The U.S. Department of Agriculture expects debt relief payments for socially disadvantaged farmers to begin in early June and continue on a rolling basis, but some farmers and lenders are still asking questions about how the new program will work.

The American Rescue Plan allocated $4 billion for the debt relief plan but USDA can go above that amount. The legislation says the department can spend “such sums as may be necessary” under the program, which offers 120% debt relief.

The extra 20% is to pay taxes on the payments, and Farm Service Agency Administrator Zach Ducheneaux says USDA plans to partner with local community groups to offer free tax advice to producers.

A subsequent notice addressing guaranteed loan balances and direct loans that no longer have collateral and have been previously referred to the Department of Treasury for debt collection for offset will be published within 120 days.

“The American Rescue Plan has made it possible for USDA to deliver historic debt relief to socially disadvantaged farmers and ranchers beginning in June,” said Agriculture Secretary Tom Vilsack. “USDA is recommitting itself to gaining the trust and confidence of America’s farmers and ranchers using a new set of tools provided in the American Rescue Plan to increase opportunity, advance equity and address systemic discrimination in USDA programs.”

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According to USDA, there are about 14,400 SDA borrowers with about $2.7 billion in debt, as well as another $400-million-plus that is delinquent. More than 80% of the borrowers hold direct loans and account for about 65% of the debt — about $2 billion. The rest, guaranteed lenders, have about $1 billion.

Meanwhile, FSA is finding that more producers than are on the books as qualifying as socially disadvantaged are coming forward to collect the payouts.

The department does not have exact figures on the number of growers who have done so, but Ducheneaux and others involved in the process said they aren’t surprised, given the history of discrimination faced by farmers of color.

Ducheneaux said the fact that producers did not check the appropriate box on their AD-2047 in the past will not be held against them. Instead, they will be able to check that box now to show they are eligible for the payouts.

“If they make that designation, they will receive an offer letter,” Ducheneaux said. “They will have to affix their signature attesting to that in that offer letter.”

“The department overall and the Farm Service Agency have a policy of trusting the farmer,” he said.

A USDA spokesman elaborated on the issue. "As all loan recipients know, when you sign a document for a loan of any kind, it is a legal document that carries with it an obligation under the law. In addition to the normal FSA due diligence on all loan programs, Section 1006 of the [American Rescue Plan] provides $5 million to the USDA Office of the Inspector General to run oversight over how the funds were disbursed as directed by the law. We expect and anticipate the OIG to carry out its duties."

Ducheneaux cited a VICE News story from earlier this month on the debt relief program that featured comments from a Louisiana FSA county commissioner opposed to the debt relief program who said minority borrowers are in debt “because they spend their money on other things. Their priorities might not be right.”

“Imagine that you could pass for white and that’s the environment that you're working in,” Ducheneaux said. “You bet your bottom dollar you're not going to check the African American or American Indian box.”

“That's the reality that we're trying to overcome,” he said. “And that's why we've been very welcoming from the beginning. Come in, update your AD-2047. We've put it on our website.”

Banks, however, are worried about losing anticipated income from interest payments on USDA-guaranteed loans when they are suddenly paid off. In a recent letter to Ag Secretary Tom Vilsack, they asked for reimbursement for lost future income.

“If USDA does not compensate lenders for such disruptions or avoid sudden loan payoffs, the likely result will be less access to credit for those seeking USDA guaranteed loans in the future, including SDA farmers/ranchers,” the American Bankers Association, Independent Community Bankers of America and the National Rural Lenders Association said in the letter. They also expressed concern about harm to secondary markets — the brokers and loan aggregators who buy and trade loans from the banks.

“We’re just saying, look at the consequences, recognize there are going to be some costs … and provide compensation to lenders so we're not harmed, because some of them have made huge commitments to serving minority borrowers and young, beginning small farmers through the use of the Guaranteed Loan Program,” Mark Scanlan, senior vice president of agriculture and rural policy at ICBA, told Agri-Pulse.

“USDA has the flexibility to ensure that lenders are not harmed in the way that this program is implemented,” he said, emphasizing that bankers are simply “making suggestions to USDA on implementation,” not threatening to cut off lending to socially disadvantaged farmers.

“Lenders are going to look at how this program is handled and see how much involvement they want to have in these programs — not [just] to socially disadvantaged farmers, but the guaranteed program overall,” he said.

He cited the example — also mentioned in the materials sent to USDA — of a bank in Georgia with a portfolio of more than $200 million in loans to socially disadvantaged farmers. Losing that amount of loans would require the bank to adopt “a completely different business plan.”

Ducheneaux says the banks are “an essential partner” in making loans to farmers “because we don't have the budget authority, as we operate right now, to serve all of the credit needs that exist out there in farming and ranching.” FSA has been educating itself “to better understand what the relationship is like between the guaranteed lenders and the borrowers,” as well as the bankers' concern about the secondary markets.

Steve Davies contributed to this report. Wyant is president and founder of Agri-Pulse Communications Inc. For more news, go to www.Agri-Pulse.com.