Rural Development Guaranteed Loans

AGENCIES:

Rural Business—Cooperative Service, Rural Housing Service, Rural Utilities Service, USDA.

ACTION:

Interim final rule; withdrawal.

SUMMARY:

On December 17, 2008, USDA Rural Development published an interim rule with request for comments establishing a unified guaranteed loan platform for the enhanced delivery of four existing Rural Development guaranteed loan programs—Community Facility; Water and Waste Disposal; Business and Industry; and Renewable Energy Systems and Energy Efficiency Improvement Projects. Having considered the comments received on the interim rule and for the reasons explained below, Rural Development is withdrawing the interim rule for Rural Development Guaranteed Loans.

DATES:

The interim final rule published on December 17, 2008 (73 FR 76698), delayed until February 17, 2009 (74 FR 2823), further delayed until March 9, 2009 (74 FR 7179), further delayed until June 1, 2009 (74 FR 9759), and further delayed until October 1, 2009 (74 FR 25617) is withdrawn as of September 21, 2009.

FOR FURTHER INFORMATION CONTACT:

Mr. Michael Foore, Rural Development, Business and Cooperative Programs, U.S. Department of Agriculture, 1400 Independence Avenue, SW., Stop 3201, Washington, DC 20250-3201; e-mail: Michael.Foore@wdc.usda.gov; telephone (202) 690-4730.

SUPPLEMENTARY INFORMATION:

I. Background

On September 14, 2007, Rural Development proposed (72 FR 52618) to combine four of its guaranteed loan programs into a unified regulatory platform. These four regulations are Community Facility; Water and Waste Disposal; Business and Industry; and Renewable Energy Systems and Energy Efficiency Improvement Projects. The regulations for these four programs developed over time and, in some aspects, independently of each other. As a result, certain operational and administrative issues associated with the utilization of Agency resources and risk management developed when looking at all four program regulations as a whole as well as individually. The intent of the interim rule was to eliminate or mitigate these issues, enable the Agency, administratively, to better manage its guaranteed loan making and servicing activities, and to reduce the cost of operating the guaranteed loan programs.

In response to comments received on the proposed rule, Rural Development made significant changes to the unified guaranteed loan regulatory platform. Because of the level and number of changes made to the proposed rule, Rural Development issued an interim rule, which was published in the Federal Register on December 17, 2008 (73 FR 76698), with request for comments, with an effective date of January 16, 2009.

Subsequent to the December 17, 2008 Federal Register notice, Rural Development issued a series of notices delaying the effective date of the interim rule (74 FR 2823, January 16, 2009; 74 FR 7179, February 13, 2009; 74 FR 9759, March 6, 2009; and 74 FR 25617, May 29, 2009) such that the effective date was delayed to October 1, 2009. USDA Rural Development identified the need for delaying the effective date of the interim rule in each of these notices. Reasons cited included the necessity for additional time in order to:

• Make changes to accounting and financial control information technology systems critical to the delivery of these programs;
• Prepare the best guidance for its field staff and to train the field staff; and
• Finish considering the public comments received during the comment period for the interim rule as well as the public comments received on delaying the effective date of the interim rule.

In light of the pending October 1, 2009, effective date for the interim rule and the need to review of the interim rule, as described in the January 20, 2009, memo from the Assistant to the President and Chief of Staff, entitled “Regulatory Review”, Rural Development conducted a review of the interim rule and the comments received on it. Rural Development received a total of 71 public comment letters at various stages during the development of the interim rule—when it was proposed, when it was published, and when its effective date was first proposed to be extended. Comment letters were received from Rural Development personnel, attorneys, financial institutions, trade groups, lender associations, and individuals.

Comments on the proposed rule were made on both the proposed guaranteed loan platform and on specific provisions contained in the proposed rule. While a number of commenters stated that they “commend” or “support” the unified guaranteed loan platform, others expressed strong concerns, with some suggesting that, if adopted as proposed, the rule would impose unnecessary burden on both borrowers and lenders, and could result in lenders not participating in the program. Numerous comments were also received on specific proposed requirements (e.g., the threshold level at which audited financial statements would be required; inclusion of lines of credit as an eligible loan purpose under the Business and Industry program). Many commenters requested that the Agency continue the current policies found in the current regulations, most frequently referring to the Business and Industry regulations (7 CFR part 4279, subpart A and subpart B, and 7 CFR 4287, subpart B). In many, if not most, instances, the Agency agreed with the commenters and made revisions as reflected in the interim rule.

In commenting on the interim rule, most commenters were still very concerned about the effect of the interim rule on lenders and borrowers, urging Rural Development to either withdraw the rule or to further delay its effective date until substantial improvements could be made. Concerns expressed included, but were not limited to:

• Because the interim rule is a new program with new procedures, Rural Development staff and commercial lenders will spend significant time and effort re-learning programs that are currently well-understood and fluently operated. Thus, at a time when additional funding will be available through the forthcoming stimulus and disaster funds, implementing the interim rule could endanger a successful program and impede delivery of funds.
• The interim rule adds unnecessary confusion and complexity to the delivery of these programs, creating not only a confusing regulatory maze for borrowers to navigate in order to access program funds provided in the 2008 Farm Bill, but a tremendous drag on Rural Development and lender productivity at a time when all efforts should be directed to delivering stimulus funds.
• The interim rule could significantly curtail the ability of these programs to maintain continuous operation because all loan guarantees will halt until such time as there is a new “supply” of approved lenders. This is not appropriate customer service given the current economic downturn when the programs are most needed and the additional economic stimulus funding authority.

As noted previously, several commenters concurred with the general goals of unified platform for guaranteed loans, which include streamlining the regulatory framework of these programs, minimizing the time and effort of dealing with separate sets of regulations and requirements, and making them easier to use for lenders and borrowers. Implemented correctly, such a reorganization could free up agency personnel to spend their time in more constructive pursuits to enhance the administration and effectiveness of these programs. One commenter encouraged Rural Development to implement this program without substantial changes to the process that is currently in place, with several commenters encouraging Rural Development to work with the lending community to improve program delivery.

Based on its review of the interim rule and its consideration of the comments received, Rural Development has determined that a better alternative exists to the implementation of its guaranteed loan programs than would be achieved under the interim rule. While Rural Development supports a “common regulatory platform” as a desirable structure, it now believes the platform found in 7 CFR part 5001 is not the best approach. In general, Rural Development believes that the platform created under 7 CFR part 5001 is “too broad” in its scope, attempting to provide for programs whose primary focus includes both commercial lending activities (i.e., business and industry and renewable energy) and community development activities (i.e., community facilities and water and waste).

Further, Rural Development believes that implementing 7 CFR part 5001 would impose excessive and burdensome requirements on lenders by requiring them to seek approval to do business with the Agency and submit summaries of their lending policies as well as on non traditional lenders. Such provisions would discourage the participation of many lenders in the program, which would jeopardize the utilization of funds in these programs. Rural Development agrees with the commenters that this is of particular concern in light of the need of Rural Development's Rural Business—Cooperative Service to process the applications for Business and Industry Loan Guarantees funded with American Recovery and Reinvestment Act (Recovery Act) funds pursuant to the Notice of Funds Availability published on July 24, 2009 (74 FR 36649).

Instead, Rural Development believes that it is better to narrow the scope of a common regulatory platform to the activities associated with its commercial lending activities. In doing so, Rural Development will be able to shift the focus of the common regulatory platform from a broad array of guaranteed loan activities to those commercial lending activities associated with its Business Program, including renewable energy.

Focusing on commercial lending activities within its Business Program provides Rural Development the option of developing a common regulatory structure based on its current Business and Industry guaranteed loan regulations (7 CFR part 4279, subparts A and B, and 7 CFR part 4287, subpart B) and on its current Rural Energy for America Program regulation (7 CFR part 4280, subpart B) and incorporating the Biorefinery Assistance guaranteed loan program into this regulatory structure. By adopting, leveraging, and refining these existing regulations, Rural Development believes that this approach to developing a common regulatory structure for its commercial lending activities is preferable to implementing 7 CFR Part 5001 for several reasons, as suggested by the commenters, including, but not necessarily limited to:

• In contrast to 7 CFR part 5001, the framework of the current Business and Industry Loan Guarantee regulations is well established with stakeholders and has a proven program delivery track record.
• Implementing 7 CFR part 5001 would require both lenders and Rural Development staff to be re-trained in order to learn a new system. Because such a complete overhaul of the Business Program regulations is not required, it is not appropriate to burden the Rural Development staff to learn and implement a completely new system.
• Implementing 7 CFR part 5001 would impede Business Program funding utilization. The lack of familiarity with the interim rule would cause a 60 to 90 day standstill in program delivery at a time when the program level is at record levels. Furthermore, implementation of the interim rule will seriously impede the Administration's initiative to use Recovery Act funds to improve the Nation's economy.

In summary, based on its review and re-examination of 7 CFR Part 5001 and the comments received, Rural Development takes the position that, with some refinement and enhancement, a common regulatory structure for guaranteed loans utilizing the current Business Program regulations will result in a better and more efficient regulatory structure than would be achieved through the implementation of 7 CFR part 5001.

II. Withdrawal of Interim Rule

Accordingly, the interim final rule published on December 17, 2008 (73 FR 76698), delayed until February 17, 2009, (74 FR 2823), further delayed until March 9, 2009 (74 FR 7179), further delayed until June 1, 2009 (74 FR 9759), and further delayed until October 1, 2009 (74 FR 25617) is withdrawn as of September 21, 2009.