harvesters, processing and 
marketing operators, farm-related businesses, rural homeowners, 
cooperatives and rural utilities.
    Two commercial bank trade associations claimed that five of the six 
new customer eligibility regulations violated the Farm Credit Act of 
1971, as amended (Act), and they filed suit in the United States 
District Court for the District of Columbia for a declaratory judgment 
and an injunction against the FCA. The United States District Court 
ruled that all of the challenged regulations complied with the Act and 
it granted summary judgment to the FCA. See Independent Bankers Ass'n 
of Am. v. Farm Credit Admin., 986 F. Supp. 633 (D.D.C. 1997).
    The plaintiffs appealed, and the Court of Appeals ruled that the 
regulations, with two exceptions, are consistent with the Act. See 
Independent Bankers Ass'n of Am. v. Farm Credit Admin., 164 F.3d 661 
(D.C. Cir., 1999). According to the appellate court's ruling, 
Sec. 613.3020 did not adequately implement section 1.11(c)(1) of the 
Act because it did not specifically limit FCS banks and associations 
that extend long-term mortgage credit to financing necessary capital 
structures, equipment, and initial working capital for eligible farm-
related service businesses. The court also ruled that Sec. 613.3030 is 
inconsistent with the Act because it allowed System banks and 
associations to finance rural homes that are not owned and occupied by 
borrowers who live in rural areas. We amend Secs. 613.3020 and 613.3030 
so they comply with the Court of Appeals' decision.

II. Farm-Related Service Businesses

    The plaintiffs challenged three aspects of our eligibility 
regulation for farm-related service businesses. They claimed that 
Sec. 613.3020 violated the Act because it:
     Repealed provisions in the former regulation that required 
System banks and associations to finance farm-related business that 
furnish only ``custom-type'' services\1\ to farmers and ranchers.
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    \1\ ``Custom-type services'' are defined as tasks that farmers 
and ranchers can perform for themselves, but instead hire outside 
contractors to perform. See 62 FR 4429, 4438 (Jan. 30, 1997).
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     Failed to sufficiently restrict lending to businesses that 
furnished goods, rather than services to farmers and ranchers.
     Did not expressly limit loans by FCS long-term mortgage 
lenders to necessary capital structures, equipment and initial working 
capital.
    Both the district court and appeals court ruled in the FCA's favor 
on the first two claims. According to both courts, eligible farm-
related service businesses are not required by the Act to furnish only 
custom-type services to farmers and ranchers. Both courts also upheld 
Sec. 613.3020(b)(1), which allows System banks and associations to 
finance eligible businesses that sell goods to farmers and ranchers if 
they derive more than 50 percent of their income from furnishing these 
customers farm-related services.
    The Court of Appeals, however, ruled that section 1.11(c)(1) of the 
Act authorizes System mortgage lenders to finance only necessary 
capital structures, equipment and initial working capital for eligible 
farm-related service businesses, and that Sec. 613.3020 failed to 
implement this statutory requirement. See 164 F.3d at 667. Accordingly, 
we add a new paragraph (c) at the end of Sec. 613.3020 so this 
regulation complies with the appellate court's ruling. As amended, 
Sec. 613.3020 explicitly states that the authority of System long-term 
lenders to finance eligible farm-related service businesses is limited 
to necessary capital structures, equipment, and initial working 
capital. Consistent with the court's ruling, FCS associations that 
extend short- and intermediate-term credit to farm-related service 
businesses under sections 1.10(b) and 2.4(a)(3) of the Act are not 
subject to the limitation in new Sec. 613.3020(c).

III. Rural Housing

    The two commercial bank trade associations also challenged our 
rural housing regulation, Sec. 613.3030, because it did not require 
eligible borrowers to occupy rural homes that the System finances. The 
Court of Appeals ruled that Sec. 613.3030 conflicts with the rural 
housing provisions of the Act. The court found that sections 1.11(b)(1) 
and 2.4(a)(2) of the Act restrict eligibility for non-farm rural home 
loans to rural residents. The court's ruling also stated that the 
legislative history of the Act supports requiring owner-occupancy of 
rural homes as a condition for receiving credit from System 
institutions.
    We amend Sec. 613.3030 so it conforms to the appellate court's 
ruling. A revision to the definition of ``rural homeowner'' in 
Sec. 613.3030(a)(1) explicitly requires an eligible rural homeowner to 
reside in a rural area. Additionally, we modify the definition of 
``rural home'' in Sec. 613.3030(a)(2) so this regulation authorizes 
System banks and associations to finance only rural homes that each 
borrower owns and occupies. The revised regulation also retains the 
requirement that the System will finance only a rural home that is the 
principal residence of the borrower.

IV. Direct Final Rule

    We are amending Secs. 613.3020 and 613.3030 by a direct final 
rulemaking. The Administrative Procedure Act, 5 U.S.C. 551-59, et seq. 
(APA), supports direct final rulemaking, which is a streamlined 
technique for Federal agencies to enact noncontroversial regulations on 
an expedited basis, without the usual notice and comment period. This 
process enables us to reduce the time and resources we need to develop, 
review, clear, and publish a final rule while still affording the 
public an adequate opportunity to comment or object to the rule.
    In a direct final rulemaking, we notify the public that the rule 
will become final on a specified future date unless we receive 
significant adverse comment during the comment period. If we receive 
significant adverse comment on an amendment, paragraph, or section of 
this rule, and that provision may be addressed separately from the 
remainder of the rule, we will withdraw that amendment, paragraph, or 
section and adopt as final those provisions of the rule that are not 
subject of a significant comment. In such a case, we would then tell 
you how we expect to continue further rulemaking on the provisions that 
were the subject of significant adverse comment.
    A significant adverse comment is one where the commenter explains 
why the rule would be inappropriate (including challenges to its 
underlying premise or approach), 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 agency in a 
notice-and-comment proceeding.
    Direct final rulemaking is justified under section 553(b)(B) of the 
APA. Section 553(b)(B) is the APA's ``good cause'' exemption that 
allows an agency to omit notice and comment on a rule when it finds 
``that notice and public procedure thereon are impracticable, 
unnecessary, or contrary to the public interest.'' In direct final 
rulemaking, the agency finds that the rule is sufficiently 
straightforward and noncontroversial to make normal notice and comment 
unnecessary under the APA. However,

[[Page 28643]]

rather than eliminating public comment altogether, which is permissible 
under section 553(b)(B), the agency gives the public an opportunity to 
respond to the agency's conclusion that public input on the rule is 
unnecessary.
    We believe that a direct final rulemaking is the appropriate method 
for amending the eligibility regulations to conform to the Court of 
Appeals' ruling on farm-related service businesses and rural housing. 
These two regulations should no longer be controversial because we have 
addressed the policy issues in an extensive rulemaking that included 
two comment periods and the Court of Appeals resolved the ensuing legal 
dispute. This direct final rule brings Secs. 613.3020 and 613.3030 into 
full compliance with the appellate court's ruling. Under the 
circumstances, we believe that an expedited rulemaking to amend 
Secs. 613.3020 and 613.3030 is in the best interest of the FCS, the 
borrowers who own System institutions, commercial banks, and rural 
America.
    For these reasons, we do not anticipate significant adverse comment 
on this direct final eligibility rule. If, however, we receive 
significant adverse comment during the comment period, we will publish 
a notice of withdrawal of the relevant provisions of this rule that 
will also indicate how further rulemaking will proceed. If we receive 
no significant adverse comment, we will publish our 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 613

    Agriculture, Banks, Banking, Credit, Rural areas.

    For the reasons stated in the preamble, part 613 of chapter VI, 
title 12 of the Code of Federal Regulations is amended as follows:

PART 613--ELIGIBILITY AND SCOPE OF FINANCING

    1. The authority citation for part 613 continues to read as 
follows:

    Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 
3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17 of the Farm 
Credit Act (12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 
2093, 2122, 2128, 2129, 2143, 2206a, 2211, 2212, 2213, 2243, 2252).

Subpart A--Financing Under Titles I and II of the Farm Credit Act

    2. Amend Sec. 613.3020 by adding a new paragraph (c) to read as 
follows:


Sec. 613.3020  Financing for farm-related service businesses.

* * * * *
    (c) Limitation. The authority of Farm Credit banks and associations 
operating under section 1.7(a) of the Act to finance eligible farm-
related service businesses under paragraphs (b)(1) and (b)(2) of this 
section is limited to necessary capital structures, equipment, and 
initial working capital.


Sec. 613.3030  [Amended]

    3. Amend Sec. 613.3030 as follows:
    a. Add the words ``resides in a rural area and'' after the word 
``who'' and before the word ``is'' in paragraph (a)(1); and
    b. Remove the words ``the occupant's'' in paragraph (a)(2) and add 
in its place the words ``owned and occupied as the rural homeowner's''.

    Dated: May 18, 2001.
Kelly Mikel Williams,
Secretary, Farm Credit Administration Board.
[FR Doc. 01-13132 Filed 5-23-01; 8:45 am]
BILLING CODE 6705-01-P