This, they claim, is beyond the agency's authority.
Although the language of the regulation was updated and streamlined, Defendants allege that the agency never intended to change its meaning. When it published the proposed changes for public comment, the agency took care to stress that the rewording of the rule was "not intended to alter the substance of the current regulation." See 60 Fed. Reg. at 47,112. In light of the agency's representation that the two are in effect the same regulation, Plaintiffs at this time have no basis to challenge the agency's new regulation. The agency is entitled to deference by the Court, and without a concrete example of "non-business" financing to support Plaintiffs' allegation, the agency's position that nothing has changed in substance must be accepted by this Court.
3. Processing and Marketing Loans
The statute permits financing of the processing or marketing operations of bona fide farmers, ranchers, and aquatic producers or harvesters. 12 U.S.C. §§ 2019 (a)(1), 2075 (a)(1). According to the statute, such processing or marketing operations must be "directly related" to the agricultural or aquatic activities of the borrower and that such activities of the borrower supply "some portion" of the agricultural product used in the processing or marketing operations. See id.
In interpreting the statutory provisions, the old regulations required that "where ownership of the processing and/or marketing operation differs from that of the basic production operation, all of the ownership of the processing and/or marketing operation shall be vested in persons eligible to borrow under" the statute (namely farmers, ranchers, or aquatic producers). See 12 C.F.R. § 613.3045 (b)(2)(iii) (repealed 1997). The new regulation eliminates the requirement of sole ownership and now requires ownership of only more than 50 percent of the operation to be eligible for System funds. See 62 Fed. Reg. at 4442.
Plaintiffs allege that the new regulations impermissibly violate the statutory provisions which the agency had previously relied upon to impose the old limits on System lending to processing or marketing operations. They contend that the new rules in effect permit the financing of "agribusiness" which focuses on the processing and marketing of agricultural products instead of actual agricultural production.
Although the consequences of the agency's action may allow some additional financing of "agribusiness," as Plaintiffs fear, the plain language of the statutes does not forbid such a collateral effect. Certainly, the congressional intent was for there to be a "direct relationship" between producers and the operation in question. But over 50 percent ownership of the operation by a producer easily meets that element.
In its commentary on the regulation, the agency articulated a reasonable explanation for the proposed change--to avoid the unintended consequences of the old regulation. The agency found that the old provision "denied otherwise eligible farmer-owned processing or marketing operations alternative credit options merely because employees or investors owned a minority interest." See 61 Fed. Reg. at 42,106. Since the effect of the old regulation was in direct contravention of the agency's statutory charge to improve "the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit," the agency acted well within its authority to change the rule. See 12 U.S.C. § 2001 (a).
4. Eligibility of Legal Entities
The statute authorizes lending to "bona fide" farmers, ranchers, and producers or harvesters of aquatic products without ever defining who or what qualifies. See 12 U.S.C. §§ 2017 (1), 2075 (a)(1). Under the old regulations, the FCA interpreted the statutory provision to favor the individual person. It placed significant limitations on legal entities seeking financing from the System. See 12 C.F.R. § 613.3020 (b) (repealed 1997). The new regulations eliminated all such restrictions on borrowing by legal entities. In its place, the agency adopted a "sliding scale test" that does not prefer individuals over corporations per se, but provides financing to both commensurate with their agricultural activities. See 62 Fed. Reg. at 4441. This test, which depends on the degree of a potential borrower's involvement in the business of agriculture and not on the technical legal form that the borrower takes, is entirely consistent with the purpose of the statute. In light of the reasonableness of the agency's position and the lack of statutory definition otherwise, Plaintiffs' challenge cannot stand.
5. Rural Housing
In addition to farmers, ranchers and the like, "owners of rural homes" are eligible for financing under the statute. See 12 U.S.C. § 2017 (3). The statute goes on to specify that the System can lend money "to rural residents for rural housing financing under regulations of the Farm Credit Administration." See 12 U.S.C. §§ 2019 (b)(1), 2075 (a)(2). Under its old regulations, the agency restricted such financing to owner-occupants of rural housing. See 12 C.F.R. § 613.3040 (a)(1) (repealed 1997). Plaintiffs allege that the new regulation impermissibly eliminated the restriction.
The plain words of the statute, however, suggest that the agency's new interpretation is valid. The statute gives the agency broad discretion in this area, expressly deferring in the text to the regulations of the FCA. Moreover, the agency's articulated rationale is well within the purpose of the statute. It determined that the previous restriction did not "ensure the availability of affordable housing for rural residents." See 62 Fed. Reg. at 4429, 4438; see also 61 Fed. Reg. at 42,092, 42,109. Yet this was the express intent of the statutory provision on rural housing. Thus, it was a reasonable decision to amend the regulation to permit occupancy by tenants as well as owners. To stay within the intent of the statute, the regulation still carefully limits the scope of lending to a single-family moderately priced home that is the occupant's primary residence and located in a rural area. See 62 Fed. Reg. at 4442. The agency's decision withstands Plaintiffs' challenge.
For the reasons set forth above, this Court finds standing for the Plaintiffs to bring this case, but grants summary judgment in favor of the Defendant on all counts of the Plaintiffs' Complaint. An appropriate Order is attached.
United States District Judge
For the reasons set forth in the Memorandum Opinion above, it is hereby
ORDERED that Plaintiffs are GRANTED standing to bring the case captioned above; it is further
ORDERED that Defendant Farm Credit Administration's Motion for Summary Judgment is GRANTED ; it is further
ORDERED that Plaintiff Independent Bankers Association of America and American Bankers Association's Motion for Summary Judgment is hereby DENIED ; it is further
ORDERED that the case captioned above is hereby DISMISSED.
United States District Judge