Repaying FSA Loan Debt for SDA Farmers

OMAHA (DTN) -- USDA has not announced exactly when the Farm Service Agency will pay off loans for socially disadvantaged (SDA) farmers, but farmers who are eligible for loan repayment should be receiving a letter in the coming days notifying them their loans are eligible for repayment under the program.

Dewayne Goldmon, a senior adviser on racial equity to the agriculture secretary, and Zach Ducheneaux, administrator for the Farm Service Agency, filled in some details about the loan repayment program on Tuesday evening during a White House call with various stakeholder groups.

The loan repayment program for socially disadvantaged farmers was part of the American Rescue Plan passed by Congress in March. The bill provided $4 billion for USDA to pay up to 120% of loan debt for minority farmers under the 1990 definition of socially disadvantaged, which includes African American producers, Latino or Hispanic, American Indian or Alaskan Native producers, Asian American, or Hawaiian or Pacific Islanders. The definition does not include Caucasian women who were included in the 1992 definition of socially disadvantaged.

"We are implementing a congressional mandate, and that's the definition that was created for this plan," Goldmon said.

Under the loan provisions, USDA will pay off loan debt for socially disadvantaged farmers for FSA direct loans, FSA guaranteed loans with private lenders, a Commodity Credit Corp. loan, or a farm storage facility loan that had a debt balance as of Jan. 1, 2021. USDA officials noted loans closed after Jan. 1, 2021, are not included in the loan payment plan.

USDA reports 14,432 borrowers who are reported as socially disadvantaged and they have $2.67 billion in current active loans as of Dec. 31, 2020, along with $414.8 million in delinquent debt. Those numbers, however, also include loans to Caucasian women who qualified as socially disadvantaged under a 1992 change in the definition.

While the loan repayment has been cast as mainly helping Black farmers, some states have high loan volumes for socially disadvantaged farmers because of large populations of people with Native American heritage. In recent years, Oklahoma has been the largest state by far with FSA loans to socially disadvantaged farmers, with more than double the loan dollars compared to other states.

Socially disadvantaged farmers who have been identified by USDA with eligible loans will be receiving a letter in the next couple of days from the department just to establish contact. Ducheneaux and Goldmon said loan recipients do not have to apply for the debt repayment. They did stress, though, that eligible farmers need to ensure they have a form on file with FSA -- AD 2047 -- that designates race or ethnicity. "If there is any doubt as to whether you have that form on record at FSA, do it again," Goldmon said. He later reiterated, "AD 2047 is the form that will qualify borrowers for this debt relief. And I cannot emphasize the importance enough of having that form on file."

Goldmon noted in the past farmers may have been wary of filling out a form detailing their race or ethnicity to keep on file at USDA. "Prior to the American Rescue Plan, the benefit of completing that form was not clear," Goldmon said. "And, in fact, folks would say, why in the heck would I want to fill out that form and tell someone I am socially disadvantaged and subject myself to further discrimination? But this is a different day."

At least two lawsuits have been filed by five Caucasian farmers in Wisconsin federal court and Texas Agriculture Commissioner Sid Miller in a Texas federal court with similar claims that the loan repayment program for minorities is discriminatory against white farmers.

Meanwhile, litigation continues to take a turn as a Black farmer from Tennessee, Corey Lea, has filed motions to join multiple civil rights claims by white farmers in Wisconsin and Texas. Lea filed cross claims against the white farmers in the separate suits, arguing that USDA over the past few years has disproportionately skewed aid payments toward white farmers, and any debt relief allowed to white farmers would reduce the amount of loan aid that would go to Black farmers such as himself. "The reason why this had to be done is ... it was pretty disingenuous for those plaintiffs to put in such a case, given that socially disadvantaged farmers have been denied equal access to government funding from USDA for decades," Lea told DTN in a phone interview.

Lea also said the white farmers suing USDA over loan repayment should have been required to first go to USDA with their loan repayment requests before going directly to the federal courts.

Besides filing rejoinders in the two lawsuits from white farmers, Lea's group, the Cowtown Foundation, also has filed a motion to compel against USDA. The foundation wants a federal judge to require USDA to declare the loans for socially disadvantaged farmers have been paid off and remove liens and UCC filings against socially disadvantaged farmers who had delinquent loans from USDA. The foundation also wants to ensure any private lender who receives payment under the loan program also stop any foreclosure actions or other adverse actions that may be tied to those delinquent loans.

A key reason that case was filed was concerns over delays in the loan payments. "When they gave money to white farmers in October, it took them three weeks to get that money out to those farmers," Lea said. "It's been 60 days to this point for the socially disadvantaged farmers and we've been told it may be sometime this summer before it's paid. So, you have to watch what is going on because the process in the past has been very, very unfair to minorities. We have to pretty much play the gatekeeper on both sides."

On Tuesday's call, Ducheneaux said he's frequently being asked about timelines and dates, but right now USDA has to explain some details in the regulatory process and design software to get the payments out. The department also needs updated data on guaranteed loans from lenders.

"The last thing we want to do is set a deadline we can't meet. "And we're rushing as fast as humanly possible to get this put together in an orderly and efficient manner." Ducheneaux said.

Ducheneaux noted it's easier to pay off the direct loans because those are in-house with FSA. Guaranteed loans with private lenders "are a little different kind of animal because our relationship in those loans is actually with the creditors." FSA essentially serves as the co-signer on those loans with a 90% guarantee typically. "We basically guarantee the lender will never be out of more than 10% of what they put into the game," Ducheneaux said. He added, though, that the entire amount of loan debt would be paid off.

Along with the loan repayment, USDA also is in the process of setting up an equity commission of external experts to USDA that will provide external analysis of how USDA is doing in achieving racial equity. USDA has about $1 billion from the American Rescue Plan to address long-standing issues with minority farmers such as heir property for Black farmers. Funding also likely will go to historically Black colleges and universities. The commission might also look at situations where farmers were denied access to loan programs.

"A lot of times we hear about situations where farmers perhaps should have had FSA loans, but for whatever reason, they don't," Goldmon said. "We need to look at the conditions behind which of those farmers don't have the FSA loans or the loan process."

Beyond paying 100% of the loan debt, socially disadvantaged farmers would receive another 20% that would go to offset tax consequences.

"The entire 120% will have tax consequences to you as a taxpayer, so we want to try to get that money out as quickly as we can so that you can make plans with that 20%," Ducheneaux said.

Once the FSA loan debt is satisfied, Ducheneaux and Goldmon said those socially disadvantaged farmers would become eligible for loans or guarantees in the future. "These borrowers will be able to do future business with FSA and they will be eligible immediately," Goldmon said.

Early in the Biden administration, USDA issued a directive to stop foreclosures or bankruptcy proceedings against all farmers who had USDA loan debt. USDA requested lenders in guaranteed loan portfolios not to take steps toward foreclosures or liquidation. Ducheneaux said farmers facing pressure right now to foreclose or liquidate should contact FSA -- specifically contact Ducheneaux with the issue at: Zach.Ducheneaux@usda.gov

"If you are an SDA borrower with a guaranteed loan and you feel as those pressure is being put on you in that direction, for the voluntary foreclosure or if you're getting liquidation, or even if you are in bankruptcy right now, if there is talk of liquidation, get in touch with me," Ducheneaux said. "The Farm Service Agency is going to do everything it can to impose itself in that process and get you the time you need."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(c) Copyright 2021 DTN, LLC. All rights reserved.