[Federal Register Volume 69, Number 23 (Wednesday, February 4, 2004)]
[Rules and Regulations]
[Pages 5264-5267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1792]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

Rural Business-Cooperative Service

Rural Housing Service

Rural Utilities Service

7 CFR Parts 1951, 1962, 1965

RIN 0560-AG50


Farm Loan Programs Account Servicing Policies--Elimination of 30-
Day Past-Due Period

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The Farm Service Agency (FSA) is amending its regulations to 
eliminate the 30-day past-due period prior to a determination that the 
borrower is delinquent and clarify the use of the terms ``delinquent'' 
and ``past due'' with regard to direct loan servicing and offset. 
Because the regulation only allows debt writedown after a borrower 
becomes delinquent, this change would allow Farm Loan Programs (FLP) 
borrowers to receive debt writedown on the day after a missed payment, 
assuming all other primary loan servicing criteria are met, instead of 
waiting 31 days.

DATES: Effective March 5, 2004.

FOR FURTHER INFORMATION CONTACT: Michael Cumpton, Senior Loan Officer, 
USDA, FSA, Loan Servicing and Property Management Division, STOP 0523, 
1400 Independence Avenue, SW., Washington, DC 20250-0523; telephone 
(202) 690-4014; e-mail: [email protected]. Persons with 
disabilities who require alternative means for communication (Braille, 
large print, audio tape, etc.) should contact the USDA Target Center at 
(202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be not significant and has not 
been reviewed by the Office of Management and Budget under Executive 
Order 12866.

[[Page 5265]]

Regulatory Flexibility Act and Executive Order 13272

    In accordance with the Regulatory Flexibility Act, 5 U.S.C. 601, 
the Agency has determined that there will not be a significant economic 
impact on a substantial number of small entities. All Farm Service 
Agency direct loan borrowers and all entities affected by this rule are 
small businesses according to the North American Industry 
Classification System, and the United States Small Business 
Administration. There is no diversity in size of the entities affected 
by this rule and the costs to comply with it are the same for all 
entities. FSA stated its finding in the proposed rule at 68 FR 1170-
1172, January 9, 2003, that the rule will not have a significant 
economic impact on a substantial number of small entities, and received 
no comments on this finding.
    In the U.S. there are 86,000 FSA direct farm loan borrowers. In 
this final rule, FSA is amending its regulations to eliminate the 30-
day past-due period prior to a determination that the borrower is 
``delinquent'' and clarify the use of the terms ``delinquent'' and 
``past due'' with regard to direct loan servicing and offset. Because 
the regulation only allows debt writedown after a borrower becomes 
delinquent, this change would allow Farm Loan Programs (FLP) borrowers 
to receive debt writedown on the day after a missed payment, assuming 
all other primary loan servicing criteria are met, instead of waiting 
31 days.
    While this rule will change the definition of the word 
``delinquent'' with regard to all servicing and offsets, the overall 
impact of the rule will be very limited because it will not affect the 
``90 days past due'' criteria that is currently used for sending 
initial notices of primary loan servicing under 7 CFR part 1951, 
subpart S, as this requirement is statutory (7 U.S.C. 1981d).
    Currently, only 906 borrowers are less than 30 days past due. With 
these changes, all of these borrowers would immediately be eligible for 
consideration of all Primary Loan Servicing options. The Agency 
estimates that this change will have no effect on the cost of applying 
for Primary Loan Servicing. Therefore, the costs of compliance from 
this rule are deemed not significant. Accordingly, pursuant to section 
605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b), the Agency 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.

Environmental Evaluation

    The environmental impacts of this final rule have been considered 
in accordance with the provisions of the National Environmental Policy 
Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations of the 
Council on Environmental Quality (40 CFR parts 1500-1508), and the FSA 
regulations for compliance with NEPA, 7 CFR parts 799, and 1940, 
subpart G. FSA completed an environmental evaluation and concluded the 
rule requires no further environmental review. No extraordinary 
circumstances or other unforeseeable factors exist which would require 
preparation of an environmental assessment or environmental impact 
statement. A copy of the environmental evaluation is available for 
inspection and review upon request.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. In accordance with this Executive Order: 
(1) All State and local laws and regulations that are in conflict with 
this rule will be preempted; (2) except as specifically stated in this 
rule, no retroactive effect will be given to this rule; and (3) 
administrative proceedings in accordance with 7 CFR part 11 must be 
exhausted before seeking judicial review.

Executive Order 12372

    For reasons contained in the notice related to 7 CFR part 3015, 
subpart V (48 FR 29115, June 24, 1983) the programs within this rule 
are excluded from the scope of E.O. 12372, which requires 
intergovernmental consultation with State and local officials.

The Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires Federal agencies to assess the effects of their regulatory 
actions on State, local, and tribal governments or the private sector 
of $100 million or more in any 1 year. When such a statement is needed 
for a rule, section 205 of the UMRA requires FSA to prepare a written 
statement, including a cost and benefit assessment, for proposed and 
final rules with ``Federal mandates'' that may result in such 
expenditures for State, local, or tribal governments, in the aggregate, 
or to the private sector. UMRA generally requires agencies to consider 
alternatives and adopt the most cost effective or least burdensome 
alternative that achieves the objectives of the rule.
    This rule contains no Federal mandates, as defined under title II 
of the UMRA, for State, local, and tribal governments or the private 
sector. Thus, this rule is not subject to the requirements of sections 
202 and 205 of UMRA.

Executive Order 13132

    The policies contained in this rule do not have any substantial 
direct effect on States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Paperwork Reduction Act

    The amendments to 7 CFR parts 1951 and 1965 contained in this rule 
require no revisions to the information collection requirements that 
were previously approved by OMB control numbers 0560-0161 and 0560-0158 
under the provisions of 44 U.S.C. chapter 35. The information 
collections currently approved by OMB under control number 0560-0171 
include the amendment to 7 CFR part 1962 contained in this rule.

Federal Assistance Programs

    These changes affect the following FSA programs as listed in the 
Catalog of Federal Domestic Assistance:
    10.404--Emergency Loans;
    10.406--Farm Operating Loans;
    10.407--Farm Ownership Loans.

Discussion of the Final Rule

    Currently, borrowers are considered ``past-due'' for 30 days after 
a scheduled FLP payment is not made, after which they are considered 
``delinquent''. This is not consistent with the terminology used by FSA 
Farm Programs (FP) where no ``past-due'' period exists prior to 
delinquency. For consistency, FSA is amending 7 CFR part 1951, subparts 
C and S, 7 CFR part 1962, subpart A, and 7 CFR part 1965, subpart A to 
eliminate the 30-day ``past-due'' period prior to a borrower becoming 
delinquent. Because 7 CFR part 1951, subpart S only allows debt 
writedown after a borrower becomes delinquent, this change will allow 
FLP borrowers to receive debt writedown on the day after a missed 
payment, assuming all other primary loan servicing criteria are met, 
instead of waiting 31 days. This will allow servicing to be completed 
earlier with no additional loss to the government, as the additional 
accrued interest during the 30 day period is often simply added

[[Page 5266]]

to the writedown amount which would have been calculated on the first 
day the account was ``past-due''. In addition, the definition of the 
word ``delinquent'' with regard to all servicing and offsets is revised 
for consistency. The rule does not affect the ``90 days past due'' 
criteria that is currently used for sending initial notice of primary 
loan servicing under 7 CFR part 1951 subpart S, as this requirement is 
statutory (7 U.S.C. 1981d).
    In response to the proposed rule published January 9, 2003 (68 FR 
1170-1172), only two comments were received. All comments were 
considered and are addressed as follows.
    One commentor felt that it is helpful for the term delinquency to 
have the same definition in all FSA programs, and for this definition 
to agree with the common usage of the term. The commentor also felt 
that the use of the present ``past due/delinquent'' terminology 
(whereby a borrower who is 90 days past due is 60 days delinquent) is 
often confusing for both borrowers and agency personnel. The commentor 
also felt the earlier writedown possibility could be helpful to an 
operation which needs such loan restructuring to begin farm operations 
for a crop year. The Agency agrees.
    However, as the taking of all assets is required when restructuring 
a delinquent account under primary loan servicing (7 CFR part 1951 
subpart S), this commentor was concerned that FSA would be required to 
take a lien on all assets where this would not have been required in 
the past. The commentor suggests that FSA adopt the current requirement 
used when making a new loan whereby security is not required beyond 150 
percent of the FSA loan. In consideration of this comment, the Agency 
notes the difference in making a new loan and restructuring delinquent 
loans. The 150 percent requirement is reasonable and protects the 
Government's interest when making a new, fully secured loan over a term 
that is commensurate with the life of the security. However, in primary 
loan servicing, FSA is often working with an account that is already 
undersecured and in serious financial difficulty. Further, chattel 
secured loans are almost always rescheduled over 15 years from the date 
of restructure, which is well beyond the useful life of most chattels. 
The additional security is needed to minimize the Government's risk of 
loss. Therefore, the commentor's suggestion on taking only 150 percent 
loan security at restructuring was not adopted.
    Another commentor supported the proposed rule, but had several 
concerns and felt the change could have unintended consequences. With 
regard to unintended consequences, the Agency feels that it has given 
adequate consideration to the changes caused by this rule. It 
recognizes however, that all possible results of a rule cannot be 
considered in a program that covers over 80,000 borrowers with widely 
diverse financial situations. The commentors' specific concerns 
included the following:

1. Loan Eligibility

    Under the Debt Collection Act (31 U.S.C. 3720B), FSA generally 
cannot make a loan to a borrower who is delinquent on a non-tax Federal 
debt. The commentor states that this rule would prevent a borrower from 
getting an FSA loan 30 days earlier. This rule does not revise loan 
eligibility regulations. This law is implemented by 31 CFR 285.13 which 
defines ``delinquent status'' as 90 days past due. No change was made 
based on this comment.

2. Primary Loan Servicing Notification and 60 Day Timeframe for a 
Complete Application

    The commentor suggested that borrowers will not know that they may 
receive a writedown immediately after becoming past due, as they are 
not normally notified of servicing options until they become 90 days 
past due. The commentor also states that it is essential to allow, but 
not require, borrowers to apply for servicing prior to becoming 90 days 
past due and for them to have 60 days to apply for loan servicing after 
receiving a packet. The Agency agrees, but believes that the current 
notification procedures are adequate. In general, borrowers are 
informed of all servicing options, in accordance with Sec. 331D of the 
Consolidated Farm and Rural Development Act (7 U.S.C. 1981d), when they 
are distressed (i.e. unable to develop a feasible plan though current), 
in non-monetary default, or request servicing when they are 90 days 
past due. After notice, they have 60 days to apply for servicing. This 
process need not be changed by this rule.

3. Accelerated Eligibility for Administrative Offset Under 7 CFR 
1951.102(b)

    The commentor stated that the proposed change could allow the 
Agency to begin offset during the 30 days immediately following a 
missed payment by the borrower. The Agency disagrees, but has amended 7 
CFR 1951.102(b)(13), to require that the debt be 90 days past due for 
offset or in default of other obligations to be feasible. The Agency 
has removed the reference to ``60 days delinquent''. Therefore, the 
situation the commentor is concerned about should not occur.

4. Interaction With 7 CFR Part 1951, Subpart T (Disaster Set-Aside), 
Proposed Rule (67 FR 41869, June 20, 2002)

    The commentor stated that the interaction between this rule, as 
proposed, and the above Disaster Set-Aside (DSA) proposed rule could 
prevent borrowers from applying for DSA immediately after they have 
missed a payment. The Agency agrees with this interpretation and 
revised its DSA regulation by final rule on September 25, 2003 (68 FR 
55299-55304), to allow the Agency to accept DSA applications until the 
borrower becomes 90 days past due.

5. Consistency With FSA Farmer Programs (FP) and the Guaranteed FLP 
Program

    The commentor questions the need for FLP to be consistent with FP 
terminology, as FP mainly administers commodity loans. They instead 
suggest equating the word default in the guaranteed program with the 
word delinquent in the direct loan program, and that ``30 days'' should 
be retained to remain consistent with the guaranteed program. The 
Agency continues to believe that the consistency and clarity of making 
the terms ``past due'' and ``delinquent'' synonymous, as supported by 
the other commentor, will contribute to a more consistent delivery of 
the FLP program. With regard to the comparison of the direct and 
guaranteed loan programs, FSA believes that the term ``default'' is 
used in different contexts. In the direct FLP program, the Promissory 
Note (Form FSA 1940-17) states that a default occurs when the borrower 
fails ``to pay when due any debt evidenced by this note or perform any 
covenant of agreement under this note.'' Upon default, FSA must service 
the debt as required under its regulations and can offer many 
restructure options to the borrower. The use of the term ``default'' in 
the guaranteed program as being 30 days after a payment is missed 
simply indicates the date when a lender must bring a past due payment 
to the attention of FSA and begin consideration of additional servicing 
actions. The guaranteed lender will then offer restructure or debt 
servicing options based on their own policies, and in accordance with 
FSA regulations. The guaranteed loan policy is consistent with the 
practice of private sector lenders who generally do not consider

[[Page 5267]]

a loan in default until it is at least 30 days past due.

6. Hindrance of the Borrowers Ability To Recover From Delinquency

    The commentor indicates that the use of the term ``delinquent'' 
attaches a stigma to the account and could hinder the borrower's 
ability to obtain or reschedule financing from private creditors. The 
commentor states that the 30 day past due period is much like the 
``golden hour'' after an injury ``when medical intervention has the 
greatest chance of success.'' Concerning the effect this change will 
have on private lenders, the Agency believes that lenders base 
commercial lending decisions on creditworthiness, profitability, 
security, and other financial data. The Agency does not believe that 
FSA's terminology change will affect these decisions.

List of Subjects

7 CFR Part 1951

    Account servicing, Credit, Debt restructuring, Loan programs--
agriculture, Loan programs--housing and community development.

7 CFR Part 1962

    Agriculture, Bankruptcy, Loan programs--agriculture, Loan programs-
-housing and community development.

7 CFR Part 1965

    Loan programs--agriculture, Loan programs--housing and community 
development, Low and moderate income housing.

0
Accordingly, 7 CFR chapter XVIII is amended as follows:

PART 1951--SERVICING AND COLLECTIONS

0
1. The authority citation for part 1951 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3716; 42 
U.S.C. 1480.

Subpart C--Offsets of Federal Payments to USDA Agency Borrowers

0
2. Amend Sec. 1951.102 to:
0
a. Revise paragraph (b)(6);
0
b. Revise the third sentence of paragraph (b)(13), to read as follows:


Sec. 1951.102  Administrative offset.

* * * * *
    (b) * * *
    (6) Delinquent or past-due means a payment that was not made by the 
due date.
* * * * *
    (13) * * * To be feasible the debt must exist and be 90 days past 
due or the borrower must be in default of other obligations to the 
Agency, which can be cured by the payment.
* * * * *

Subpart S--Farm Loan Programs Account Servicing Policies

0
3. Amend Sec. 1951.906 by removing the definition of ``Delinquent 
borrower'' and adding in its place the definition of ``Delinquent or 
past-due borrower''.


Sec. 1951.906  Definitions.

* * * * *
    Delinquent or past-due borrower. A borrower who has failed to make 
all or part of a payment by the due date.
* * * * *

0
4. Amend the second sentence of Sec. 1951.907 paragraph (c) to read as 
follows:


Sec. 1951.907  Notice of loan service programs.

* * * * *
    (c) * * * FLP borrowers who are at least 90 days past due will be 
sent exhibit A of this subpart with attachments 1 and 2 by certified 
mail, return receipt requested. * * *
* * * * *

PART 1962--PERSONAL PROPERTY

0
5. The authority citation for part 1962 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart A--Servicing and Liquidation of Chattel Security

0
6. Amend Sec. 1962.40 to revise the first sentence of paragraph (b)(2) 
to read as follows:


Sec. 1962.40  Liquidation.

* * * * *
    (b) * * *
    (2) In Farm Loan Programs loan cases, borrowers who are 90 days 
past due on their payments must receive exhibit A with attachments 1 
and 2 or attachments 1, 3, and 4 of exhibit A of subpart S of part 1951 
of this chapter in cases involving nonmonetary default. * * *
* * * * *

PART 1965--REAL PROPERTY

0
7. The authority citation for part 1965 continues to read as follows:

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

Subpart A--Servicing of Real Estate Security for Farm Loan Programs 
Loans and Certain Note-Only Cases

0
8. Amend Sec. 1965.26 to revise the first sentence of paragraph (b)(2) 
to read as follows:


Sec. 1965.26  Liquidation action.

* * * * *
    (b) * * *
    (2) In Farm Loan Programs loan cases, borrowers who are 90 days 
past due on their payments, must receive exhibit A with attachments 1 
and 2, or attachments 1, 3, and 4 of exhibit A of subpart S of part 
1951 of this chapter in cases involving nonmonetary default. * * *
* * * * *

    Dated: January 15, 2004.
J.B. Penn,
Under Secretary for Farm and Foreign Agricultural Services.
    Dated: January 16, 2004.
Gilbert Gonzalez,
Under Secretary for Rural Development.
[FR Doc. 04-1792 Filed 2-3-04; 8:45 am]
BILLING CODE 3410-05-P