12 C.F.R. Subpart D—General Loan Policies for Banks and Associations
Title 12 - Banks and Banking
Under the policies of its board, each institution shall adopt written standards for prudent lending and shall issue written policies, operating procedures, and control mechanisms that reflect prudent credit practices and comply with all applicable laws and regulations. Written policies and procedures shall, at a minimum, prescribe: (a) The minimum supporting credit and financial information, frequency for collection of information, and verification of information required in relation to loan size, complexity and risk exposure (b) The procedures to be followed in credit analysis (c) The minimum standards for loan disbursement, servicing and collections (d) Requirements for collateral and methods for its administration (e) Loan approval delegations and requirements for reporting to the board (f) Loan pricing practices (g) Loan underwriting standards that include measurable standards: (1) For determining that an applicant has the operational, financial, and management resources necessary to repay the debt from cashflow (2) That are appropriate for each loan program and the institution's risk-bearing ability; and (3) That consider the nature and type of credit risk, amount of the loan, and enterprises being financed (h) Requirements that loan terms and conditions are appropriate for the loan; and (i) Such other requirements as are necessary for the professional conduct of a lending organization, including documentation for each loan transaction of compliance with the loan underwriting standards or the compensating factors or extenuating circumstances that establish repayment of the loan notwithstanding the failure to meet any one or more loan underwriting standard. [62 FR 51014, Sept. 30, 1997] Loans made by each bank and direct lender association shall bear interest at a rate or rates as may be determined by the institution board. The board shall set interest rates or approve individual interest rate changes either on a case-by-case basis or pursuant to an interest rate plan within which management may establish rates. Any interest rate plan shall set loan-pricing policies and objectives, provide guidance regarding the circumstances under which management may adjust rates, and provide the upper and lower limits on management authority. Any interest rate plan adopted shall be reviewed on a continuing basis by the board, as well as in conjunction with its review and approval of the institution's operational and strategic business plan. [62 FR 66818, Dec. 22, 1997] Pursuant to policies approved by the board of directors, differential interest rates may be established for loans based on a variety of factors that may include type, purpose, amount, quality, funding or operating costs, or similar factors or combinations of factors. Differential interest rate programs should achieve equitable rate treatment within categories of borrowers. In the adoption of differential interest rate programs, institutions may consider, among other things, the effect that such interest rate structures will have on the achievement of objectives relating to the special credit needs of young, beginning or small farmers. [61 FR 67186, Dec. 20, 1996. Redesignated at 62 FR 66818, Dec. 22, 1997] (a) Definitions. (1) For purposes of this subpart, the term “credit” includes: (i) Loans made to farmers and ranchers and producers or harvesters of aquatic products under title I or II of the Act; and (ii) Interests in participations made to farmers and ranchers and producers or harvesters of aquatic products under title I or II of the Act. (2) For purposes of this subpart, the term “services” includes: (i) Leases made to farmers and ranchers and producers or harvesters of aquatic products under title I or II of the Act; and (ii) Related services to farmers and ranchers and producers or harvesters of aquatic products under title I or II of the Act. (b) Farm Credit bank policies. Each Farm Credit Bank and Agricultural Credit Bank must adopt written policies that direct: (1) The board of each affiliated direct lender association to establish a program to provide sound and constructive credit and services to young, beginning, and small farmers and ranchers and producers or harvesters of aquatic products (YBS farmers and ranchers or YBS). The terms “bona fide farmer or rancher,” and “producer or harvester of aquatic products” are defined in §613.3000 of this chapter; (2) Each affiliated direct lender association to include in its YBS farmers and ranchers program provisions ensuring coordination with other System institutions in the territory and other governmental and private sources of credit; (3) Each affiliated direct lender association to provide, annually, a complete and accurate YBS farmers and ranchers operations and achievements report to its funding bank; and (4) The bank to provide the agency a complete and accurate annual report summarizing the YBS program operations and achievements of its affiliated direct lender associations. (c) Direct lender association YBS programs. The board of directors of each direct lender association must establish a program to provide sound and constructive credit and services to YBS farmers and ranchers in its territory. Such a program must include the following minimum components: (1) A mission statement describing program objectives and specific means for achieving such objectives. (2) Annual quantitative targets for credit to YBS farmers and ranchers that are based on an understanding of reasonably reliable demographic data for the lending territory. Such targets may include: (i) Loan volume and loan number goals for “young,” “beginning,” and “small” farmers and ranchers in the territory; (ii) Percentage goals representative of the demographics for “young,” “beginning,” and “small” farmers and ranchers in the territory; (iii) Percentage goals for loans made to new borrowers qualifying as “young,” “beginning,” and “small” farmers and ranchers in the territory; or (iv) Goals for capital committed to loans made to “young,” “beginning,” and “small” farmers and ranchers in the territory. (3) Annual qualitative YBS goals that must include efforts to: (i) Offer related services either directly or in coordination with others that are responsive to the needs of the “young,” “beginning,” and “small” farmers and ranchers in the territory; (ii) Take full advantage of opportunities for coordinating credit and services offered with other System institutions in the territory and other governmental and private sources of credit who offer credit and services to those who qualify as “young,” “beginning,” and “small” farmers and ranchers; and (iii) Implement effective outreach programs to attract YBS farmers and ranchers, which may include the use of advertising campaigns and educational credit and services programs beneficial to “young,” “beginning,” and “small” farmers and ranchers in the territory, as well as an advisory committee comprised of “young,” “beginning,” and “small” farmers and ranchers to provide views on how the credit and services of the direct lender association could best serve the credit and services needs of YBS farmers and ranchers. (4) Methods to ensure that credit and services offered to YBS farmers and ranchers are provided in a safe and sound manner and within a direct lender association's risk-bearing capacity. Such methods could include customized loan underwriting standards, loan guarantee programs, fee waiver programs, or other credit enhancement programs. (d) Review and approval of YBS programs. The YBS program of each direct lender association is subject to the review and approval of its funding bank. However, the funding bank's review and approval is limited to a determination that the YBS program contains all required components as set forth in paragraph (c) of this section. Any conclusion by the bank that a YBS program is incomplete must be communicated to the direct lender association in writing. (e) YBS program and the operational and strategic business plan. Targets and goals outlined in paragraphs (c)(2) and (c)(3) of this section must be included in each direct lender association's operational and strategic business plan for at least the succeeding 3 years (as set forth in §618.8440 of this chapter). (f) YBS program internal controls. Each direct lender association must have internal controls that establish clear lines of responsibility for YBS program implementation, YBS performance results, and YBS quarterly reporting to the association's board of directors. [69 FR 16470, Mar. 30, 2004]
Title 12: Banks and Banking
PART 614—LOAN POLICIES AND OPERATIONS
Subpart D—General Loan Policies for Banks and Associations
§ 614.4150 Lending policies and loan underwriting standards.
§ 614.4155 Interest rates.
§ 614.4160 Differential interest rate programs.
§ 614.4165 Young, beginning, and small farmers and ranchers.
