association for such stock out of the borrower's liquidating dividends.

(c) By any other method authorized by law.

PART 52-PARTICULAR PRODUCTION CREDIT ASSOCIATIONS

Sec.

52.1 Supervision by Federal intermediate credit bank of associations in First Farm Credit District.

52.2 Completion of credit forms and making of record searches by production credit associations in the Third Farm Credit District.

§ 52.1 Supervision by Federal intermediate credit bank of associations in First Farm Credit District.

Wherever in Part 50 of this chapter authority is conferred upon the president of the bank, such authority with respect to the associations in the First Farm Credit District may be exercised by either the President or the Executive Vice President of the Federal Intermediate Credit Bank of Springfield.

(Sec. 6, 47 Stat. 14, as amended, secs. 20, 23, 60, 48 Stat. 259, as amended, 261, as amended,

266, as amended; 12 U. S. C. 665, 1131d, 1131g, 1138) [21 F. R. 10331, Dec. 27, 1956]

§ 52.2 Completion of credit forms and making of record searches by production credit associations in the Third Farm Credit District.

The production credit associations in the Third Farm Credit District (North Carolina, South Carolina, Georgia, and Florida) shall comply with the following requirements:

(a) Credit forms which evidence or secure loans made by an association shall be filled out and completed by the officers or employees of the association in accordance with instructions issued by the General Counsel of the Federal Intermediate Credit Bank of Columbia.

(b) Officers or employees of an association shall obtain information from the public records regarding the liens which secure loans made by an association in accordance with instructions issued by the General Counsel of the Federal Intermediate Credit Bank of Columbia.

(Secs. 20, 23, 48 Stat. 259, 261, as amended; 12 U.S.C. 1131d, 1131g) [24 F.R. 10941, Dec. 30, 1959]

sec. 6, 47 Stat. 14, as amended, secs. 34, 38, 41, 48 Stat. 262, 264, as amended; 12 U.S.C. 665, 1134c, 1134j, 1141f, except as otherwise noted.

SOURCE: The provisions of this Part 70 appear at 26 F.R. 9009, Sept. 26, 1961; 26 F.R. 9382, Oct. 5, 1961, except as otherwise noted.

NOTE: That part of each section number which follows the decimal is the same as the section number of the corresponding provision in the Manual for Banks for Cooperatives.

Subpart-Cooperatives Eligible for

Loans

§ 70.1 Statutory provisions.

Section 15 (a) of the Agricultural Marketing Act, as amended (12 U.S.C. 1141j (a)), reads as follows:

As used in this Act, the term "cooperative association" means any association in which farmers act together in processing, preparing for market, handling, and/or marketing the farm products of persons so engaged, and also means any association in which farmers act together in purchasing, testing, grading, processing, distributing, and/or furnishing farm supplies and/or farm business services: Provided, however, That such associations are operated for the mutual benefit of the members thereof as such producers or purchasers and conform to one or both of the following requirements:

First. That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein; and

Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum. And in any case to the following:

Third. That the association shall not deal in farm products, farm supplies, and farm business services with or for nonmembers in an amount greater in value than the total amount of such business transacted by it with or for members. All business transacted by any cooperative association for or on behalf of the United States or any agency or instrumentality thereof shall be disregarded in determining the volume of member and nonmember business transacted by such association.

§ 70.2 Determination of eligibility.

Whether a loan may be made to a cooperative association by a bank for cooperatives depends upon two factors: First, does the association meet the eligibility requirements set forth in § 70.1; and second, is the association primarily engaged in one or more of the functions listed in § 70.1.

§ 70.3 Effect on eligiblity of handling other than farm supplies.

The banks for cooperatives are authorized to make loans to eligible farmers' cooperative associations to enable them to handle goods, other than farm supplies, used on farms and in farm homes only when the making of such loans is directly connected with and reasonably necessary for the performance by such an association of its primary functions falling within the scope of the purposes broadly described in § 70.1. The authority for the banks for cooperatives to make such loans is contingent upon an administrative determination, based upon reasonably convincing evidence, that the handling of such goods by a cooperative is incidental to and necessary for the effectuation of the cooperative's principal activities of processing, preparing for market, handling, or marketing farm products, or purchasing, testing, grading, processing, distributing, or furnishing farm supplies, or furnishing farm business services. If it should appear, in connection with any application, that the handling of such goods by the association had become, or by virtue of the credit sought might reasonably be expected to become, dominant over the functions which confer the initial eligibility, the loan should not be made. § 70.4 Policy determination required.

Before a loan may be made to an eligible association for an eligible purpose, it must be determined that the loan would be in furtherance of the policy declared in section 1 of the Agricultural Marketing Act, as amended (12 U.S.C. 1141), and that the association applying for the loan has an organization, management, and business policies of such character as to insure the reasonable safety of the loan and the furtherance of such policy (12 U.S.C. 1141e(b)). § 70.5 Required voting control in cooperative associations; generally. Loans may not be made to a cooperative association unless at least 90 percent of the voting media are held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1, except as provided in § 70.7.

§ 70.6 Same; policy on retirement of nonproducer ownership of voting media in cooperative associations. If all the voting media of a cooperative association borrowing from a bank for

cooperatives, except a mutual insurance company, are not held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1, the bank, as a matter of policy, should suggest or insist upon the adoption by the cooperative of satisfactory measures designed to assure that substantially all voting media will be so held.

§ 70.7 Same; mutual insurance companies.

Loans may not be made to a mutual insurance company furnishing farm business services, such as fire, windstorm or hail insurance, unless at least 75 percent of the voting media are held by either producers (individuals, partnerships, or corporations), or cooperative associations as defined in § 70.1.

§ 70.8 Nonmember business defined;

"nonmember".

The term "nonmember," as used in § 70.1, refers to all persons who are not members whether farmers or not, and the business done with members and with nonmembers should be computed accordingly.

§ 70.9 Same; business with members that are not producers or cooperatives.

In determining eligibility, all business transacted with members that are neither producers, nor cooperative associations as defined in § 70.1, shall be deemed to be nonmember business. § 70.10 Same; business through separate

marketing and supply departments. Where an association maintains separate marketing and farm supply departments and where it acquires products from its members for marketing and in turn sells those products (either processed or in the same form) to other members through its supply department, two distinct functions are involved and the volume thereof should be included in the business done by both the marketing and farm supply departments in computing its volume of member and nonmember business.

§ 70.11 Same; incidental activities.

If an association is predominately either a marketing or a purchasing association and if the purchasing or marketing activities are occasional and incidental to its main function, they should

The term "farm supplies" includes all supplies that are normally adapted to the furtherance of the production of farm products or in the conduct of farm operations. Items such as oil and gasoline and lumber and other building materials are "farm supplies" when they are acquired by farmers in the furtherance of farm operations. Clothing, groceries, furniture, and other household articles are not so directly identified with such production or operations as to entitle them to be classified as "farm supplies."

§ 70.13 Eligibility of certain specific activities; telephone companies.

A farmers' cooperative telephone company, furnishing a “farm business service" and otherwise eligible, may borrow from a bank for cooperatives, subject to the following additional restriction. In considering the eligibility of such an association from the standpoint of member and nonmember business, it should be borne in mind that at least 50 percent of its gross income must be derived from farmer members; therefore, the bank should determine whether the company may be required by State law to serve the public generally. If it may be so required, no loan should be made. An exception to this policy might be an isolated case where the type of territory served by such a cooperative might preclude the possibility of nonfarmer business becoming predominant. In such circumstances and if the association may not be required by state authorities to extend its operations to other areas, a loan need not be rejected merely because the cooperative is required to serve the general public.

considered to be agricultural commodities within the meaning of the Agricultural Marketing Act, as amended. Insofar as these products are concerned, cooperatives handling them, if such associations are otherwise qualified, are eligible to borrow from the banks for cooperatives.

§ 70.16 Same; woodland products.

If otherwise eligible, loans may be made to an association engaged in the handling, processing, and marketing of wood or wood products produced by farmers in connection with their farming operations, including tree farming.

§ 70.17 Organizations not eligible.

The following types of organizations are not eligible to borrow from a bank for cooperatives: Credit unions and cooperative banks; rural hospital and health association; and soil conservation, irrigation, and reclamation districts.

Subpart-Loan Policies

§ 70.20 Unconditional liability of bor

rower.

A bank for cooperatives is not authorized to make a loan under any conditions where the obligation of the maker to pay such indebtedness could be regarded as being other than unqualified and unconditional, regardless of the nature of the security therefor or other special or unusual conditions.

§ 70.22 Lending limits of district banks.

Except with the written approval of the Director of Cooperative Bank Service, the lending limits of each district bank for cooperatives are hereby fixed so that loans to any one borrower outstanding at any time (exclusive of participations therein sold to others) may not exceed the following percentages of the net worth of the bank as of the close of the preceding fiscal year:

(a) Facility loans, 20 percent;

(b) Operating capital loans, 20 percent;

(c) Commodity loans (excluding loans secured by Commodity Credit Corporation documents), 35 percent;

(d) The sum of facility and operating capital loans, 20 percent;

(e) The sum of facility, operating capital, and commodity loans (excluding loans secured by Commodity Credit Corporation documents), 35 percent; Provided, however, That a loan made within established limits, but which be

comes excessive by virtue of a subsequent decrease in the net worth of the bank, may be retained and liquidated in an orderly manner.

§ 70.23

Lending limits of the Central Bank for Cooperatives.

The total loans from the Central Bank for Cooperatives to any one farmers' cooperative association, exclusive of commodity loans, or of operating capital loans to finance commodities within the limits of Government price support programs, shall not at any time exceed 25 percent of the net worth of the bank. § 70.24 Limitation on lending operations of Central Bank.

Pursuant to the provisions of law that any regulation affecting the lending operations of the banks for cooperatives shall be consistent with the principle that the Central Bank for Cooperatives shall make loans only in cases where it is not practicable for the loan to be made by a district bank, no loan application made to the Central Bank for Cooperative by a farmers' cooperative association shall be considered by the bank without the prior approval of such consideration by the Director of Cooperative Bank Service.

§ 70.25 District_banks-sale of participations; loans exceeding lending limits.

The district bank shall request the Central Bank for Cooperatives (or, when approved by the Director of Cooperative Bank Service, another district bank) to participate in the extension of credit for amounts which exceed the lending limits set forth in § 70.22, and, except when otherwise agreed, such participation shall take place in the following order: First, commodity loans; second, operating capital loans; and third, facility loans.

§ 70.26 Same; other loans.

Nothing contained in §§ 70.22 or 70.25 shall be construed to prevent a district bank for cooperatives from requesting the Central Bank for Cooperatives (or, when approved by the Director of Cooperative Bank Service, another district bank) to participate in the extension of credit to any borrower before its lending limits are reached. Any such participation by another district bank ordinarily shall be limited to $200,000, unless the Director of Cooperative Bank Service approves a larger amount.

§ 70.27

Term loan maturities.

It is the policy that term loans ordinarily should not be made for a term of more than 10 years. If, in the opinion of a bank's loan committee (or executive committee), a term loan in excess of 10 years is warranted and a showing can be made in support of same, then the bank may make the loan for a term not exceeding the statutory 20-year limit, provided an escalator clause on interest at the 10-year and 15-year points is included in the loan agreement.

NOTE: As to further provisions on interest escalator or adjustment clauses, see § 70.92. § 70.31 Territorial limitations on loans.

A bank for cooperatives should make loans only to cooperative associations operating within, or with headquarters in, the farm credit district served by the bank for cooperatives. A bank for cooperatives may make loans to an association operating in, or with headquarters in, another farm credit district provided: (a) The interests of the borrowing cooperative would best be served; and

(b) The bank for cooperatives in the farm credit district in which the cooperative association is located and the Farm Credit Administration agree thereto.

Cooperative associations operating in more than one farm credit district should apply for loans to the bank for cooperatives in the district in which the principal operating office of the cooperative association is located.

§ 70.32

Appraisal and loan fees.

Appraisal and loan fees not to exceed one-half of 1 percent of the amount of a loan may be charged by the banks for cooperatives to applicant associations. A higher rate may be charged with the approval of the Farm Credit Administration.

§ 70.34 Loans to finance sales by or purchases from cooperatives and other purposes of farmers.

Insofar as farmers may obtain loans for general agricultural purposes and their other requirements from production credit associations, there ordinarily should be no occasion for a bank for cooperatives to make a loan which would be used by the borrowing cooperative association to make loans to farmers of a type which may be obtained from production credit associations. However, a bank for cooperatives may make a loan