Pub. 5 2010-2011

September/October 2010 13 Extraordinary Service for Extraordinary Members. P ERHAPS THE MOST IMPORTANT provision for the FCS is a complete exemption from the rules and enforcement powers of the new Consumer Financial Protec- tion Bureau (CFPB). Sec. 1027(k) of the law provides that no provision of the act as it relates to the CFPB “shall be construed as altering, amending, or affecting the authority of the Farm Credit Administration [FCA] to adopt rules, initiate enforcement proceed- ings, or take any other action with re- spect to [an FCS institution] regulated by the [FCA]. The [CFPB] shall have no authority to exercise any power to enforce [the law governing the CFPB] with regard to [an FCS institution].” In effect, the FCA will be an indepen- dent regulator free to do what it wants when regulating the FCS’ substantial consumer lending activities. It will be interesting to see how the FCA defines the term “consumer” as it applies to FCS lending. Conceiv- ably, it could define that term quite broadly to include what others might consider to be business loans to un- incorporated farms and part-time 1980s, the act exempts the FCS from systemic risk regulation by the new Financial Stability Oversight Council (FSOC). The key purpose of FSOC is to “identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities of large, interconnected bank holding compa- nies or nonbank financial companies” and “to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the government will shield them from losses in the event of failure.” Not only is the FCS a very large “nonbank financial company,” with $213 billion in assets as of March 31, 2010, but it is highly interconnected internally among its five banks and 93 associa- tions as well as with the rest of the U.S. financial system through loan partici- pations and derivatives transactions. Congress erred in exempting the FCS from FSOC oversight, especially given the growing credit-quality problems within the FCS and the apparent shot-gun mergers of troubled FCS as- sociations with other associations in the Texas Farm Credit District. Especially troubling is the potential for an exemption of all FCS institu- tions from derivatives regulation by the Commodity Futures Trading Commission (CFTC). While the act authorizes the CFTC to exempt finan- cial institutions with less than $10 bil- lion of assets from CFTC regulation of derivatives, a discussion on the floor of the House of Representatives strongly suggested that the $10 billion limit was not binding with regard to FCS institutions. Instead, according to the discussion, that $10 billion number “should not in any way be viewed by the [CFTC] as a limit on the size of the institution that should be considered for an exemption.” Translation: The CFTC is encouraged to exempt even the largest FCS institutions from its Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2010 Bert Ely As previous issues of Farm Credit Watch predicted, the Farm Credit System (FCS) has some huge exemptions in the financial regulatory reform legislation the President recently signed into law. farming operations. For example, the FCA could define FCS financing of a truck or a tractor, for both farm- ing and personal use by a farmer, as a consumer loan subject to the FCA’s rules rather than rules applicable to non-consumer lending. The FCA/FCS exemption from the regulatory reach of the CFPB certainly applies to the FCS’ $5 billion in rural residential real estate loans outstanding at the end of 2009. An inference from a statement of congressional intent appended to the act is that FCS institutions could be exempt from the Truth in Lending Act (TILA), the Equal Credit Opportu- nity Act (ECOA), and the Real Estate Settlement Procedures Act (RESPA). Additionally, the FCS will be exempt from the CFPB’s “authority to regulate unfair, deceptive, and abusive prac- tices and consumer products that it identifies [as such]” and from CFPB regulations “relating to disclosures about consumer financial products and services.” Even though the FCS required a taxpayer bailout in 1987, following its reckless lending in the 1970s and early Huge Exemptions for FCS in Dodd-Frank Act Q Huge Exemptions — continued on page 14