SENATE BILL REPORT

SB 6453

BYSenators Sellar and Barr

Authorizing the supervisor of banking to examine agricultural lenders participating in loan guaranty programs.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):January 25, 1990

Majority Report:  That Substitute Senate Bill No. 6453 be substituted therefor, and the substitute bill do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; Fleming, McCaslin, McMullen, Moore, Rasmussen, Sellar, Smitherman, West.

Senate Staff:Benson Porter (786-7470)

                  January 31, 1990

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, JANUARY 25, 1990

BACKGROUND:

Nondepository corporations created to lend money to agricultural borrowers are eligible for participation in the federal Farmers Home Administration (FmHA).  To qualify for the FmHA loan guaranty program or other similar programs, the corporation must be regulated and examined by a state or federal regulatory agency in the same manner as financial institutions.

Participants in the FmHA loan guaranty program may issue agricultural loans that are guaranteed up to 90 percent by the FmHA.  This guaranty increases the credit availability for agricultural real estate purchases, production expenses, and other related expenses.  Currently, there is no regulatory structure in Washington for nondepository corporations wishing to qualify for the FmHA loan guaranty program.

SUMMARY:

The Legislature finds that nondepository agricultural lenders can enhance their access to working capital for financing agricultural borrowers by participating in the federal Farmers Home Administration (FmHA) loan guaranty program.

The Supervisor of Banking is authorized to regulate and examine agricultural lenders that are incorporated under Washington law and that are qualified to participate in a federal loan guaranty program.

An applicant to become an agricultural lender under this act must file an application for a license issued by the supervisor.  An agricultural lender regulated by the supervisor must adhere to all federal statutes and regulations governing a loan guaranty program in which the lender participates.  In addition, lenders must pay the supervisor's costs in regulating and examining the lender, and such fees shall be deposited into the banking examination fund.

Agricultural lenders must keep such financial records as required by the supervisor and must file an annual report with the supervisor.  Lenders also must establish a loan loss reserve account for loans not guaranteed by a federal program.  A lender must notify its members annually that investments in the lender are not insured, guaranteed, or protected by any federal or state agency.

The supervisor is required to approve the change in ownership of a lender, and to visit the agricultural lender to assure that the lender is in compliance with applicable statutes and regulations.  The supervisor may accept audited financial statements in lieu of a full examination but must independently review loans guaranteed by a loan guaranty program.  The supervisor is authorized to adopt all rules necessary to implement the act, to issue cease and desist orders, to impose fines, and to seek judicial enforcement of the act.

The sum of $5,000 is appropriated from the general fund to the supervisor's examination fund for the regulatory purposes of this act.

EFFECT OF PROPOSED SUBSTITUTE:

Language is clarified to insure the act is not mandatory for lenders who qualify for federal agricultural loan guaranty programs by other means.

Appropriation:    $5,000

Revenue:    yes

Fiscal Note:      available

Effective Date:The bill contains an emergency clause and takes effect immediately.

Senate Committee - Testified: Tom Oldfield, Supervisor of Banking; Donald Olson, FmHA County Supervisor (pro)