Pub. 7 2010-2013 Issue 3

www.nebankers.org 24 Extraordinary Service for Extraordinary Members. ÆÏ Ï&ISERV Ï)NC ÏORÏITSÏAFlLIATES We’re lighting the digital path to more valuable customer connections. With Fiserv, you have the power to illuminate. The power within. getsolutions@fiserv.com 800-872-7882 www.fiserv.com based FCS of America (FCSA), the second-largest FCS association, created AgDirect in 2009 “to accommodate the expansion and consolidation of agricultural equipment dealers by making [FCS] financing of agricultural equip- ment available to eligible farmers and ranchers irrespec- tive of where dealers may choose to do business.” AgDirect effectively allowed FCSA to poach lending business in the territories of other FCS associations. AgDirect also enabled FCSA to lend indirectly to borrowers ineligible to borrow directly from an FCS association. Partly because of complaints from FCS associations whose business FCSA was poaching, FCSA restructured AgDirect so that other associations could participate in it. As of the end of 2011, eight other associations were participating in AgDirect; possibly more have joined in 2012. AgDirect effectively buys loans from equipment dealers through the device of purchasing a 100 percent participation in the loans. AgDirect then sells these loan “participations” to AgriBank, the FCS bank which funds FCSA. Hence, AgDirect loans are funded by AgriBank. Among other things, this arrangement may convert the profits on AgDirect lending from taxable to non-taxable income since Agribank, as it stated in its 2011 Annual Report, is “exempt from federal and other income taxes, as provided in the Farm Credit Act.” Although it no longer funds AgDirect’s loans, FCSA earns a fee for originat- ing and servicing those loans; AgDirect loans increased from $1.30 billion at the end of 2011 to $1.69 billion at June 30, 2012. FCW will continue to closely monitor the AgDirect program. CFTC Proposes to Give FCS Another Competitive Advantage The Commodities Futures Trading Commission (CFTC) has proposed a regulation that would give the FCS yet another competitive advantage over taxpaying banks. Under a provision in the Dodd-Frank Act, the CFTC proposes to exempt cooperatives of any size, and specifically the FCS, from swaps clearing requirements that will apply to banks with more than $10 billion in assets. All four FCS banks plus two associations each have more than $10 billion in assets and therefore would benefit from this exemption. Because the FCS banks fund FCS associations of all sizes, effectively the entire FCS would benefit from this exemption from potentially costly clearing requirements. The CFTC’s rationale for this exemption is extremely weak: Because the FCS is owned by “end users” (i.e., its borrowers), it should be exempted because “end users” of swaps are exempt from  FCW — continued