[Federal Register Volume 60, Number 226 (Friday, November 24, 1995)]
[Proposed Rules]
[Pages 57962-57963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28586]
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FARM CREDIT ADMINISTRATION
12 CFR Part 614
RIN 3052-AB52
Loan Policies and Operations
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit
Administration Board (Board), proposes to amend the regulations
governing disclosure of loan information. The FCA proposes to remove
the requirement that Farm Credit institutions give borrowers 10 days
prior notification of a change in the interest rate on their variable
rate loans and replace it with a 10-day post notification. This action
would reduce the burden on institutions of a delay in interest rate
changes while still providing borrowers with timely notice of a change.
The proposed regulation would also make a technical amendment regarding
eligible borrower stock.
DATES: Comments should be received on or before December 26, 1995.
ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio,
Associate Director, Regulation Development, Office of Examination, Farm
Credit Administration, McLean, Virginia 22102-5090. Copies of all
communications received will be available for examination by interested
parties in the Office of Examination, Farm Credit Administration,
McLean, Virginia.
FOR FURTHER INFORMATION CONTACT:
Robert Child, Policy Analyst, Regulation Development, Office of
Examination, Farm Credit Administration, McLean, VA 22102-5090, (703)
883-4498, TDD (703) 883-4444,
or
Joy E. Strickland, Senior Attorney, Regulatory Operations Division,
Office of General Counsel, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4019, TDD (703) 883-4444.
SUPPLEMENTARY INFORMATION: Section 614.4367(c)(3)requires qualified
lenders 1 to provide written notification to borrowers of a change
in the interest rates on their adjustable rate loans. For decreases in
rates, the notification must be provided not later than the effective
date of the decrease. For increases in rates, the notice must be
provided not later than 10 days before the effective date of the
increase in the rate.
\1\ A qualified lender is: (1) A Farm Credit institution that
makes loans as defined by Sec. 614.4366(e), except a bank for
cooperatives; and (2) each other entity described in section
1.7(b)(1)(B) of the Farm Credit Act of 1971, as amended (Pub. L. 92-
171), but only with respect to loans discounted or pledged under
section 1.7(b)(1) of the Act. See, Act, Sec. 614.4366(g).
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On June 23, 1993, the FCA Board published a ``Statement on
Regulatory Burden'' (58 FR 34003) that requested comments regarding how
the FCA could lessen the regulatory burden on Farm Credit institutions.
In response, three institutions commented that the 10-day prior
notification requirement was a burden that should be addressed by the
Agency. One institution commented that the prior notification was a
burden for variable rate loans that are tied to an external index, such
as the prime rate, because borrowers have ready access to timely
information about changes in such indexes. The other two commenters
objected to the requirement for advance notification of borrowers for
all variable rate loans, including those not tied to an external index.
The FCA is cognizant that delaying an adjustment in a variable
interest rate can result in losses to an institution in situations in
which an index increases or funding costs increase, but the institution
is prohibited from increasing the interest rate charged to borrowers
until a waiting period expires. In addition, the FCA recognizes that
there are costs associated with mailing written notification of changes
in interest rates. There may also be an unnecessary burden associated
with the prior notice requirement where increases and decreases in loan
rates are tied to indexes that are readily available in financial
publications. The FCA considered these factors in attempting to balance
the need of borrowers for timely information and the burden on Farm
Credit institutions.
[[Page 57963]]
In consideration of the competing aims of reducing burden and
providing timely information to borrowers, the FCA proposes to modify
the notification requirements in Sec. 614.4367. The proposed amendment
would require written notification to be provided to borrowers with
adjustable rate loans not later than 10 days after a change in the
interest rate on the loans. Thus, for decreases in rates, the proposal
would change the notification from not later than the effective date of
the change, to not later than 10 days after the decrease. More
significantly, the proposal would change the notification requirements
for increases in interest rates from 10 days advance notification to 10
days after the change in rates. The FCA is proposing to change the time
period applicable to both notices of increases and decreases in order
to have a single notification, and thus simplify the requirement for
all changes in adjustable interest rates.
The FCA believes that a 10-day post notification will provide
borrowers with timely information on rate changes and will
significantly reduce the burden on institutions, including the costs
associated with delaying interest rate changes. Savings to lenders
ultimately may be passed on to borrowers in the form of lower interest
rates; however, the absence of a prior notice is a disadvantage to
individual borrowers because they will not be in a position to react as
quickly to refinancing opportunities. The disadvantage should be
minimal, however, because borrowers have ready access to changes in
financial markets and trends in interest rates through the news media
and other sources. Administered rate loans have historically followed
changes in the prime rate because the costs of funds to the
associations generally follow shifts in market rates. Borrowers who
follow the interest rate market would seldom be surprised by a change
in interest rates charged by associations.
Although the FCA believes that the proposal is an appropriate
balance between the needs of the institutions and borrowers, the FCA
seeks comment on several issues. First, the FCA seeks comment on
whether notices of rate changes tied to publicly available external
indexes should be required within 30 days, rather than 10 days as
proposed. Specifically, would permitting a longer time for such notices
accrue additional cost-savings to System lenders that would exceed the
potential cost to borrowers of added delay in receiving notice of the
rate increase? Such cost savings may occur, for example, if lenders
regularly send monthly statements to a significant number of borrowers
having variable rate loans tied to an external index. In these
situations, the notification of rate increase could be incorporated in
the monthly statement, thereby eliminating the need for a separate
notice. Second, is a notice necessary for decreases in interest rates,
and if so, is 10 days or 30 days a more appropriate time limit?
The FCA is also proposing a technical amendment to
Sec. 614.4367(a)(4) which addresses disclosures to purchasers of
protected eligible borrower stock. Because only stock in existence at
the time of enactment of the Agricultural Credit Act of 1987 (Pub. L.
100-233, Jan. 6, 1988) or stock issued within 9 months of enactment
meets the definition of eligible borrower stock in section 4.9A of the
Act, no further eligible borrower stock may be issued. Thus, all stock
issued by Farm Credit institutions since 1988 is at risk. The proposal
would delete the reference to eligible borrower stock in
Sec. 614.4367(a)(4) as unnecessary.
List of Subjects in 12 CFR Part 614
Agriculture, Banks, banking, Foreign trade, Reporting and
recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, part 614 of chapter VI,
title 12 of the Code of Federal Regulations is proposed to be amended
to read as follows:
PART 614--LOAN POLICIES AND OPERATIONS
1. The authority citation for part 614 continues to read as
follows:
Authority: 42 U.S.C. 4012a, 4014a, 4104b, 4106, and 4128; Secs.
1.3, 1.5, 1.6, 1.7, 1.9., 1.10, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12,
2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A,
4.13, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.19, 4.36,
4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.7, 7.8, 7.12, 7.13, 8.0, 8.5
of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017,
2018, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2096, 2121, 2122,
2123, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 2199, 2201, 2202,
2202a, 2202c, 2202d, 2202e, 2206, 2207, 2219a, 2219b, 2243, 2244,
2252, 2279a, 2279a-2, 2279b, 2279b-1, 2279b-2, 2279f, 2279f-1,
2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568,
1639.
Subpart K--Disclosure of Loan Information
Sec. 614.4367 [Amended]
2. Section 614.4367 is amended by removing the words ``Except with
respect to eligible borrower stock under section 4.9A of the Act,'' and
capitalizing the word ``a'' in paragraph (a)(4); and by removing the
words ``the effective date of a decrease in the interest rate and not
later than 10 days before the effective date of an increase'' and
adding in its place the words ``10 days after the effective date of a
change'' in the second sentence of paragraph (c)(3).
Dated: November 17, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-28586 Filed 11-22-95; 8:45 am]
BILLING CODE 6705-01-P
