WASHINGTON – The Biden administration’s effort to provide $ 4 billion in debt relief to minority farmers is met with fierce opposition from banks, who complain that the government’s loan repayment initiative has been exposed to decades of financial discrimination were to detract from their profits and revenues will hurt investors.
The debt relief was approved under the $ 1.9 trillion stimulus package passed by Congress in March and was designed to offset the discrimination that black and other non-white farmers have over the years from lenders and the U.S. Department of Agriculture have experienced. But no money has gone out the door yet.
Instead, the program is mired in controversy and litigation. In April, white farmers claiming reverse discrimination sued the USDA over the initiative.
Now three of the largest banking groups – the American Bankers Association, the Independent Community Bankers of America, and the National Rural Lenders Association – are fighting their own battle, complaining about the cost of early repayment.
Their reasoning is based on the way banks make money on credit and how they decide where to give credit. When a bank lends money to a borrower such as a farmer, it takes into account several factors, including how much interest it will earn over the life of the loan and whether the bank can sell the loan to other investors.
By allowing borrowers to repay their debts early, lenders are denying the income they have long been expecting, they argue. Banks want the federal government to pay more than the outstanding loan amount so banks and investors don’t miss out on expected interest income or the money they would have made to sell the loans on to other investors.
They also want other investors who bought the loans in the secondary market to receive government funds to offset the losses they could suffer from the early repayment.
Bank lobbyists have sent letters and virtual meetings asking the Department of Agriculture to make changes to the repayment program, a USDA official said. They’re pushing the USDA to just make the loan payments instead of eradicating the debt all at once. And they warn of other repercussions, including long-term damage to the USDA’s minority loan program.
In a letter sent to Agriculture Minister Tom Vilsack last month, banks suggested that if the loans were repaid quickly, they might be more reluctant to lend, which would do worse for minority farmers in the long run. The suggestion was seen as a threat by some organizations representing black farmers.
“Unless the USDA compensates lenders for such disruptions or avoids sudden loan repayments, the likely outcome will be reduced access to credit for those seeking USDA-guaranteed loans in the future, including USDA farmers / ranchers,” they wrote in April Mr. Vilsack.
The USDA has shown no inclination to reverse course. A representative from the agency said the banks’ obligation would place an undue burden on taxpayers and that the law would not allow the agency to pay interest charges or reimburse secondary market investors. The agency hopes to begin debt relief in the coming weeks, according to the official, who asked for anonymity because he was not authorized to comment on the program.
The Aid Bill, passed by Congress in March, provided the Treasury Department with “the necessary amounts” to help minority farmers and ranchers repay loans granted or guaranteed by the Department of Agriculture. Most loans are made direct to farmers, but about 12 percent, or 3,078, is through lenders and is guaranteed by the USDA
The Congressional Budget Office estimated that over a decade it would cost $ 4 billion to provide credit.
While America’s banks have flourished over the last century, the number of black-owned farms has declined sharply since 1920, from about one million today to less than 40,000 today. Their decline is the result of industry consolidation, as well as onerous credit terms and high foreclosure rates.
Black farmers have been frustrated by the delays and say they are angry that banks are demanding additional money, which is slowing debt relief.
May 18, 2021, 8:55 p.m. ET
“Look at the two groups: you have the black men and women who went through racism and discrimination and lost their land and livelihood,” said Bill Bridgeforth, an Alabama farmer who serves on the board of directors of the National Black Growers Council is. “And then you have the American Bankers Association, which represents the richest people in the country, and they whine about the money they could possibly lose.”
John Boyd Jr., president of the National Black Farmers Association, a nonprofit, said it was annoying that banks said little about years of discriminatory lending practices and instead complained about lost profits.
“They have never signed a letter or helped us end the discrimination, but they quickly sent a letter to the secretary telling him how problematic it would be for the banks,” Boyd said. “They have to think about the problems they caused when they didn’t work with black farmers and the foreclosure process and how problematic it was for us.”
Mr. Boyd urged Mr. Vilsack not to stall debt relief.
“It’s planting season and black farmers and farmers with color could really use this relief,” Boyd said.
Cornelius Blanding, executive director of the Federation of Southern Cooperatives / Land Assistance Fund, said the letter from the banks appeared to be a veiled threat.
“They prioritize profits over people,” Blanding said, expressing concern that the backlash from banks and white farmers could delay debt relief. “Debt has been a burden for many farmers, and color farmers in particular. If they stop that, justice really extends. “
Although the government pays 120 percent of the outstanding loan amounts to cover additional taxes and fees, the banks say that if they stop getting more they will stand at the end of the bailout.
The banking groups could not estimate how much extra money they would need to be satisfied. The Department of Agriculture said it would cost tens of millions of dollars to meet bank demands.
In the letter to Mr. Vilsack, the bank lobbyists pointed to a large community bank with a $ 200 million loan portfolio to disadvantaged farmers that would lose millions of dollars a year in net income if the loans were repaid quickly . They warned that such a move “would undoubtedly reduce the bank’s ability to retain staff”.
The American Bankers Association defended the motion on the grounds that lenders were a lifeline for minority farmers. The matter primarily affects the smaller members of the group who have large loan portfolios from socially disadvantaged borrowers. Representatives from Goldman Sachs, JPMorgan Chase and Citigroup said the debt relief program was not on their radar and that they had not lobbyed against it.
“We recognize the need for the USDA to carry out this act of Congress and we support the goal of providing financial relief to socially disadvantaged farmers and ranchers,” said Sarah Grano, a spokeswoman for the American Bankers Association. “We believe it would be helpful if the USDA implemented this one-off move without causing undue financial damage to the lenders who have backed farmers with much-needed loans.”
Danny Creel, the executive director of the National Rural Lenders Association, said he had no comment. An Independent Community Bankers of America official said the group was not currently considering litigation and expected the federal government to find a way to meet their demands.
The legislature, who helped draft the auxiliary laws, has shown little sympathy for the banks and is urging the agriculture department to get the money out of the door.
Senator Cory Booker, a Democrat from New Jersey, said, “The USDA should now take this first step in addressing the agency’s history of discrimination by quickly implementing the law passed by Congress and promptly fully repaying all direct and guaranteed loans to black farmers and others socially disadvantaged farmers. “
The banks aren’t the only ones fighting the debt relief initiative. A group of white farmers in Wisconsin, Minnesota, South Dakota and Ohio are suing the Department of Agriculture, arguing that offering debt relief based on skin color is discriminatory. America First Legal, a group led by former Trump administration officer Stephen Miller, filed a lawsuit in the U.S. District Court for the Northern District of Texas earlier this month, making a similar argument.
Mr Vilsack said at a news conference at the White House earlier this month that his department would not be deterred by backlashing its plans to support minority farmers.
“I think I have to bring you back 20, 30 years when we know that socially disadvantaged producers have been discriminated against by the US Department of Agriculture,” Vilsack said. “So the US bailout is trying to address the cumulative effects of this discrimination on socially disadvantaged producers.”