**1988**—Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1629, substituted “Farm Credit Associations” for “Federal Intermediate Credit Banks and Production Credit Associations” as subchapter heading, and substituted “Production Credit Associations” for “Federal Intermediate Credit Banks” as heading for part A.

Each production credit association shall continue as a Federally chartered instrumentality of the United States.

Production credit associations may be organized by 10 or more farmers or ranchers or producers or harvesters of aquatic products desiring to borrow money under the provisions of this part.

The proposed articles of association shall be forwarded to the Farm Credit Bank for the district accompanied by an agreement to subscribe on behalf of the association for stock in the bank in such amounts as may be required by the bank.

The articles shall specify in general terms the—

(A) objects for which the association is formed;

(B) powers to be exercised by the association in carrying out the functions authorized by this part; and

(C) territory the association proposes to serve.

The articles shall be signed by persons desiring to form such an association and shall be accompanied by a statement signed by each such person establishing eligibility to borrow from the association in which such person will become a stockholder.

A copy of the articles of association shall be forwarded to the Farm Credit Administration with the recommendations of the bank concerning the need for such an association in order to adequately serve the credit needs of eligible persons in the proposed territory and whether that territory includes any area described in the charter of another production credit association.

The Farm Credit Administration for good cause shown may deny the charter.

On approval of the proposed articles by the Farm Credit Administration, and on the issuance of a charter, the association shall become as of such date a federally chartered body corporate and an instrumentality of the United States.

The Farm Credit Administration shall have the power, under rules and regulations prescribed by the Farm Credit Administration or by prescribing in the terms of the charter, to—

(A) provide for the organization of the association;

(B) provide for the initial amount of stock of the association;

(C) provide for the territory within which the association's operations may be carried on; and

(D) approve amendments to the charter of the association.

(Pub. L. 92–181, title II, §2.0, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1629; amended Pub. L. 100–399, title IV, §401(m), Aug. 17, 1988, 102 Stat. 997; Pub. L. 102–237, title V, §502(b), Dec. 13, 1991, 105 Stat. 1868.)

A prior section 2071, Pub. L. 92–181, title II, §2.0, Dec. 10, 1971, 85 Stat. 590; Pub. L. 100–233, title VIII, §802(h), Jan. 6, 1988, 101 Stat. 1711, related to establishment and branches of Federal intermediate credit banks, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

**1991**—Subsec. (b)(8). Pub. L. 102–237 substituted “charter, to” for “charter to” in introductory provisions.

**1988**—Subsec. (b)(1). Pub. L. 100–399, §401(m)(1), substituted “this part” for “this subchapter”.

Subsec. (b)(3)(B). Pub. L. 100–399, §401(m)(2), (3), struck out “the” before “powers” and substituted “this subtitle” for “this part”, both of which for purposes of codification were translated as “this part”, requiring no change in text.

Subsec. (b)(3)(C). Pub. L. 100–399, §401(m)(3), struck out “the” before “territory”.

Subsec. (b)(8). Pub. L. 100–399, §401(m)(4), struck out in introductory provision “or by approval of bylaws of the association” after “the charter” and amended subpar. (D) generally. Prior to amendment, subpar. (D) read as follows: “direct at any time such changes in the charter as the Farm Credit Administration finds necessary for the accomplishment of the purposes of this chapter”.

Amendment by Pub. L. 102–237 effective as if included in the provision of the Food, Agriculture, Conservation, and Trade Act of 1990, Pub. L. 101–624, to which the amendment relates, see section 1101(b)(4) of Pub. L. 102–237, set out as a note under section 1421 of Title 7, Agriculture.

Amendment by Pub. L. 100–399 effective immediately after amendment made by section 401 of Pub. L. 100–233, which was effective 6 months after Jan. 6, 1988, see section 1001(b) of Pub. L. 100–399, set out as a note under section 2002 of this title.

Section 401 of Pub. L. 100–233 provided in part that this subchapter is effective 6 months after Jan. 6, 1988.

Section 411 of Pub. L. 100–233, as amended by Pub. L. 100–399, title IV, §403, Aug. 17, 1988, 102 Stat. 999, provided that:

“(a)

“(b)

“(1)

“(2)

“(3)

“(c)

Section 433 of Pub. L. 100–233, as amended by Pub. L. 100–399, title IV, §417, Aug. 17, 1988, 102 Stat. 1004, provided that:

“(a)

“(b)

“(c)

“(1) to amend the charters of the association and the district bank; and

“(2) to incorporate the petitioning association into the adjoining district if the reassignment is approved by—

“(A) a majority of the stockholders of the association voting, in person or by proxy, at a duly authorized stockholders’ meeting held for such purpose;

“(B) the board of directors of the adjoining district bank;

“(C) the Farm Credit System Assistance Board; and

“(D) the Farm Credit Administration Board.”

Each production credit association shall elect from the voting members of such association, a board of directors of such number, for such terms, with such qualifications, and in such manner as may be required by the bylaws of the association, except that at least one member shall be elected by the other directors, which member shall not be a director, officer, employee, stockholder, or agent of a System institution.

(Pub. L. 92–181, title II, §2.1, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1630; amended Pub. L. 100–399, title IV, §401(n), Aug. 17, 1988, 102 Stat. 997; Pub. L. 102–237, title V, §502(c), Dec. 13, 1991, 105 Stat. 1868.)

A prior section 2072, Pub. L. 92–181, title II, §2.1, Dec. 10, 1971, 85 Stat. 591; Pub. L. 96–592, title II, §201, Dec. 24, 1980, 94 Stat. 3439; Pub. L. 99–205, title II, §205(e)(1), Dec. 23, 1985, 99 Stat. 1704; Pub. L. 100–233, title VII, §705(c), title VIII, §§802(i), 805(d), Jan. 6, 1988, 101 Stat. 1707, 1711, 1715; Pub. L. 100–399, title VI, §604, title IX, §901(b), Aug. 17, 1988, 102 Stat. 1006, 1007, related to corporate existence and general corporate powers, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

**1991**—Pub. L. 102–237 substituted “stockholder, or agent” for “or stockholder”.

**1988**—Pub. L. 100–399 struck out the comma after “except that”.

Amendment by Pub. L. 100–399 effective immediately after amendment made by section 401 of Pub. L. 100–233, which was effective 6 months after Jan. 6, 1988, see section 1001(b) of Pub. L. 100–399, set out as a note under section 2002 of this title.

Each production credit association shall be a body corporate and, subject to supervision by the Farm Credit Bank for the district and regulation by the Farm Credit Administration, shall have the power to—

(1) have succession until terminated in accordance with this chapter or any other Act of Congress;

(2) adopt and use a corporate seal;

(3) make contracts;

(4) sue and be sued;

(5) acquire, hold, dispose, and otherwise exercise all of the usual incidents of ownership of real and personal property necessary or convenient to the business of the association;

(6) operate under the direction of the board of directors of the association in accordance with the provisions of this chapter;

(7) subscribe to stock of the bank;

(8) purchase stock of the bank held by other production credit associations and stock of other production credit associations;

(9) contribute to the capital of the bank or other production credit associations;

(10) invest funds of the association as may be approved by the Farm Credit Bank under regulations of the Farm Credit Administration and deposit the current funds and securities of such with the Farm Credit Bank, a member bank of the Federal Reserve System, or any bank insured under the Federal Deposit Insurance Corporation, and may pay fees therefor and receive interest thereon as may be agreed;

(11) buy and sell obligations of or insured by the United States or of any agency thereof or of any banks of the Farm Credit System and buy from and sell to such banks, interests in loans and in other financial assistance extended and nonvoting stock, as may be authorized by the Farm Credit Bank in accordance with regulations of the Farm Credit Administration;

(12) borrow money from the Farm Credit Bank, and with the approval of such bank, borrow from and issue notes or other obligations to any commercial bank or other financial institution;

(13) make and participate in loans, accept advance payments, and provide services and other assistance as authorized in this part and charge fees therefor, and when authorized by the bank participate with one or more other Farm Credit System institutions in loans made under this subchapter or other subchapters of this chapter on the basis prescribed in section 2206 of this title;

(14) endorse and become liable on loans discounted or pledged to the Farm Credit Bank;

(15) as may be authorized by the Farm Credit Bank in accordance with regulations of the Farm Credit Administration, agree with other Farm Credit System institutions to share loan or other losses, whether to protect against capital impairment or for any other purpose;

(16) prescribe, by its board of directors, its bylaws that shall be consistent with law, and that shall provide for—

(A) the classes of its stock and the manner in which such stock shall be issued, transferred, and retired; and

(B) the manner in which it is to—

(i) select officers and employees;

(ii) acquire, hold, and transfer property;

(iii) conduct general business; and

(iv) exercise and enjoy the privileges granted to it by law;

(17) provide by its board of directors for a manager or other chief executive officer, and provide for such other officers or employees as may be necessary, including joint employees as provided in this chapter, define their duties, and require surety bonds or make other provisions against losses occasioned by employees, but no director shall, within one year after the date when such director ceases to be a member of the board, serve as a salaried employee of the association on the board of which he served;

(18) elect by the board of directors of the association a loan committee with power to approve applications for membership in the association and loans or participations or, with the approval of the bank, delegate the approval of applications for membership and loans or participations within specified limits to other committees or to authorized officers and employees of the association;

(19) perform any functions delegated to the association by the bank;

(20) exercise by the board of directors or authorized officers or employees of the association, all such incidental powers as may be necessary or expedient to carry on the business of the association; and

(21) operate as an originator and become certified as a certified facility under subchapter VIII of this chapter.

(Pub. L. 92–181, title II, §2.2, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1630; amended Pub. L. 100–399, title IV, §401(*o*), Aug. 17, 1988, 102 Stat. 997.)

A prior section 2073, Pub. L. 92–181, title II, §2.2, Dec. 10, 1971, 85 Stat. 592; Pub. L. 96–592, title II, §202, Dec. 24, 1980, 94 Stat. 3440; Pub. L. 99–205, title II, §205(e)(2)–(5), title VI, §604, Dec. 23, 1985, 99 Stat. 1704, 1711; Pub. L. 100–233, title VIII, §§802(j), 805(e), Jan. 6, 1988, 101 Stat. 1711, 1715, related to Federal intermediate credit bank stock, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

**1988**—Par. (16). Pub. L. 100–399, §401(*o*)(1), amended par. (16) generally. Prior to amendment, par. (16) read as follows: “prescribe by the board of directors of the association the bylaws not inconsistent with law providing for—

“(A) the classes of association stock and the manner in which the stock shall be issued, transferred, and retired;

“(B) the officers and employees elected or provided for;

“(C) the property acquired, held, and transferred by the association; and

“(D) the general business conducted, and the privileges granted to the association by law exercised and enjoyed;”.

Par. (17). Pub. L. 100–399, §401(*o*)(2), substituted “provide by its board of directors for” for “elect by the board of directors of the association” and “serve as” for “be elected or designated”.

Par. (21). Pub. L. 100–399, §401(*o*)(3)–(5), added par. (21).

Amendment by Pub. L. 100–399 effective immediately after amendment made by section 401 of Pub. L. 100–233, which was effective 6 months after Jan. 6, 1988, see section 1001(b) of Pub. L. 100–399, set out as a note under section 2002 of this title.

In accordance with section 2154a of this title, each production credit association shall provide, through its bylaws and subject to Farm Credit Administration regulations, for its capitalization and the manner in which its stock shall be issued, held, transferred, and retired and, except as provided in subsection (b) of this section, its earnings distributed.

At the end of each fiscal year, each production credit association shall apply the amount of the earnings of the association for the fiscal year in excess of the operating expenses of the association (including provision for valuation reserves against loan assets in accordance with generally accepted accounting principles)—

(1) first, to the restoration of the impairment (if any) of capital; and

(2) second, to the establishment and maintenance of the surplus accounts, the minimum aggregate amount of which shall be prescribed by the Farm Credit Bank.

When the bylaws of an association so provide and subject to the general directions of the Farm Credit Administration, available net earnings at the end of any fiscal year may be distributed on a patronage basis in stock, participation certificates, or in cash. Any part of the earnings of the fiscal year in excess of the operating expenses for such year held in the surplus account may be allocated to patrons on a patronage basis.

(Pub. L. 92–181, title II, §2.3, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1632; amended Pub. L. 102–552, title V, §501, Oct. 28, 1992, 106 Stat. 4129.)

A prior section 2074, Pub. L. 92–181, title II, §2.3, Dec. 10, 1971, 85 Stat. 593; Pub. L. 96–592, title II, §203, Dec. 24, 1980, 94 Stat. 3440; Pub. L. 99–205, title II, §205(e)(6), Dec. 23, 1985, 99 Stat. 1704, related to loans, discounts, participation, and leasing, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

**1992**—Subsec. (b). Pub. L. 102–552 amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: “Each production credit association at the end of each fiscal year shall apply the amount of the earnings of the association for such year in excess of the operating expenses of the association (including provision for valuation reserves against loan assets in an amount equal to one-half of 1 percent of the loans outstanding at the end of the fiscal year to the extent that such earnings in such year in excess of other operating expenses permit, or in such greater amounts as are deemed necessary under generally accepted accounting principles, until such reserves equal or exceed 3½ percent of the loans outstanding at the end of the fiscal year, beyond which 3½ percent further additions to such reserves may be made, if deemed necessary under generally accepted accounting principles) first to the restoration of the impairment, if any, of capital, and second, to the establishment and maintenance of the surplus accounts, the minimum aggregate amount of which shall be prescribed by the Farm Credit Bank.”

Each production credit association, under standards prescribed by the board of directors of the Farm Credit Bank of the district, may make, guarantee, or participate with other lenders in short- and intermediate-term loans and other similar financial assistance to—

(1) bona fide farmers and ranchers and the producers or harvesters of aquatic products, for agricultural or aquatic purposes and other requirements of such borrowers, including financing for basic processing and marketing directly related to the operations of the borrower and those of other eligible farmers, ranchers, and producers or harvesters of aquatic products, except that the operations of the borrower shall supply some portion of the total processing or marketing for which financing is extended, except that the aggregate of the financing provided by any association for basic processing and marketing directly related to the operations of farmers, ranchers, and producers or harvesters of aquatic products, if the operations of the applicant supply less than 20 percent of the total processing or marketing for which financing is extended, shall not exceed 15 percent of the total of all outstanding loans of all associations in the district at the end of its preceding fiscal year;

(2) rural residents for housing financing in rural areas, under regulations of the Farm Credit Administration; and

(3) persons furnishing to farmers and ranchers farm-related services directly related to their on-farm operating needs.

Rural housing financed under this part shall be for single-family, moderate-priced dwellings and the appurtenances of such not inconsistent with the general quality and standards of housing existing in, or planned or recommended for, the rural area where it is located.

The aggregate of such housing loans in an association to persons other than farmers or ranchers shall not exceed 15 percent of the outstanding loans at the end of its preceding fiscal year except on prior approval by the Farm Credit Bank of the district. The aggregate of such housing loans in any farm credit district shall not exceed 15 percent of the outstanding loans of all associations in the district at the end of the preceding fiscal year.

For rural housing purposes under this section the term “rural areas” shall not be defined to include any city or village having a population in excess of 2,500 inhabitants.

Each association may own and lease, or lease with option to purchase, to stockholders of the association equipment needed in the operations of the stockholder.

Loans authorized in subsection (a) of this section shall bear such rate or rates of interest as are determined under standards prescribed by the board of the bank subject to the provisions of section 2205 of this title, and shall be made upon such terms, conditions, and upon such security, if any, as shall be authorized in such standards.

In setting rates and charges, it shall be the objective to provide the types of credit needed by eligible borrowers, at the lowest reasonable cost on a sound business basis, taking into account the cost of money to the association, necessary reserves and expenses of the association, and services provided to borrowers and members.

The loan documents may provide for the interest rate or rates to vary from time to time during the repayment period of the loan in accordance with the rate or rates currently being charged by the association.

Such standards may require prior approval of the bank on certain classes of loans, and may authorize a continuing commitment to a borrower of a line of credit.

Notwithstanding any territorial limitation in the charter of a production credit association located in a district in which there are only two such associations, the Farm Credit Administration Board, on request of such association, may permit such association to provide credit and technical assistance to any borrower who is denied credit by the other production credit association in the district if the Board determines that such other production credit association in the district is unduly restrictive in the application of credit standards.

If the Farm Credit Administration Board approves the extension of credit and technical assistance under paragraph (1), the association shall approve or deny the application for credit within 90 days after receipt of the application from the borrower.

(Pub. L. 92–181, title II, §2.4, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1632; amended Pub. L. 100–399, title IV, §401(p), (q), Aug. 17, 1988, 102 Stat. 997; Pub. L. 101–624, title XVIII, §1832(b), Nov. 28, 1990, 104 Stat. 3832.)

A prior section 2075, Pub. L. 92–181, title II, §2.4, Dec. 10, 1971, 85 Stat. 594; Pub. L. 95–443, Oct. 10, 1978, 92 Stat. 1066; Pub. L. 96–592, title II, §204, Dec. 24, 1980, 94 Stat. 3441; Pub. L. 99–509, title I, §1033(b), Oct. 21, 1986, 100 Stat. 1877, related to terms, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

**1990**—Subsec. (a)(1). Pub. L. 101–624 substituted “some portion of the total processing or marketing for which financing is extended, except that the aggregate of the financing provided by any association for basic processing and marketing directly related to the operations of farmers, ranchers, and producers or harvesters of aquatic products, if the operations of the applicant supply less than 20 percent of the total processing or marketing for which financing is extended, shall not exceed 15 percent of the total of all outstanding loans of all associations in the district at the end of its preceding fiscal year” for “at least 20 percent, or such larger percent as is required by the supervising bank under regulations of the Farm Credit Administration, of the total processing or marketing for which financing is extended”.

**1988**—Subsec. (b)(1). Pub. L. 100–399, §401(p), substituted “this part” for “this subchapter” and substituted “or planned” for “planned”.

Subsec. (d). Pub. L. 100–399, §401(q), added subsec. (d).

Amendment by Pub. L. 100–399 effective immediately after amendment made by section 401 of Pub. L. 100–233, which was effective 6 months after Jan. 6, 1988, see section 1001(b) of Pub. L. 100–399, set out as a note under section 2002 of this title.

Each production credit association may provide technical assistance to borrowers, applicants, and members and may make available to them at their option such financial related services appropriate to their on-farm and aquatic operations as is determined feasible by the board of directors of each Farm Credit Bank, under regulations prescribed by the Farm Credit Administration.

(Pub. L. 92–181, title II, §2.5, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1633.)

A prior section 2076, Pub. L. 92–181, title II, §2.5, Dec. 10, 1971, 85 Stat. 595; Pub. L. 96–592, title II, §205, Dec. 24, 1980, 94 Stat. 3442; Pub. L. 100–233, title III, §305, Jan. 6, 1988, 101 Stat. 1621, related to services related to borrowers’ operations, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

Except with regard to stock or participation certificates held by other Farm Credit System institutions, each production credit association shall have a first lien on stock and participation certificates the association issues, on allocated surplus, and on investments in equity reserve, for any indebtedness of the holder of the capital investments and, in the case of equity reserves, for charges for association losses in excess of reserves and surpluses.

(Pub. L. 92–181, title II, §2.6, as added Pub. L. 101–624, title XVIII, §1833(2), Nov. 28, 1990, 104 Stat. 3832.)

A prior section 2.6 of Pub. L. 92–181 was renumbered section 2.7 and is classified to section 2077 of this title.

Section effective Jan. 7, 1988, see section 1861(d) of Pub. L. 101–624, set out as an Effective Date of 1990 Amendment note under section 2001 of Title 7, Agriculture.

Each production credit association and its obligations are instrumentalities of the United States and as such any and all notes, debentures, and other obligations issued by such associations shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or any State, territorial, or local taxing authority, except that interest on such obligations shall be subject to Federal income taxation in the hands of the holder.

(Pub. L. 92–181, title II, §2.7, formerly §2.6, as added Pub. L. 100–233, title IV, §401, Jan. 6, 1988, 101 Stat. 1633; amended Pub. L. 100–399, title IV, §401(r), Aug. 17, 1988, 102 Stat. 998; renumbered §2.7, Pub. L. 101–624, title XVIII, §1833(1), Nov. 28, 1990, 104 Stat. 3832.)

A prior section 2077, Pub. L. 92–181, title II, §2.6, Dec. 10, 1971, 85 Stat. 595; Pub. L. 96–592, title II, §206, Dec. 24, 1980, 94 Stat. 3442; Pub. L. 99–205, title II, §205(e)(7), (8), Dec. 23, 1985, 99 Stat. 1704; Pub. L. 100–233, title VIII, §§802(k), 805(f), Jan. 6, 1988, 101 Stat. 1711, 1715, related to net earnings, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

A prior section 2078, Pub. L. 92–181, title II, §2.7, Dec. 10, 1971, 85 Stat. 597; Pub. L. 99–205, title II, §205(e)(9), Dec. 23, 1985, 99 Stat. 1704, related to distribution of assets on liquidation, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

A prior section 2079, Pub. L. 92–181, title II, §2.8, Dec. 10, 1971, 85 Stat. 597; Pub. L. 100–399, title IX, §901(a), Aug. 17, 1988, 102 Stat. 1007, related to taxation, prior to the general amendment of this subchapter by Pub. L. 100–233, §401.

**1988**—Pub. L. 100–399 substituted “interest,” for “interest” and inserted “, except that interest on such obligations shall be subject to Federal income taxation in the hands of the holder”.

Amendment by Pub. L. 100–399 effective immediately after amendment made by section 401 of Pub. L. 100–233, which was effective 6 months after Jan. 6, 1988, see section 1001(b) of Pub. L. 100–399, set out as a note under section 2002 of this title.