I understand that your committee is holding meetings in late June on S.1312 to exempt agricultural loan transactions from Truth in Lending and to further simplify the Trust in Lending Act. I certainly hope that your committee will see fit to relieve agricultural borrowers from the burdens placed upon them by the Truth in Lending legislation which is now on the books. The legislation now on the books is a costly, time consuming, complex factor which is unnecessary, unwieldy, and unwarranted. As far as agricultural loans are concerned, I sincerely trust that your committee will see fit to relieve agricultural borrowers of this additional burden. Sincerely, Hary 5. Beif Harry S HSB: twd CC: Robert Darr, President Roswell, New Mexico May 27, 1977 Attachment 10 Mr. Alton Cook, President Federal Intermediate Credit Bank 151 North Main Street Wichita, Kansas 67202 Dear Mr. Cook: We recently closed a loan with the Roswell Production Credit Association and would you believe that my wife and I had to sign 15 pieces of paper? was informed that 10 of them concerned a requirement to comply with the Truth In Lending Act which we consider unappropriate to agriculture. If agriculture is not a business we need to revise some definitions. We have been Production Credit members for a long time and are not upset at the Production Credit Association for the inconvenience since we realize that the same procedure would have been necessary regardless of where we got our loan. We did discuss the problem with the Production Credit Association people in terms of added costs caused by the act. Although they could not put an exact figure on it, it is obvious to us that it takes a lot of costly time to draw up all the paper work let alone the reading and signing time; this simply adds to the interest necessary for our association to do business and is added to the interest rate. We were told that recent developments may allow Production Credit Associations, if not all agricultural lenders, to be exempt from the act, and that a letter to you stating our feeling might help. We certainly hope something can be done farmers and ranchers are in a very hard squeeze these days and need less added costs rather than more. you can do in this regard will be appreciated. If there is any way we can help please let us know. Anything Thank you M.C. Harrai I would like to take this opportunity to express, for myself and other farmer friends, my views on the Truth and Lending part of Farm Borrowing. It is apparent that the "Truth and Lending" portion of the laws, as far as farmers are concerned, is time consuming, costly and in fact delays the closing of loans. In as much as the Federal Land Bank of Spokane is in fact owned by the farmer members who borrow from them, and their business affairs are disclosed to their members, it seems that if the "Truth and Lending portion isn't exempt from agriculture loans it would involve some double repoting that I don't feel farmers and farm credit systems need. We need co-operatives in all phases of agriculture. They are doing a good job for us in the farm crèdit system and if anything let's try and make their job a little easier instead of more difficult. Let me stress one more time the impotance of landing institutions to the American Farmer. We do in fact use a bt of borrowed money, give us the opportunity to continue having this money available to us without more and more "RED TAPE". Thank you for giving me the opportunity to express my views. Senator RIEGLE. Senator Proxmire, do you have any questions at this time? Senator PROXMIRE. Yes; I want to commend the chairman on selecting this panel. It's not often that we get this kind of a sharp, clear-cut difference of opinion from two fine organizations and two highly responsible and articulate spokesmen for these organizations. I have known Reuben Johnson for a long, long time, perhaps as long as 20 years, and he's one of the ablest members of the farm community. Mr. JOHNSON. Mr. Chairman, I wish you wouldn't make it a matter of public record how long I have been around. It embarrasses me. Senator PROXMIRE. You're getting sharper all the time, Reuben. While I have great respect for both your views, my position is somewhere in between, I think, and I hope that we can provide a continued exemption for farm transactions for agriculture. While it's true we do cover small, relatively limited farm dealings here, we don't cover the major farm credit operations. I think it may be that we can make a very strong case, Mr. Chairman, against any kind of coverage in truth in lending for farm transactions. We don't cover small business. There are 5 million small businessmen. There are probably not quite that many farmers in the country. Farming is a business and my experience with farmers is that they are very sensitive to credit, very conscious of interest, very aggressive in determining what the facts are. I have not gotten the kind of complaints from them that I have gotten from consumers with respect to their credit. At the same time, I do think, Mr. Heitz, that your statement goes too far in taking farmers out of protection of truth in lending even with respect to consumer transactions. If a farmer goes to buy a refrigerator or an automobile for nonfarm purposes and he finances it through your organization you would exempt him, and it seems to me that's a double standard. We don't do that for small businessmen. If their wife wants to buy something, that family isn't exempt no matter who they finance it through. Why should we have a different standard for farmers? Mr. HEITZ. I'm awfully glad, Mr. Chairman, that you made that point because there wasn't time for me to make it in my testimony. I believe that a farm family, as any other family, might buy a refrigerator perhaps each 6, 8, 10 years or 12 years; might buy a car every 3, 4 or 5 years or perhaps longer. Money for these purchases would be included as a small part of in a much larger line of credit. In fact, I'm told that the average size production credit loan is some $38,000 around the country and the average land bank loan is some $87,000. So I'm simply trying to make the point that the amount for consumer items is a very, very tiny proportion of the aggregate amount of money that farmers borrow from their own Farm Credit System. In fact, our best estimate would be some not more than 4 percent, and we think it should be less than 4 percent. Senator PROXMIRE. If it's not a significant part of your operation, why not cover it and have a consistent standard? Mr. HEITZ. I think it would be almost impossible to pick out the amount for the refrigerator or the amount for a car or some other consumer item out of large amounts like $38,000 for PCA's and $87,000 on the average for land banks when that's such a small part of the total loan or line of credit extended. Senator PROXMIRE. Well, if I'm a farmer and I go to buy a refrigerator and I have my choice-I can go and buy it from Sears or buy it from some other firm, in which case I'm protected by truth in lendíng. I have disclosure. I know what the annual rate is. I know what the finance charge is. I'm informed of that. Or I buy it and finance it through your operation and I'm not told anything. Why shouldn't it be on the same basis, not only from the standpoint of equal protection but also from the standpoint of equal competition so you could compete with other people who provide credit-a bank or a small loan company or whatever-on an equal basis? If we single you out and say you're exempt, it seems to me we are discriminating. Mr. HEITZ. Senator, I believe the largest single part of the answer to that question is the unique nature of farming and the way that the farmer would repay his loan. Senator PROXMIRE. I'm not making any argument at the moment-I want to question Mr. Johnson on that--but I'm not making any argument now that we shouldn't exempt farmers from their agricultural credit operation. If they want to buy a tractor or expand their herd or buy land, that's something else. Mr. HEITZ. Let me make this point. When the farmer sets up his original application for a loan, let's assume it's the average loan of $38,000 and let's say he picks up $500 for a refrigerator. Every purpose of that loan with a given amount will be itemized, including every portion of the cost will be itemized, and then there will be a plan of repayment and he will see that at the inception of the application. He will likewise see that at loan closing and I'm trying to say to you as clearly as I know how that if he wants to go out and shop then for his refrigerator or his car or whatever he may do so. It is important to understand how a typical loan of this type works. A farmer typically will annually set up his financing program by a review with his production credit association of his projected credit needs, expenses anticipated and income expected. He also includes in this projection his planning household and personal living costs, these may include major applicances or auto purchases. To maximize his use of cash management a line of credit is planned and agreed upon with the lender. On a production loan this means he will then draw funds as needed, and only if needed, to pay current expenses as planned. His income is applied on the loan to maintain as low a cash and loan balance as possible. A consumer purchase as you refer to it may come out of loan or income funds. The net effect is that the purchase is a cash purchase. The transaction is so integrated into his cash management that the type of credit shopping decision you refer to is seldom contemplated. On a land bank loan a consumer item is more identifiable. However, in this instance, as I previously indicated, the amount is minor in relation to the total loan. A $300-$400 item in a $87,000 loan would require the entire loan to become subject to the requirements of truth in lending. I might suggest such a requirement would likely result in our lenders reporting these amounts as funds to be used for operating purposes a position consistent with the commingling of funds as discussed relating to production loans. This illustrates the problem I previously discussed will be misleading him if we showed precise APR based on just how long each part |