Farm Credit Seeks Exemption from CFPB Small Business Lending Transparency Rule

Farm Bill horse-trading could include an effort to exempt the largest farm-lending system from new demographic reporting requirements on its small business loans. A bill introduced in March proposes to remove the private, government-sponsored Farm Credit system from the purview of the Equal Credit Opportunity Act to avoid complying with a Consumer Financial Protection Bureau rule requiring all lenders to collect and report data on who does and does not receive their small business loans.

This sunshine rule will help fill critical information gaps and identify discriminatory lending trends, which is particularly crucial for the historically inequitable farm sector. A diverse coalition of over 100 farmer advocacy organizations urged Congress to hold Farm Credit to the same standards as other financial institutions. “The final CFPB rule is pro-farmer and pro-rural communities because it will help give everyone, especially Black, Indigenous, and farmers of color who continue to face discrimination by banking entities, a fair shot at credit that builds wealth,” said Maleeka Manurasada, National Organizer for HEAL Food Alliance, in a statement.

In late March, the Consumer Financial Protection Bureau (CFPB) finalized a rule that requires all lenders to share data on their small business loans with the agency. The disclosed data covers basic information about every application received, including the size and type of the loan, whether it was approved or denied, the applicant’s annual revenue, and the applicant’s self-reported demographic information.

Passed more than a decade ago, the Dodd-Frank Act directed the CFPB to collect more data on small business lending decisions in order to identify potential patterns of discrimination and create transparency for borrowers. Financial institutions already must share this data for mortgages, and Dodd-Frank sought to create a similar public dataset for small business loans. The CFPB recently fulfilled this Congressional mandate after a court ordered them to finish the rule.

The rule extends to all kinds of small business lenders, including agricultural lenders. Once implemented, the database would create transparency for all farmers to see what types of farms are securing credit, and from whom. The database will also help track and analyze discriminatory lending against beginning farmers, small farmers, farmers of color, and women farmers.

Agricultural capital is grossly concentrated among white farmers who own 98% of U.S. farmland. This is despite the fact that in 1920, 14% of all farmers were Black, and Black farmers owned nearly 20 million acres of land. In the years since, discriminatory lending and coercive dispossession clawed 90% of that land away from Black farmers (whereas white farmers lost just 2% of their land over the same period). Limited analysis of federal lending and farmer surveys suggest that farmers of color and women farmers receive disproportionately fewer farm loans than white, male farmers. Politico found that in 2020 USDA only granted loans to 37% of Black applicants and 46% of Asian applicants compared to 71% of white applicants. Lenders say this is because farmers of color and women tend to operate smaller, lower-revenue farms or have worse credit histories, according to a report by the Government Accountability Office. Farmers’ advocates allege unfair treatment and discrimination.

Identifying and rectifying potentially discriminatory lending trends is challenging because there’s shockingly little data on private farm lending, the GAO report found. “The lack of personal characteristic data on a large portion of agricultural loan applications limits the ability of regulators, researchers, and stakeholders to assess potential risks for discrimination,” the report says. The GAO points to the CFPB’s rule to help fill this information gap. However, one of the largest rural lenders, Farm Credit, is lobbying for an exemption.

Farm Credit is a private, cooperatively run, federally sponsored lender, like Fannie Mae and Freddie Mac, but owned collectively by borrowers. The federal government backs up loans in the Farm Credit system and cuts the lender a tax break on their interest. In exchange, Farm Credit is required to serve rural communities and small, young, and beginning farmers. The Farm Credit system is the largest U.S. agricultural lender – an analysis of USDA data estimates that the Farm Credit system holds 44% of all U.S. farm business debt. An independent government agency, the Farm Credit Administration, oversees the Farm Credit system and the Federal Agricultural Mortgage Corporation (Farmer Mac).

The Farm Credit system has been criticized for favoring large lenders over the small farmers it is meant to serve – one analysis in 2015 found less than one percent of Farm Credit borrowers, just 4,458 entities, received 45.5% of all Farm Credit lending that year. A report by Farm Credit notes that in 2021 young farmers received 11% of all their loans, beginning farmers 19%, and small farmers 19% (by dollar volume).

A bill introduced by Representatives Brad Finstad (R-MN) and Jimmy Panetta (D-CA) would make the Farm Credit Administration the sole regulator for the Farm Credit system, effectively exempting Farm Credit from not just this CFPB rule but any future ones. It sets up a different system for Farm Credit to report small business lending decisions to the Farm Credit Administration and exempts any entity it regulates from the Equal Credit Opportunity Act. The proposal could find its way into the next Farm Bill, which Congress technically must pass by September 30.

Farm Credit says that the CFPB’s rule puts a “significant burden on Farm Credit institutions” and that it needs this exemption to keep down costs for its farmer-owners. But a coalition of 100 organizations representing beginning and small-scale farmers as well as farmers of color, including the Rural Coalition, National Young Farmers Coalition, and HEAL Food Alliance, argued in a letter to Congress that more transparency and data on farm lending will help farmers navigate credit markets, not hurt them. “The CFPB's proposed regulatory updates are common sense efforts to improve our understanding of the on the ground impacts of agricultural lending,” they wrote.