Senator RIEGLE. Why don't you identify yourself for the record, Mr. Heitz.

STATEMENT OF GLENN E. HEITZ, PRESIDENT, FEDERAL LAND BANK OF ST. LOUIS, ON BEHALF OF THE FARM CREDIT SYSTEM

Mr. HEITZ. Thank you, Mr. Chairman.

Mr. Chairman and members of your Subcommittee on Consumer Affairs, my name is Glenn Heitz and I'm president of the Federal Land Bank of St. Louis that makes long-term loans to farmers in Illinois, Missouri, and Arkansas. I am also authorized to speak on behalf of the Federal Intermediate Credit Bank of St. Louis that provides the money through local production credit associations for short- and intermediate-term loans to farmers in these same three States. We have similar farm credit organizations throughout the country in 12 different districts. These institutions provide about one-third of the total credit that's utilized by the farmers of this country each year. These organizations have been entirely owned by farmer-borrowers who use them entirely since 1968 and the farmer-borrowers in the St. Louis farm credit district have entirely owned the Land Bank since 1944. That's 33 years that our bank has been completely owned by borrowing farmers.

There is absolutely no Government capital invested in the entire farm credit system that I represent here today.

Now, my remarks are based primarily on our experience in Illinois, Missouri, and Arkansas. However, we believe that conditions in farm credit are sufficiently similar around the country that my statement provides facts which are pertinent for the entire farm credit system. I am here today to express support on behalf of the Farm Credit System for the exemption of agricultural credit transactions from the burden of truth-in-lending compliance and further to urge this committee to consider legislation to exclude from truth in lending all loans made by institutions of the Farm Credit System.

Now, may I refer to page 4 of my prepared testimony. In support of our position I would like to call to the committee's attention five different points.

First of all, the basic nature of agricultural loans. Farming requires capital needs at a level of sophistication for which we believe that truth in lending was never intended, was never suited, and to which it ought no longer to apply. All of the examples, Mr. Chairman, that we have heard referred to in hearings Monday and Tuesday and I was here for all of those-seem to me to be of a consumer-oriented nature rather than the farm business nature. I didn't hear one reference to an example of a farm business nature. Farm business is the only business that I know of that is not excluded from truth-in-lending provisions.

The second major point is the cooperative nature of the Farm Credit System. I mentioned that farmers own this system entirely. They elect their board of directors who by virtue of being also borrowers, in addition to directors, and I'm confident will not vote themselves excessive costs of borrowing. That's the nature of the Farm Credit System lending business.

My third major point is the futility of the truth-in-lending disclosures as they relate to farm loans. We have hundreds and literally thousands of letters-and I simply brought with me today 100 of these addressed to Senator Proxmire-that have to do largely with the business nature of the loans, with the fact that the banks and associations are entirely borrower-farmer-owned and_with the futility of doing something that farmers believe their own Farm Credit System does much better.

I would like to emphasize that throughout the Farm Credit System borrowers are given at the time of their application for a loan a total list of all items to be included in the loan, all costs and every other item in the loan. In addition to this, at the loan closing time each borrower is given a list of every item of cost in the loan.

The fourth major point has to do with the cost and inconvenience caused by the act. Farmers feel that truth-in-lending statements are without commensurate benefit to them as borrowers. Our farmers tell us that they can simply not justify the added cost, the added time and the inconvenience of disclosures that are not as effective as those that they otherwise get. In fact, interest rates of PCA's changed seven times last year. I want to repeat that. In our farm credit district in St. Louis, serving Illinois, Missouri, and Arkansas, interest rates changed seven times. It's awful tough, Mr. Chairman, to provide what the Truth in Lending Act intended when every item in the equation to compute an APR is that difficult to calculate.

Last of all, my fifth point, I would like to refer to the supervision of all institutions of the Farm Credit System by the Farm Credit Administration which is an independent agency in the executive branch of the Government.

Senator RIEGLE. Let me just stop you if I may because I'm not sure I understand the point you made a moment ago. Are you saying that in the course of the year, because there were fluctuations in the interest rate, the prevailing rate was at seven different levels during the year?

Mr. HEITZ. Yes, and typically lower throughout the country, but it changed seven times.

Senator RIEGLE. But once a contract is signed, once somebody enters into some kind of a fixed term situation, then that locks in one of those interest rates, doesn't it?

Mr. HEITZ. It does not lock in an interest rate with the Farm Credit System, Mr. Chairman, because all the system's loans are made on a variable interest rate basis. The local board of directors with the approval of the district board and approval of the Farm Credit Administration-which is my last major point-decide to change the rates to the borrowers. They do so by previous agreement of each borrower's initial loan agreement.

Senator RIEGLE. So, you felt you were under a burden to make a disclosure each time there was a shift in that variable rate?

Mr. HEITZ. Yes, additionally the point I was trying to make, Mr. Chairman, is that a rate used to calculate an initial APR rate cannot assume conditions thereafter. They are bound to be different. Likewise, the initial statement could not assume the proper principal amount that would be outstanding for any given period of time because that amount changes so much.

Just to illustrate, in Federal land bank loans the typical schedule maturity of loans is about 29 years but the average loan is outstanding only 9 or 10 years. I hope that helps you understand why every factor in the equation typically changes from what we have to assume it would originally be when the disclosure statement is made.

Senator RIEGLE. So your point is that this makes it difficult to make a calculation or that it's a paperwork burden?

Mr. HEITZ. It's simply that we mislead the farmer when telling him what his costs will be. We lay out in the disclosure statement what the costs will be if his loan works out precisely as intended, but none of them do. That's the point I'm really trying to make.

Senator RIEGLE. I think it's important that that be on the record so anybody else who's not here can also follow the illustration that you're giving us.

Mr. HEITZ. Thank you for giving us the opportunity to make this point. The loans we make are tailormade loans to the individual needs of farmers. They have the flexibility to meet their needs and literally none of them work out precisely as intended, although basically as they should best serve the farmers' needs.

In reviewing my fifth point, all institutions of the Farm Credit System are under supervision of a Federal agency, the Farm Credit Administration, which is in the executive branch of the Government. This agency I want to reemphasize approves all interest rates set by the Federal land banks and by the Federal Intermediate Credit Banks that provide the money for and supervision for production credit associations which make the short and intermediate term loans to farmers.

Now I would like to shift to page 17 of my summary rather than speak further on these points. I believe that will give us more time, Mr. Chairman, for the discussion that perhaps would be more helpful.

In summary, the production credit association and the Federal land bank associations are farmer-borrower owned entities that we believe have practiced truth in lending from their very creation. They lend only at simple interest rates. They charge interest only from the date of disbursement until paid. They have no repayment penalties whatsoever; and they provide copies of loan documents to their memberborrowers fully explaining the terms of their loans. They do this at the outset and they do it at loan closing.

Our compliance with truth in lending has provided no meaningful additional information to our borrower-members though it has brought them added cost and inconvenience which they would be spared if they engaged in any business other than agriculture.

I mentioned that we know of no other business that is not excluded from the truth-in-lending provisions except agriculture. I'd like to quote from just one of the thousands of letters that we received. This letter came from a farmer in Illinois:

Judging from observation and personal experience, I have come to the conclusion that many of the restrictions provided in the Truth-in-Lending Act, while perhaps having some value and relevance in other types of banking, have no place whatsoever in loan transactions within the context of farmer-owned institutions such as the various Federal land bank associations. Full and complete disclosure of all pertinent facts involved in farm loans is already made; and anything additional is superfluous, burdensome, and expensive to the borrowers.

A permanent and dependable source of agricultural credit is absolutely essential if this Nation is to produce the food and fiber vital to us all. To be sure that this important mission can continue to be carried out, it is of utmost importance to safeguard the institutions of the system and their member-borrowers from legal encumbrances which create undue delay or additional expenses which must be ultimately borne by the consumers of agricultural products and the borrowers themselves.

Now for the Farm Credit System, we offer our most vigorous support to the agricultural loan exemption included in Senate bill 1312 and we urge, also, your favorable consideration of legislation which would exclude from truth in lending all loans made by institutions of the completely farmer-owned Farm Credit System.

Mr. Chairman, I welcome the opportunity to do my best to respond to any questions or comments that you or members of the committee may have.

Senator RIEGLE. Well, thank you very much for your presentation, and we will make your entire statement a part of the record. I appreciate the summary you have given us this morning.

Mr. JOHNSON. Mr. Chairman, may I also request that my prepared statement be included in the record?

Senator RIEGLE. By all means. It, too, will be made a part of the record in its entirety.

[Complete statement of Mr. Heitz follows:]

STATEMENT BY

GLENN E. HEITZ

PRESIDENT

THE FEDERAL LAND BANK OF ST. LOUIS

Mr. Chairman and members of the Subcommittee on Consumer Affairs.

My name is Glenn E. Heitz. I am President of the Federal Land Bank of St. Louis. I have been employed in the Farm Credit System for 27 years, including 8 years as President of the Federal Land Bank of St. Louis and for 8 years as a manager and assistant manager of a production credit association.

I am also Chairman of the Presidents Committee of the Farm Credit Banks of St. Louis and am, by agreement with Mr. Harry B. Chlebowski, Acting President of the Federal Intermediate Credit Bank of St. Louis, pleased to make this statement also on behalf of the Federal Intermediate Credit Bank of St. Louis which supervises the production credit associations of the Sixth Farm Credit District.

The Farm Credit System comprises: 12 Federal land banks which make long-term first mortgage loans to farmers and ranchers on farm real estate through local Federal land bank associations; 12 Federal intermediate credit banks which discount notes representing loans made to farmers and ranchers for short- and intermediate-term purposes by local production credit associations; and 13 banks for cooperatives which make loans to farmer marketing, purchasing, and farm business service cooperatives. There is one of each of these banks, and a number of

each type of associations, in each of the 12 Farm Credit Districts into