Loan Policies and Operations, 89280-89286 [2023-27929]

Agencies

• Farm Credit Administration

[Federal Register Volume 88, Number 247 (Wednesday, December 27, 2023)]
[Rules and Regulations]
[Pages 89280-89286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-27929]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 614 and 620

RIN 3052-AD54


Loan Policies and Operations

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, we, or our) is amending 
regulations governing young, beginning, and small farmers and ranchers 
(YBS). The final rule clarifies the responsibilities of funding banks 
in the review and approval of direct lender association YBS programs, 
strengthens funding bank internal controls, and bolsters YBS business 
planning.

DATES: This regulation will be effective the later of February 1, 2024, 
or at least 30 days after publication in the Federal Register during 
which either or both Houses of Congress have been in session. We will 
publish a notice of the effective date in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Technical information: Jessica 
Tomlinson-Potter, Senior Policy Analyst, Office of Regulatory Policy, 
(703) 819-4667, TTY (703) 883-4056, [email protected] or Legal 
information: Hazem Isawi, Senior Attorney, Office of General Counsel, 
(703) 883-4022, TTY (703) 883-4056, [email protected].

SUPPLEMENTARY INFORMATION:

I. Objectives of the Final Rule

    The objectives of this final rule are to:
     Increase direct lender associations' YBS activity to a 
diverse population of borrowers;
     Reinforce the supervisory responsibilities of the funding 
banks, authorized by section 4.19 of the Farm Credit Act; and
     Require each direct lender association to enhance the 
strategic plan for their YBS program.
    When developing YBS programs, direct lender associations should 
consider marketing to all populations of YBS farmers and ranchers. 
Underserved communities and groups can be overlooked or excluded from 
marketing efforts and education outreach, leaving out a potential 
borrowing base.
    Underserved groups include those who have been subjected to racial, 
ethnic, or gender prejudice because of their identity as members of the 
group without regard to their individual qualities. Examples of 
underserved communities include, but are not limited to, Black or 
African American, American Indian and Alaskan Native, Hispanic, Asian 
and Pacific Islander, LGBTQIA+, women, veterans, and persons with 
disabilities. These are examples of communities with a high potential 
for individuals who may fall into the Y, B, and/or S categories of 
borrowers, and direct lender associations should target such 
communities specifically to reach the entire universe of potential 
borrowers. Underserved communities can often be reached in schools and 
universities, professional and social organizations, at community 
gatherings, and local events.
    Every effort should be made to reach the entire universe of 
potential Y, B, and S borrowers. Direct lender associations should also 
work with their local Farm Service Agency representatives to assist the 
Farm Credit System with its directive to serve all creditworthy Y, B, 
and S borrowers by breaking down bureaucratic barriers to entry.

II. Background

    The Farm Credit Act of 1971, as amended (Act),\1\ establishes the 
Farm Credit Administration as the safety and soundness regulator of the 
Farm Credit System (FCS or System). As stated in the FCA Strategic Plan 
for FYs 2018-2023, our mission is to ensure that System institutions 
are safe, sound, and dependable sources of credit and related services 
for all creditworthy and eligible persons in agriculture and rural 
America. The System has a unique mission to serve YBS farmers and 
ranchers. Section 4.19 of the Act \2\ requires each direct lender 
association to establish a program to furnish sound and constructive 
credit and related services to YBS farmers and ranchers.
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    \1\ Public Law 92-181, 85 Stat. 583.
    \2\ 12 U.S.C. 2207.
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    We continue to believe the System's YBS mission is important to 
enable small and start-up farmers and ranchers to make successful 
entries into agricultural production. Also, we believe it is important 
to ensure marketing and outreach efforts include all eligible and 
creditworthy persons, with specific outreach to achieve diversity and 
inclusion. The System's YBS mission is also critical to facilitate the 
transfer of agricultural operations from one generation to the next. We 
remain committed to ensuring the System fulfills its important mission 
to YBS farmers and ranchers.
    We published a proposed rule on June 16, 2022 (NPRM), recommending 
updates to FCA's YBS regulations, which were last updated almost 20 
years ago. This final rule largely adopts the proposal with certain 
changes made in response to comments, with a particular focus on 
reducing an increased administrative burden. Comment letters, along 
with our responses are discussed below.

III. Comments and Our Responses

    The comment period ended August 15, 2022. We received 67 comment 
letters. Most comments came from System institutions or persons 
affiliated with the System, with one letter from the Farm Credit 
Council (Council) acting on behalf of its membership. We also received 
three letters from trade groups representing commercial banking.
    Most commenters requested we withdraw the proposed rule and keep 
the existing regulations in place. Some commenters offered solutions to 
bolster practices such as continued

[[Page 89281]]

collaboration with FCA and System workgroups without changes to the 
existing regulation. Commenters stated that the rule was 
administratively burdensome, human capital intensive, difficult for 
smaller direct lenders to implement, and did not achieve the shared 
goal of increasing YBS activity.
    We also received comments in support of the proposed rule that 
agreed with the framework and accountability the rule requires, stating 
the rule changes should be done with more than incremental progress in 
mind. Another comment supported the idea of increased reporting.

Specific Issues

A. YBS Program Uniformity

    System commenters expressed concern that the prospect of a YBS 
rating system and the proposed requirements relating to funding bank 
oversight may encourage all YBS programs to ``look alike'' or to fit 
into a ``cookie cutter'' mold. While one of the proposed rule's stated 
objectives was to provide elements that will be evaluated as part of a 
rating system to measure year-over-year YBS progress, we did not 
propose to create any such rating system itself through the rulemaking. 
For clarity, however, this final rule omits rating system matters in 
its statement of objectives.
    Next, we disagree that the proposed changes to bank oversight 
responsibilities will lead to ``cookie cutter'' YBS programs. We have 
long encouraged direct lender associations to tailor YBS programs to 
serve the specific needs of borrowers in the different lending 
territories. Existing FCA regulation Sec.  614.4165(c), which is 
redesignated paragraph (d) in this final rule, states that each direct 
lender association ``must establish a program to provide sound and 
constructive credit and services to YBS farmers and ranchers in its 
territory.'' The reference to ``its territory'' illustrates that each 
YBS program should reflect the credit and service needs of YBS 
borrowers within that lending territory. While this rulemaking enhances 
and strengthens bank oversight responsibilities and direct lender 
association YBS program standards, it does not prescribe or encourage 
uniformity of content among YBS programs. We continue to expect varying 
approaches among the direct lender associations, appropriate to the 
needs of borrowers in each lending territory.

B. Definitions [Sec.  614.4165(a)]

    The proposed rule had no substantive changes to the definitions in 
current paragraph (a). We proposed grammatical changes, including 
removing the word ``and'' between farmers and ranchers, and adjusting 
punctuation. We received one comment on the definition of a 
``beginning'' farmer; however, that term is not defined in regulatory 
text. The definitions in paragraph (a) will be finalized as proposed.

C. Farm Credit Banks Oversight [Proposed Sec.  614.4165(b)]

    Commenters frequently raised concerns on the topic of bank 
oversight. Two non-System commenters supported the concept of increased 
bank oversight, stating they would like to see reform in reporting and 
tracking, and that they believe bank review and approval will help with 
this. System commenters opposed increased bank oversight for a variety 
of reasons, which will be discussed as they relate to each section of 
the rule text. The proposed preamble stated that we believed funding 
banks were in a unique position to know the YBS activities of their 
affiliated direct lender associations and see how those associations 
respond to the needs of their respective borrowers. Commenters strongly 
disagreed, stating funding banks do not have ``boots on the ground'' 
and are not familiar with local YBS markets and needs. We considered 
this feedback as we drafted the final rule, which removes certain 
elements of the proposed bank oversight requirements.
    Proposed paragraph (b)(1) required each bank, among other things, 
to adopt written policies directing direct lender associations to 
establish YBS programs, ensure direct lender association coordination 
with others, and report to FCA. A bank trade group commented that the 
proposed rule lacked a requirement for direct involvement or 
representation of YBS farmers and ranchers in the process of creating 
and reviewing YBS programs. To address this, the commenter recommended 
that each bank be directed to adopt a written policy requiring the bank 
and any affiliated direct lender association to form a committee 
comprised of local YBS farmers and ranchers. The commenter further 
recommended that these committees be vested with authority over YBS 
programs, independent of the board of directors of each institution. We 
decline to adopt this recommendation because it is outside the scope of 
the proposal. Moreover, because Farm Credit is a cooperative system run 
by member-borrowers who elect their respective System institutions' 
boards of directors, YBS farmers and ranchers are structurally situated 
to be heard and represented at the board level. We also note that as a 
matter of practice, many direct lender associations have various YBS 
committees and advisory groups that provide input and are involved in 
program development. We do not believe this additional involvement and 
representation from YBS farmers and ranchers is necessary at the bank 
level given the current involvement of member borrowers in System 
governance at their direct lender associations.
    Proposed paragraph (b)(1)(i) required each funding bank to adopt 
written policies that direct their affiliated direct lender 
associations to establish an annual strategic YBS plan. While we did 
not receive comments on this specific paragraph, we received many 
comments on the YBS strategic plan itself, which are addressed in 
section D. Direct lender association YBS strategic plan. Because the 
proposal for an independent YBS strategic plan is not being adopted in 
this final rule, the requirement for bank policy direction on such plan 
has been removed.
    The proposed rule redesignated paragraph (b)(2) of the current 
regulation as paragraph (b)(1)(ii). The text of this coordination 
requirement remained unchanged, but nonetheless we received three 
comments from the System stating it is unclear how much coordination 
between organizations is acceptable and how coordination can be 
objectively evaluated. Although these comments are outside the scope of 
the proposal's substantive changes, coordination efforts are generally 
sufficient if they accomplish the objective that YBS programs ``shall 
assure that such credit and services are available in coordination with 
other institutions of the Farm Credit System serving the territory and 
with other governmental and private sources of credit.'' Act Sec.  
4.19(a). We expect that specific coordination efforts will be devised 
on an institution-by-institution basis. Paragraph (b)(1)(ii) will be 
finalized as proposed.
    Proposed paragraph (b)(1)(iii) required each bank to establish a 
policy to direct each affiliated direct lender association to submit a 
YBS strategic plan and any other information regarding its YBS program 
deemed necessary by the bank. We received two System comments and one 
comment from the Council on this requirement. In summary, the comments 
stated that ``any other information deemed necessary by the bank'' was 
vague, arbitrary, and therefore burdensome. There was concern over 
inconsistency of requirements between the banks and the stifling of 
creativity for the direct

[[Page 89282]]

lender. Further, there was commenter concern on the relationship with 
the direct lender and bank being damaged, with various reasons listed. 
We received many comments on the strategic YBS plan itself, which are 
addressed in that section. Because we are not adopting the proposal's 
requirement for an independent YBS strategic plan, we are removing 
proposed paragraph (b)(1)(iii) from this final rule.
    Proposed paragraph (b)(1)(iv) is redesignated as paragraph 
(b)(1)(iii) and finalized as proposed. Although we only proposed a 
redesignation from the current paragraph (b)(4) and a replacement of 
``agency'' for ``FCA,'' we still received four comments. Commenters 
agreed that no changes were needed to the data reporting requirement of 
``complete and accurate'' in the rule text, but they did mention 
concerns surrounding subjectivity of criteria, which has not been a 
material issue in the past. Commenters did not provide reasons this 
would be a concern going forward.
    A trade group for commercial banks commented that ``achievements'' 
may be interpreted as denoting completion and success. The commenter 
stated that since success should not be presumed, we should add 
``shortfalls'' as an element for the bank to report on in addition to 
``operations'' and ``achievements.'' We decline to adopt this specific 
change because paragraph (c)(2)(ii) as finalized requires the 
operational and strategic business plan to discuss variances and 
reasons for the results. We expect that both positive and negative 
variances will be discussed in the plan. Reporting of negative 
variances thus addresses the commenter's suggestion.
    We received 46 comments on proposed paragraph (b)(2). Two 
commenters supported funding bank oversight and approval while the rest 
opposed this requirement. Those in favor wanted to see reform in 
reporting and tracking and believed that bank oversight would help in 
that area. They stated that oversight and accountability are necessary, 
and this rule is a step in the right direction for critical 
accountability.
    Those opposed to the proposed changes relating to funding bank 
oversight raised the following issues:
     cost and administrative burden;
     negative impacts on cooperative structure and local 
control;
     no appeal or resolution process;
     expansion of current funding bank duties;
     lack of funding bank personnel expertise regarding 
individual YBS markets;
     biased, preferential, or inconsistent evaluation among the 
four funding banks;
     lack of guidance on goal standards or what is considered 
acceptable/successful;
     no value added to YBS programs;
     homogenization of YBS programs resulting from a 
``uniform'' bank approval process; and
     exam findings and communication to the System not 
warranting increased bank oversight.
    To address these comments, we made changes to the rule by:
     removing the requirement for an independent YBS strategic 
plan and associated funding bank approval and review,
     providing that funding bank review and approval shall 
solely be to determine whether the YBS program contains all required 
components,
     updating the reference from paragraph (c) in the current 
regulation to paragraph (d) in the final rule, and
     stating that funding bank communication of an incomplete 
plan must be in writing and sent to FCA within 30 days.
    The statute provides that association YBS programs are ``[u]nder 
the policies of the Farm Credit Bank board,'' and that ``[e]ach program 
shall be subject to review and approval by the supervising bank.'' The 
System's comments and representations about funding bank lack of 
expertise, staff knowledge and capability with respect to YBS programs 
suggest there is room for the banks to improve their capabilities in 
this area.
    As in the existing regulation, banks will still be required to 
review and approve each direct lender association's YBS program. This 
rule clarifies that such review and approval must be performed 
annually. We find this requirement complements--and is logically 
connected to--the bank's responsibility for creating and submitting the 
operations and achievements report to FCA. Specifically, annual review 
and approval of direct lender association YBS programs will give each 
bank a better understanding of the programs in their territories and 
ultimately result in more accurate reporting to FCA.
    To address concerns about the scope of bank review, however, we are 
revising the regulatory text so that review and approval shall solely 
be to determine whether the YBS program contains the components of 
finalized paragraph (d). As a result, the finalized text more closely 
tracks the scope of review specified in the current regulation. 
Notwithstanding the revision, we encourage open dialogue between the 
bank and direct lender to continually improve program content.
    With slight changes from the proposal, this final rule provides 
that where a bank concludes a YBS program is incomplete, it must 
communicate that fact in writing to both the direct lender association 
and FCA within 30 days.
    Proposed paragraph (b)(3) required internal controls. Since banks 
are the main YBS reporting entity to FCA, having a strong internal 
control environment is critical to safety and soundness. We received 
four comments from the System, the Council, and a commercial bank trade 
group. The commercial bank trade group stated that, in the past, 
internal controls over YBS data reporting processes have been weak. 
They stated this resulted in inaccurate reporting to FCA. They went on 
to state weak reporting is a concern they'd like to see addressed. The 
System and Council stated that establishing new internal controls will 
create redundancy and inefficiencies. As discussed in sections above 
and below, direct lenders are not required to have an independent YBS 
strategic plan in the finalized rule. Therefore, bank internal control 
requirements in the proposed rule for direct lender YBS plans have been 
removed. The Council commented that banks should be able to rely on the 
internal controls of the direct lender. The bank's responsibilities for 
review and approval of YBS programs and data compilation and reporting 
to FCA are independent of direct lenders. For this reason, it is 
necessary that each bank has internal controls over the processes they 
perform, just as direct lenders do. Each organization in the System 
should have internal controls over their respective YBS 
responsibilities.

D. Direct Lender Association YBS Strategic Plan [Proposed Sec.  
614.4165(c)]

    Proposed paragraph (c)(1) required each direct lender association 
to adopt an independent 3-year YBS strategic plan to guide the direct 
lender's required YBS program. We received 31 comments on this 
requirement from the System and a commercial bank trade group, all of 
whom were opposed for a variety of reasons.
    Many stated that YBS borrowers are critical to the System's 
sustainability, are an integral part of direct lender's operations, and 
are a key component of the overall business plan. As such, YBS 
components are woven into almost every aspect of a direct lender's 
annual business plan. Commenters went on to say that YBS borrowers 
should be considered in the context of the whole business and included 
as part of the overall business plan rather than

[[Page 89283]]

separated out. The FCS commenters stated that creating an independent 
plan outside of the business plan would create disconnected, redundant, 
and unnecessary administrative burdens. The FCS commenters noted that 
staff's time could better be used serving YBS borrowers directly rather 
than duplicating the business plans.
    We considered this input and will not finalize the requirement for 
an independent YBS strategic plan. We agree that YBS is an integral 
part of direct lenders' operations and should be incorporated as part 
of overall business planning. The intent of our proposal was that an 
independent planning document would put increased emphasis on YBS. 
However, the same goal can be achieved without creating a separate 
document. It is our intent that direct lenders give thoughtful 
consideration into their strategic lending to YBS borrowers, in both 
current and potential markets.
    While we are not changing the existing requirement for a 3-year 
planning period in the operational and strategic business plan, we 
still received comments on this area. Some commenters stated that a 3-
year plan is not reasonable given volatility and uncertainty, making 
future years a guess. We believe it is important to be forward looking 
and innovative in strategic business planning. Three years has been 
established as a minimum planning period. We continue to believe that 
three years is appropriate for planning. Some commenters stated the 
requirement to adopt a 3-year plan within 30 days after the 
commencement of the year is not enough time to analyze the past year's 
data and conflicts with other business planning activity. While we 
understand that the period around the new calendar year may be 
particularly busy, the timeframe for adoption of the plan is specified 
in the existing regulation, and we have not proposed a change in this 
regard. We believe the new calendar year continues to be an appropriate 
time to conclude activity and begin reporting processes.
    Paragraph (c)(2) of the proposed rule required that the strategic 
plan must detail the operations of the YBS program including all 
components in paragraph (d). We received no comments specific to this 
section. This requirement has been combined into the finalized (c)(1).
    In proposed paragraph (c)(3)(i), direct lenders were required to 
analyze performance from the previous year in achieving components of 
their YBS program listed in proposed paragraph (d). We received a 
comment from a banking trade group that analyzing only performance and 
effectiveness but not identifying areas to improve upon is not a 
balanced approach. While we understand the commenter's point, it is our 
expectation that direct lenders take a balanced approach when analyzing 
performance. If a goal is not achieved, it must still be reported on.
    Proposed paragraph (c)(3)(ii) received no comments. We redesignated 
and finalized it as paragraph (c)(2)(ii). Proposed paragraph 
(c)(3)(iii) received no comments, and we redesignated and finalized it 
as paragraph (c)(2)(iii). We replaced the word, ``efforts,'' with 
``qualitative factors and quantitative goals.'' We added the words, 
``expand access to,'' which derived from proposed paragraph (c)(3)(iv).
    We received seven comments from the FCS opposing proposed paragraph 
(c)(3)(iv). The requirement proposed that direct lenders assess the 
effectiveness in providing efforts resulting in credit provided to new 
and expanding YBS operations. Commenters discussed the high 
subjectivity of such data and stated they are unclear how effectiveness 
is measured. Examples were given of a person attending a seminar and 
several years later becoming a borrower. How would direct lenders track 
and record such activity? Commenters stated databases are not currently 
in place to collect such data and it is cost prohibitive with little 
value added to create a database. Commenters also believed that 
tracking this data provided no value to YBS borrowers. After assessing 
comments, we added the words ``and expand access to'' which derived 
from proposed paragraph (c)(3)(iv) to finalized paragraph (c)(3)(iii) 
and removed the other requirements of proposed paragraph (c)(3)(iv). We 
believe that tracking such data and identifying how direct lender 
association YBS programs are assisting and expanding access to credit 
and education for YBS farmers and ranchers does provide value to YBS 
farmers and ranchers by strengthening and improving lender's YBS 
programs. To comply with this provision, direct lenders must assess how 
their YBS program components assist and expand access to credit and 
education for YBS farmers and ranchers.

E. Direct Lender Association YBS Program [Proposed Sec.  614.4165(d)]

    We received one comment on proposed paragraph (d) from a commercial 
banking trade group in support of the requirement. There were no 
opposing comments. The comment stated that the components have been 
long awaited and both qualitative and quantitative factors play 
important roles in YBS lending. Paragraph (d) is finalized as proposed.
    We received one comment from a commercial banking trade group 
regarding the mission statement requirement in proposed paragraph 
(d)(1)(i)(A). The commenter stated that the mission statement should 
explicitly recognize the importance of YBS and ensure support at the 
direct lender level. We believe the requirement is satisfactory as 
drafted in accomplishing this purpose, and finalized it as proposed.
    Proposed paragraph (d)(1)(i)(B) is finalized as proposed. We 
received two comments on the direct lender internal controls 
requirement in proposed paragraph (d)(1)(i)(B). One System commenter 
stated that adding internal controls adds additional time, energy, and 
costs to reporting. Internal controls are an existing requirement that 
direct lenders should already have in place. Another commenter asked 
that internal controls clarify the extent to which staff must take 
stakeholder input into account. While encouraged, the rule does not 
require stakeholder input, nor is it necessarily a component of an 
internal controls system.
    There was one comment from a commercial banking trade group, 
supporting the use of credit enhancement tools. Proposed paragraph 
(d)(1)(ii)(A) is finalized as proposed.
    Proposed paragraph (d)(1)(ii)(B) is finalized as proposed. It 
requires credit and related services coordination with System 
institutions, governmental and private sources. This is a continuation 
of requirements in existing paragraph (c)(3)(ii). We received nine 
comments on this requirement. One comment from a commercial banking 
trade group supported third-party coordination on credit and related 
services. Eight commenters, all from the System, opposed this existing 
requirement. Commenters stated that where direct lender associations 
are over-chartered within the same market, coordination efforts will 
entice competition rather than healthy collaboration. Another System 
commenter stated that the prospect of interterritorial competition was 
untenable and would potentially damage their association and members. 
Some commenters stated that collaboration is already occurring, and a 
regulatory requirement is not needed. System commenters were worried 
that this requirement may be interpreted by funding banks to force best 
practices for one lender onto another lender, even if the practices may 
not apply or work, to achieve bank approval. Commenters stated that 
statutory borrower rights requirements were not in the

[[Page 89284]]

commercial banks' interest and, as such, posed a barrier to 
coordination. Another commenter mentioned that agencies such as FSA or 
other national YBS organizations already experience time constraints. 
When multiple direct lender associations request collaboration at the 
same time, particularly in over-chartered areas or small towns, these 
resource issues will be compounded. Lastly a commenter stated that the 
System does not have an adequate portal to capture and highlight the 
depth of the collaboration efforts that occur. As an existing 
requirement, we have seen the importance and benefit of third-party 
coordination. The requirement leaves the option open to direct lenders 
in choosing with which parties they coordinate. We understand that some 
relationships work better than others. Nonetheless, we encourage direct 
lenders to continue outreach and third-party coordination, for the 
betterment of YBS farmers and ranchers.
    Proposed paragraph (d)(1)(iii) is finalized as proposed. It 
requires implementation of outreach programs, which may include 
marketing and education. This is a continuation of requirements in 
existing paragraph (c)(3)(iii). We received seven comments on this 
requirement. One comment from a commercial banking trade group 
supported minimum requirements for marketing, outreach, and education. 
Six commenters, all from the System, opposed this existing requirement. 
Commenters stated that the rule is silent on criteria to determine 
effectiveness and that measuring effectiveness is subjective. One 
commenter stated that it would frustrate and confuse potential 
customers and business partners when a direct lender comes to an event 
with predetermined measurers for effectiveness. Another commenter asked 
if the board, management, or banks would be determining the 
effectiveness of activities, going on to say that this requirement is 
redundant and burdensome. In the existing requirement, the agency has 
not identified material weaknesses with direct lenders implementing 
effective outreach, marketing, and educational programs.
    We are unclear as to why carrying this requirement forward into the 
finalized rule would be burdensome. Results have shown for a direct 
lender YBS program to be successful, it is critical to have more 
components than merely the extension of credit. Some of these 
components include marketing to underserved segments, providing new 
borrower education, and listening to feedback from YBS farmers and 
ranchers.
    Proposed paragraph (d)(2)(i) strikes the word ``reasonably'' and is 
finalized as proposed. It requires using reliable demographic data in 
developing quantitative goals, along with identifying the sources of 
the data. We received seven comments on this requirement. One comment 
from a commercial banking trade group stated that quantitative goals 
must be bolstered with additional requirements and that more than one 
goal should be used. This commenter did not like basing the 
understanding of goals on reasonably reliable demographic data and 
stated that sources should be recognized and not arbitrary. The six 
opposing commenters were all from the System. Commenters who opposed 
this requirement shared concerns on the term ``reasonably reliable,'' 
saying it provides uncertainty and results in highly subjective 
interpretations, asking who is to have final determination if the data 
is reasonably reliable or not. Validation of such data and timeliness 
were also raised as concerns. Opposing commenters stated validating 
data would raise significant time and resource concerns. They also 
stated that USDA census data is several years old before release, not 
making it the most up-to-date and reliable. Commenters questioned 
whether direct lenders would be expected to contract with third parties 
while awaiting USDA data availability to meet this requirement.
    Opposing commenters also raised concerns that requiring additional 
quantitative goals will increase the potential for compromises to be 
made to existing programs that are effective as a means to meet new 
goals, adding that there is no incentive for direct lenders to set 
aggressive goals which may not be met and then result in a lower FCA 
rating. We believe that striking the word ``reasonably'' addresses 
these comments. Reliable data is a key component in developing 
effective goals. It is our expectation that the direct lender 
associations obtain the best data available to them when developing 
goals.
    Proposed paragraphs (d)(2)(i)(A), (d)(2)(i)(B), (d)(2)(i)(C), and 
(d)(2)(i)(D) are finalized as proposed. They identify the minimum 
quantitative goals that a direct lender must establish annually. These 
requirements carry over unchanged from existing paragraphs (c)(2)(i) 
through (iv). We received one comment from a commercial banking trade 
group on proposed paragraphs (d)(2)(i)(A) through (C), stating the 
goals are arbitrary and unmoored and should be bolstered with 
additional requirements. We did strengthen this existing requirement by 
requiring direct lenders to use at least one of the goal categories 
listed as opposed to the existing requirement that states that such 
targets may include one of the goal categories listed. Historically, 
direct lenders rarely used categories other than those listed in the 
regulation. Keeping the same categories ensures that data can be 
compared consistently over a range of time periods. Further, databases 
are already in place in the System to track these categories, which 
helps minimize regulatory burden and costs. We note these are only 
minimums and some direct lenders can and do use a combination of these 
goals or other categories.
    Proposed paragraph (d)(2)(i)(D), pertaining to goals for capital 
committed to loans made to YBS borrowers, is finalized as proposed. It 
is an unchanged requirement compared with existing paragraph 
(c)(2)(iv), however, we did receive two opposing comments from a 
commercial bank trade group and the System. Both commenters had similar 
observations that the requirement was arbitrary and unmoored. One 
commenter went on to say there is a lack of criteria to determine how 
much capital a direct lender should allocate to YBS. There was concern 
that both FCA and the funding bank will have difficulty determining 
where a program is deficient in the capitalization goal. The final rule 
does not require direct lenders to have a capital goal. Paragraph 
(d)(2) only requires each direct lender to have one of the listed 
goals, not all. Nonetheless, we believe a capital commitment is a best 
practice and is one method of allowing direct lenders to serve YBS 
borrowers who may have a higher risk profile, while at the same time 
mitigating the lender's overall risk in the credit relationship.

F. Annual Report Information Concerning YBS [Proposed Sec.  
620.5(k)(2)]

    We received no comments on the renumbering changes in proposed 
Sec.  620.5(k)(2). It will be finalized as proposed.

G. Other Matters

    One system commenter concluded that because the NPRM states that 
``YBS components will no longer be required as part of Sec.  
618.8440,'' FCA is impermissibly trying to modify Sec.  618.8440 
through the proposed rule. No part of this rulemaking revises Sec.  
618.8440 or changes its requirements. Our statement in the NPRM merely 
observed the effect of the proposed deletion of paragraph (e) of Sec.  
614.4165, which requires each direct lender

[[Page 89285]]

association's YBS program targets and goals to be included in its 
operational and strategic business plan (as separately required under 
Sec.  618.8440). In any case, since the final rule does not adopt the 
proposed rule's wholesale deletion of paragraph (e) of Sec.  614.4165, 
and instead moves it with minor changes to paragraph (c)(1), the 
substantive requirement to include YBS program components in the 
operational and strategic business plan will remain intact. As a 
result, the commenter's concern is addressed.

IV. Regulatory Flexibility Act and Congressional Review Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated direct lender associations, has assets and 
annual income in excess of the amounts that would qualify them as small 
entities. Therefore, Farm Credit System institutions are not ``small 
entities'' as defined in the Regulatory Flexibility Act.
    Under the provisions of the Congressional Review Act (5 U.S.C. 801 
et seq.), the Office of Management and Budget's Office of Information 
and Regulatory Affairs has determined that this final rule is not a 
``major rule,'' as the term is defined at 5 U.S.C. 804(2).

List of Subjects

12 CFR Part 614

    Agriculture, Banking, Banks, Flood insurance, Foreign trade, 
Reporting and recordkeeping requirements, Rural areas.

12 CFR Part 620

    Accounting, Agriculture, Banking, Banks, Reporting and 
recordkeeping requirements, Rural areas.

PART 614--LOAN POLICIES AND OPERATIONS

0
1. The authority citation for part 614 continues to read as follows:

    Authority:  Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 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, 4.13B, 4.14, 4.14A, 4.14D, 4.14E, 4.18, 
4.18A, 4.19, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 
7.0, 7.2, 7.6, 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, 2019, 2071, 2073, 2074, 
2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131, 
2141, 2149, 2183, 2184, 2201, 2202, 2202a, 2202d, 2202e, 2206, 
2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 
2279a, 2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5); 
12 U.S.C. 2121 note; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.


0
2. Section 614.4165 is revised to read as follows:


Sec.  614.4165  Young, beginning, and small farmers and ranchers.

    (a) Definitions.
    (1) For purposes of this subpart, the term ``credit'' includes:
    (i) Loans made to farmers, ranchers, and producers or harvesters of 
aquatic products under title I or II of the Act; and
    (ii) Interests in participations made to farmers, ranchers, and 
producers or harvesters of aquatic products under title I or II of the 
Act.
    (2) For purposes of this subpart, the term ``services'' includes:
    (i) Leases made to farmers, ranchers, and producers or harvesters 
of aquatic products under title I or II of the Act; and
    (ii) Related services to farmers, ranchers, and producers or 
harvesters of aquatic products under title I or II of the Act.
    (b) Farm Credit banks oversight.
    (1) Each Farm Credit Bank and Agricultural Credit Bank must adopt 
written policies that direct:
    (i) The board of each affiliated direct lender association to 
establish a program to provide sound and constructive credit and 
related services to young, beginning, and small farmers, ranchers, and 
producers or harvesters of aquatic products (YBS farmers and ranchers 
or YBS);
    (ii) Each affiliated direct lender association to include in its 
YBS program provisions ensuring coordination with other System 
institutions in the territory and other governmental and private 
sources of credit; and
    (iii) The bank to provide the FCA a complete and accurate annual 
report summarizing the YBS program operations and achievements of its 
affiliated direct lender associations.
    (2) Annually, the YBS program of each direct lender association 
must be reviewed and approved by its funding bank, provided review and 
approval shall solely be to determine whether the YBS program contains 
all required components as set forth in paragraph (d) of this section. 
Any conclusion by the bank that a YBS program is incomplete must be 
communicated in writing to the direct lender association and to the FCA 
within 30 days.
    (3) Each Farm Credit Bank and Agricultural Credit Bank must 
implement internal controls for requirements in paragraphs (b)(1)(iii) 
and (b)(2) of this section.
    (c) Direct lender association YBS plan.
    (1) YBS program components outlined in paragraph (d) of this 
section must be included in each direct lender association's 
operational and strategic business plan for at least the succeeding 3 
years (as set forth in Sec.  618.8440 of this chapter).
    (2) The YBS portion of the operational and strategic business plan 
must:
    (i) Analyze the direct lender association's performance in the 
previous year toward achieving the components in paragraph (d) of this 
section;
    (ii) Discuss variances and reasons for the results; and
    (iii) Identify how the qualitive factors and quantitative goals in 
paragraph (d) of this section assist and expand access to credit and 
education for YBS farmers and ranchers.
    (d) Direct lender association YBS programs. The board of directors 
of each direct lender association must establish a program to provide 
sound and constructive credit and services to YBS farmers and ranchers 
in its territory. Each YBS program must operate in a safe and sound 
manner and within the direct lender association's risk-bearing 
capacity, while meeting the unique needs of YBS farmers and ranchers. 
Such a program must include the following minimum components:
    (1) Qualitative factors--
    (i) Corporate governance.
    (A) A mission statement describing program objectives and specific 
means for achieving such objectives.
    (B) Internal controls that establish clear lines of responsibility 
for YBS strategic plan development and the corresponding YBS program 
implementation, tracking YBS program performance, and YBS quarterly 
reporting to the direct lender association's board of directors.
    (ii) Credit and related services.
    (A) Efforts to offer credit and related services, either directly 
or in coordination with others, that are responsive to the needs of the 
YBS farmers and ranchers in the territory. Examples include customized 
loan underwriting standards, loan guarantee programs, fee waivers, or 
other credit enhancements commensurate with the credit risk approved by 
the board of directors.
    (B) Coordination with other System institutions in the territory 
and other governmental and private sources who offer credit and 
services to YBS farmers and ranchers.

[[Page 89286]]

    (iii) Marketing, outreach, and education. Implementation of 
effective outreach programs to attract and retain YBS farmers and 
ranchers, which may include the use of advertising campaigns, 
educational programs, and advisory committees comprised of YBS farmers 
and ranchers and/or a YBS mentoring program to better serve and 
understand the needs of this lending segment.
    (2) Quantitative goals--
    (i) Annual quantitative goals. Annual quantitative goals for credit 
to YBS farmers and ranchers based on an understanding of reliable 
demographic data for the lending territory. Direct lender associations 
must identify the sources of data used to establish the goals. Such 
goals must include at least one of the following:
    (A) Loan volume and loan number goals for YBS farmers and ranchers 
in the territory;
    (B) Percentage goals representative of the demographics for YBS 
farmers and ranchers in the territory;
    (C) Percentage goals for loans made to new borrowers qualifying as 
YBS farmers and ranchers in the territory; or
    (D) Goals for capital committed to loans made YBS farmers and 
ranchers in the territory.
    (ii) Board of directors approval and review. Goals must be approved 
by the direct lender association's board of directors and reviewed 
quarterly with adjustments made as needed.

PART 620--DISCLOSURE TO SHAREHOLDERS

0
3. The authority citation for part 620 continues to read as follows:

    Authority:  Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm 
Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec. 
424, Pub. L. 100-233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note); 
sec. 514, Pub. L. 102-552, 106 Stat. 4102, 4134.


0
4. Revise Sec.  620.5 (k)(2) to read as follows:


Sec.  620.5  Contents of the annual report to shareholders.

* * * * *
    (k) * * *
    (2) Each direct lender association must provide a description of 
its YBS program, including a status report on each program component as 
set forth in Sec.  614.4165 (d) of this chapter and the definitions of 
``young,'' ``beginning,'' and ``small'' farmers and ranchers. The 
discussion must provide such other information necessary for a 
comprehensive understanding of the direct lender association's YBS 
program and its results.
* * * * *

    Dated: December 14, 2023.
Ashley Waldron,
Secretary, Farm Credit Administration.
[FR Doc. 2023-27929 Filed 12-26-23; 8:45 am]
BILLING CODE 6705-01-P