Independent Bankers Ass'n of America v. Farm Credit Admin.

• Decision Date: 19 January 1999
• Docket Number: No. 98-5020,98-5020
• Citation: 164 F.3d 661,334 U.S.App.D.C. 82
• Parties: INDEPENDENT BANKERS ASSOCIATION OF AMERICA and American Bankers Association, Appellants, v. FARM CREDIT ADMINISTRATION, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 661

164 F.3d 661

334 U.S.App.D.C. 82

INDEPENDENT BANKERS ASSOCIATION OF AMERICA and American Bankers Association, Appellants, v. FARM CREDIT ADMINISTRATION, Appellee.

No. 98-5020.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 9, 1998.

Decided Jan. 19, 1999.

Appeal from the United States District Court for the District of Columbia (No. 97cv00695).

Michael F. Crotty argued the cause for appellants. With him on the briefs were John J. Gill and Leonard J. Rubin.

Michael S. Raab, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Frank W. Hunger, Assistant Attorney General, Wilma A. Lewis, U.S. Attorney, and Mark B. Stern, Attorney, U.S. Department of Justice.

Arvid E. Roach, II, argued the cause and filed the brief for amicus curiae Farm Credit Council.

Before: SILBERMAN, ROGERS and GARLAND, Circuit Judges.

ROGERS, Circuit Judge:

Since 1916, the federal government has provided assistance to farmers in securing agricultural loans. With the enactment of the Federal Farm Loan Act, ch. 245, 39 Stat. 360 (1916), and the Farm Credit Act of 1933, ch. 98, 48 Stat. 257 (1933), Congress established a system of banks and cooperative lending associations, known as the Farm Credit System, designed to provide credit to agricultural producers and farm-related businesses. In 1971, Congress revised the System in the Farm Credit Act of 1971, Pub.L. No. 92-181, 85 Stat. 583 (1971) (codified as amended at 12 U.S.C. § 2001, et seq.). At issue here are the regulations promulgated by the Farm Credit Administration on January 30, 1997, to expand the availability of credit to farmers and certain businesses. See 62 Fed.Reg. 4429 (1997) (codified at 12 C.F.R. pts. 613-615, 618-620, and 626). Several commercial banks opposed the revised regulations on the ground that they exceeded the scope of the agency's authority under the statute. When the agency rejected these contentions, two national trade groups, appellants Independent Bankers Association and American Bankers Association, filed suit. Objecting to the expansion of Farm Credit System loan availability to farm-related service businesses, processing and marketing operations, legal entities in general, and rural home owners, appellants argued that only Congress can authorize these expansions of credit to individuals and entities that previously had been barred by the regulations from receiving System loans. ¹ The district court granted summary judgment to the agency and denied appellants' cross-motion for summary judgment. See Independent Bankers Ass'n of Am. v. Farm Credit Admin., 986 F.Supp. 633 (D.D.C.1997). We hold that, with two exceptions, the revised regulations are consistent with the statute. The two exceptions are the regulations allowing Farm Credit Banks to extend loans to farm-related businesses for activities beyond those listed in § 2019(c)(1), and rural housing loans to non-owner-occupied residences. Accordingly, we affirm in part and reverse in part.

I.

The Farm Credit Administration regulates a system of banks and cooperative lending associations designed to improve "the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit and closely related services to them, their cooperatives, and to selected farm-related businesses necessary for efficient farm operations." 12 U.S.C. § 2001(a) (1994). Congress sought to assure that "American farmers have available a dependable supply of credit on terms tailored to their special needs and capabilities and adjusted regularly to changing economic and agricultural conditions." S.Rep. No. 92-307, at 7 (1971), U.S. Code Cong. & Admin. News at 1266. The Farm Credit Loan System currently includes, according to the agency's brief, over 200 cooperative lending associations and eight banks--six Farm Credit Banks, one bank for cooperatives, and one agricultural credit bank. See generally 12 U.S.C. § 2002(a) (1994).

On September 11, 1995, the agency announced a proposed revision to its regulations that would modify eligibility requirements and the scope of permissible lending, with the intent "to eliminate unnecessary regulatory restrictions and implement statutory changes" from the early 1990s. See 60 Fed.Reg. 47103, 47103 (1995). This effort included removing regulatory restrictions on lending that the agency concluded were not required by the statute. In promulgating its final rule on January 30, 1997, see 62 Fed.Reg. 4429 (1997), the agency rejected the argument of several commercial banks that the statute and its legislative history mandated that the Farm Credit System be "a lender of last resort serving only those rural credit markets that have been abandoned by other lenders." Id. at 4434. The agency expanded who qualified for System loans and the circumstances under which the System would make loans available. Appellants object to six of these changes, which took effect on March 11, 1997.

As to farm-related businesses, the agency adopted a revised version of 12 C.F.R. § 613.3020(a), which provides that "[a]n individual or legal entity that furnishes farm-related services to farmers and ranchers that are directly related to their agricultural production is eligible to borrow from a Farm Credit bank or association that operates under titles I or II of the Act." ² The new regulations removed the prior requirement that farm-related businesses were eligible for lending only if they engaged in providing "custom-type farm-related services directly related" to farmers' "on-farm operating needs." 12 C.F.R. § 613.3050(a) (repealed 1997). ³ These services are defined as "tasks that farmers and ranchers can perform for themselves, but instead hire outside contractors to perform." 62 Fed.Reg. at 4438. The agency explained the change by noting that the statute did not mention the term "custom-type services" and that a reasonable interpretation of the term "farm-related services" should include technologically advanced services that directly relate to agricultural production but which farmers could not provide for themselves. Id.

The agency also expanded the type of farm-related business activities that qualify for lending. Under the old regulation, a farm-related business could receive "long-term real estate mortgage loans ... for necessary sites, capital structures, equipment, and initial working capital for such services." § 613.3050(c)(1) (repealed 1997). The new regulation, however, permits financing for "[a]ll of the farm-related business activities" of a business, provided that a majority of its income arises from furnishing farm-related services. ⁴ § 613.3020(b)(1) (1998).

Finally as to farm-related businesses, the new regulation removes the former prohibition on lending to commercial businesses that "purchase farm products from or sell inputs to farmers or ranchers unless substantially all of such inputs handled are used incident to the services provided." § 613.3050 (b)(2) (repealed 1997). The regulations eliminate this requirement, as § 613.3020 now allows "whole-firm financing" of businesses that derive a majority of their income from providing farm-related services. See 62 Fed.Reg. at 4438.

As for processing and marketing loans, the agency loosened the ownership requirements for loan applicants. Previously, the agency had required that "bona fide farmers" ⁵ and other agricultural producers own 100 percent of a processing and marketing operation if the operation and its owners produced under 50 percent of the annual "throughput." ⁶ § 613.3045(b)(2)(iii) (repealed 1997); see also 61 Fed.Reg. at 42,105. Under the new regulation, a legal entity engaging in processing and marketing qualifies for financing so long as "eligible borrowers under § 613.3000(b) own more than 50 percent of the voting stock" and the entity or its owners "regularly produce[ ] some portion of the throughput." ⁷ § 613.3010(a)(1)-(2) (1998). The agency explained that this revision expanded the pool of potential borrowers yet still reflected a congressional concern that farmers exercise "substantial control" over the borrowing entity--in this case, a majority interest. 62 Fed.Reg. at 4437.

The agency also changed the ownership requirements for legal entities in general. Previously, legal entities were eligible for credit only if (1) they were majority owned by agricultural producers, (2) a majority of their assets related to agricultural production, or (3) a majority of their income arose from farming or the harvesting of aquatic products. § 613.3020(b) (amended 1997). The agency repealed these restrictions so that "all legal entities ... will now be eligible for [System] financing on the same basis as other farmers." 62 Fed.Reg. at 4437. The new regulations, however, retain a prior limitation that restricts credit to farmers "as the emphasis moves away from the full-time bona fide farmer" to businesses whose focus is "essentially other than farming." Compare § 613.3005(a) (1998) with § 613.3005(a) (amended 1997). Both new and old regulations state that

[i]t is the objective of each bank and association, except for banks for cooperatives, to provide full credit, to the extent of creditworthiness, to the full-time bona fide farmer (one whose primary business and vocation is farming ...); and conservative credit to less than fulltime farmers for agricultural enterprises, and more restricted credit for other credit requirements as needed to ensure a sound credit package ... as long as the total credit results in being primarily an agricultural loan.

§ 613.3005 (1998); see also § 613.3005(a) (repealed 1997) (using almost identical language).

Further, the new regulations expand who qualifies for rural home loans. Prior to the revisions, the Farm Credit System provided financing only for those rural residences that were owner-occupied. § 613.3040(b) (repealed 1997). The old regulation explicitly prohibited loans "to...