Banks Fight $ 4 Billion Debt Relief Plan For Black Farmers

WASHINGTON – The Biden administration’s efforts to provide $ 4 billion in debt relief to minority farmers are facing stiff resistance from banks, who complain that the government’s initiative to repay loans borrowers who have faced decades of financial discrimination will reduce their profits and hurt investors.

The debt relief was approved as part of the $ 1.9 trillion stimulus package that Congress passed in March and aimed to redress the discrimination black farmers and other non-white farmers have faced from from lenders and the United States Department of Agriculture over the years. But no money has come out yet.

Instead, the program became mired in controversy and lawsuits. In April, white farmers who claim to be reverse discrimination sued the USDA over the initiative.

Today, three of the biggest banking groups – the American Bankers Association, the Independent Community Bankers of America, and the National Rural Lenders Association – are fighting their own fights and complaining about the cost of prepayment.

Their argument stems from how banks make money from loans and how they decide where to give credit. When a bank lends money to a borrower, such as a farmer, it takes several factors into account, including how much interest it will earn over the life of the loan and whether the bank can sell the loan to others. investors.

By allowing borrowers to pay off their debts early, lenders are being denied income they have long expected, they say. Banks want the federal government to pay money over and above the amount of the unpaid loan so that banks and investors don’t miss out on the interest income they expected or the money they would have made by reselling the loans to other investors.

They also want other investors who bought the loans in the secondary market to get money from the government that would compensate for any losses they might incur if they are prepaid.

Bank lobbyists, in letters and virtual meetings, have called on the agriculture ministry to change the reimbursement schedule, a USDA official said. They are pressuring the USDA to simply make the loan repayments, rather than write off the debt all at once. And they warn of other repercussions, including long-term damage to USDA’s minority lending program.

In a letter sent last month to Tom Vilsack, the Secretary of Agriculture, banks suggested that they might be more reluctant to extend credit if loans were repaid quickly, leaving minority farmers worse off in the long run. term. The incitement was viewed as a threat by some organizations representing black farmers.

“If the USDA does not compensate lenders for such disruptions or avoid sudden loan repayments, the likely result will be less access to credit for those seeking USDA guaranteed loans in the future. , including USDA farmers / ranchers “, they wrote to Mr. Vilsack in April.

The USDA has shown no tendency to reverse its course. An agency official said that forcing banks would impose an excessive burden on taxpayers and the law does not allow the agency to pay interest charges or reimburse secondary market investors. The agency hopes to start the debt relief process in the coming weeks, according to the official, who requested anonymity because they were not authorized to comment on the program.

Relief legislation that Congress passed in March provided for “the necessary sums” for the Department of the Treasury to help minority farmers and ranchers repay loans made or guaranteed by the Department of Agriculture. Most loans go directly to farmers, but about 12 percent, or 3,078, is made through lenders and guaranteed by the USDA.

The Congressional Budget Office has estimated that the loan forgiveness provision would cost $ 4 billion over a decade.

While American banks have flourished in the past century, the number of black-owned farms has declined sharply since 1920, to less than 40,000 today, from around one million. Their demise is the result of industry consolidation as well as onerous loan terms and high foreclosure rates.

Black farmers have been frustrated with the delays and say they are angry that the banks are asking for more money, which is slowing the debt relief process.

“Look at the two groups: you have the black men and women who went through racism and discrimination and lost their land and their livelihood,” said Bill Bridgeforth, a farmer from Alabama who is on the board of the National Council of Black Producers. “And then you have the American Bankers Association, which represents the wealthiest people in the country, and they’re complaining about the money they might lose.”

John Boyd Jr., president of the National Black Farmers Association, a nonprofit, said he finds it upsetting that banks talk few years of discriminatory lending practices and instead complain about losing profits.

“They never signed a letter or supported us to end the discrimination, but they were quick to send a letter to the secretary telling him how embarrassing this is going to be for the banks,” Mr. Boyd. “They have to think about the problems they caused by not working with black farmers and the foreclosure process and how painful it was for us.”

Mr. Boyd urged Mr. Vilsack not to let debt relief stagnate.

“It’s planting season and black farmers and farmers of color could really use that relief,” Boyd said.

Cornelius Blanding, executive director of the Federation of Southern Co-operatives / 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 reaction of banks and white farmers could delay debt relief. “Debt has been a burden on many farmers and especially farmers of color. Holding that really extends justice.

Although the government pays 120 percent of outstanding loan amounts to cover taxes and additional fees, banks say unless they get more, they will lose out on the bailout.

Banking industry groups were unable to provide an estimate of how much more they would need to be satisfied. The Agriculture Ministry said it would cost tens of millions of dollars to meet the demands of the banks.

In the letter to Mr Vilsack, bank lobbyists mentioned a large community bank, which they said had a portfolio of $ 200 million in loans to socially disadvantaged farmers who would lose millions of dollars in net income. per year if loans were repaid quickly. . They warned that such a move “would undoubtedly reduce the bank’s ability to retain employees.”

The American Bankers Association defended the demand, arguing that the lenders have been a lifeline for minority farmers. He said the issue primarily affects the smaller group members who have large loan portfolios from socially disadvantaged borrowers. Representatives from Goldman Sachs, JPMorgan Chase and Citigroup said the debt relief program had not been on their radar and that they had not lobbied against it.

“We recognize the need for the USDA to carry out this act of Congress and we support the goal of providing financial assistance to socially disadvantaged farmers and ranchers,” said Sarah Grano, spokesperson for American Bankers Association. “We believe it would be helpful for USDA to implement this one-off action without causing undue financial harm to the very lenders who support farmers with much-needed credit.”

Danny Creel, the executive director of the National Association of Rural Lenders, said he had no comment. An Independent Community Bankers of America official said the group is currently not considering litigation and anticipates the federal government will find a way to meet its demands.

Lawmakers who helped craft the relief legislation have expressed little sympathy for the banks and are pressuring the agriculture ministry to get the money out.

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 moving without delay to fully repay all direct and guaranteed loans from Black Farmers and other Socially Disadvantaged Farmers. “

Banks are not 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 it is discriminatory to offer debt relief based on the color of the skin. America First Legal, a group led by former Trump administration official Stephen Miller, filed a lawsuit with a similar argument in U.S. District Court for the North Texas District this month.

Mr Vilsack told a White House press briefing this month that his department would not be deterred by a crackdown on his plans to help minority farmers.

“I think I have to take you back 20, 30 years when we know for a fact that socially disadvantaged producers have been discriminated against by the United States Department of Agriculture,” Vilsack said. . “So the effort of the American Rescue Plan is to begin to address the cumulative effect of this discrimination in terms of socially disadvantaged producers.”

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