Pub. 8 2013-2013 Issue 5

www.nebankers.org 26 Extraordinary Service for Extraordinary Members. Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2014 Bert Ely I n an Oct. 3, 2013, letter, North Dakota Insurance Commissioner Adam Hamm wrote to Bran- don Willis, the head of USDA’s Risk Management Authority (RMA), regarding the Farm Credit System’s (FCS’) crop insurance rebating prac- tices (see the November 2013 Farm Credit Watch at www.nebankers.org/ index.php/publications/bert-elys- farm-credit-watch.html). Specifically, Hamm said he was “contacting [Wil- lis] to request your stance on [FCS] insurance [agents] offering programs and/or benefits such as tax accounting and agricultural accounting services, commodity marketing services, and favorable loan rates, among others.” Such services essentially are rebates FCS gives to those farmers who pur- chase crop insurance from the FCS. As Commissioner Hamm pointed out in his letter, “offering financial services and other incentives to clients and/or potential clients would be viewed by the North Dakota Insurance Depart- ment as rebating violations under North Dakota law.” As Farm Credit Watch (FCW) has reported, insurance commissioners in other states also have criticized the FCS’ crop insurance rebating practices. On Nov. 14, 2013, Willis responded to Commissioner Hamm, stating that “the practice of rebating was prohibited in the . . . act [the 2008 Farm Bill].” Specifically, the act “precludes provid- ing any benefit, either directly or indi- rectly, as an inducement to purchase insurance.” Willis stated that the RMA “has interpreted this section to be an absolute prohibition of rebating, except for very limited exceptions. . . .” [under- lining supplied] Furthermore, the act “preempts state law that is in conflict with the act. However, in almost all in- stances, a rebating determination by a state would be supported by the federal prohibition, except for rare instances in which rebating is explicitly excepted.” Willis noted that “if certain financial services are offered to customers for free if they purchase insurance froman entity but for a fee if they do not, then a violation has occurred since there is an inducement to purchase insurance through the entity.” Likewise, if the offer of a lower interest rate on a loan “is made only to producers who pur- chased a policy from a specific agent or entity [such as the FCS] then an illegal inducement has occurred.” Willis con- cluded with a troubling observation: While “RMA has investigated numer- ous rebating allegations involving [FCS] throughout the United States . . . RMA has generally been unable to de- termine that an illegal inducement has occurred because it typically receives little or no evidence or documentation to support the complaint.” The Farm Credit Administration [FCA], the FCS regulator, could help the RMA and the states enforce rebating prohibitions by gathering data on illegal FCS rebat- ing during FCA examinations of FCS institutions. FCS Investments Program Harder to Kill Than Dracula The November 2013 FCW reported that FCA had terminated its Invest- ments in Rural America initiative, an eight-year pilot program. When FCA killed the pilot program, it said it “can consider investment requests on a case-by-case basis under existing investment regulations.” It did not take the FCA very long to approve a new FCS investment. On Dec. 3, 2013, the FCA Board authorized Badgerland Financial, the FCS institution serving southernWisconsin, to invest “up to $5 million in the AgTech II equity venture capital fund as a limited partner.” It will be interesting to see how much infor- mation, if any, Badgerland discloses about the success, or lack thereof, of this gamble. Large FCS Association Getting Larger Much of the consolidation among FCS associations in recent years has consisted ofmid-size associations, rath- er than the largest, bulking up through the acquisition of other associations. The three largest associations—FCS of America, Farm Credit Mid-America, andNorthwest FCS—have not acquired another association for at least two decades. On the other hand, some not- quite-so-large associations have grown in recent years throughnumerousmerg- ers. For example, MidAtlantic ACA is the product of six mergers; American AgCredit, headquartered in Santa Rosa, USDA Replies to North Dakota on Crop Insurance Rebates