LIQUIDATION OF EMERGENCY FEED AND SEED LOANS

JULY 26, 1949.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Mr. COOLEY. from the Committee on Agriculture, submitted the following

REPORT

[To accompany H. R. 5592]

The Committee on Agriculture, to whom was referred the bill (H. R. 5592) to authorize the cancellation, adjustment, and collection of certain obligations due the United States, and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill, as amended, do pass.

The amendment is as follows:

Page 1, line 8, change the number "6083" to "6084".

STATEMENT

Since 1918 the Department of Agriculture has been making emergency crop and feed loans to farmers who were in distress because of weather or crop conditions and who urgently required a source of short-term credit in order to continue their farm operations. These loans have been made under a large number of laws and Executive orders, which are referred to in section 1 of the bill.

The loans are usually described as "emergency feed and seed loans" or "emergency crop and feed loans." During the years 1934-35 similar loans were made under special authorization to help in alleviating the drought situation, and are commonly called "drought relief loans."

Although the loans have been made under a number of different statutory authorizations, they have several characteristics in common: They are, and were intended to be. "soft" credit-financial assistance to those who had no other source of credit available. They were loans of an emergency character, to be used in purchasing seed with which to plant the ground, or feed for livestock. The collateral in almost all cases was the crop to be grown with the seed or the livestock for which the feed was purchased.

Many of these loans were made to farmers during the depression and drought years when unemployed persons throughout the country were receiving work relief or direct aid from the Federal Government without any repayment obligation. In many instances during this period, the seed bought with the proceeds of the loan never sprouted because of the drought, or if it matured the crop which it produced brought such a small return to the farmer that he was unable to repay the loan.

In spite of the fact that these loans have been made on an emergency basis, that the security required was considerably less substantial than that which would be acceptable to most private lenders or for some other Government loans, and that adverse conditions have frequently beset the borrower in the marketing of his crop, a surprising number of these loans have been collected. Of the total of $575,934,570 in such loans from 1918 to May 31, 1949, $466,428,681 of the principal has been collected. This is 81 percent of the total. In the case of emergency crop and feed loans made in the years 1937-47, 91.2 percent of the principal has been collected. In the case of the seed-grain and emergency crop loans made in the years 1918-36, however, only 78.9 percent of the principal has been collected, 5.3 percent has been written off by adjustment, and 15.8 percent is outstanding. The drought relief loans of 1934-35 have shown only a 62.2 percent collection, with 9.9 percent written off by debt adjustments and 27.9 percent still outstanding. Loans of this type which have been made during the past few years show a collection rate of well over 90 percent, although some of those made most recently are not yet due.

Under Federal statutes there is no limitation upon the right of the Government to recover on these old obligations and, on the contrary, an old Federal law gives the Government first claim to the assets of a deceased debtor regardless of the age of the obligation. The collection experience of the Department indicates clearly that in general the farmers who borrowed this money have repaid it if they were able to do so. Most of the loans which remain long overdue and uncollected were made during the depression and drought years and were made to borrowers whose assets became so completely dissipated that they were unable to repay.

From 1918, when loans of this type were first authorized, until May 31, 1949, there have been a total of 4,459,090 such loans made. Out of this number, 3,437,716 have been paid in full, 308,622 have been compromised or adjusted under existing law, and 712,752 were outstanding on May 31, 1949. Some of the notes outstanding have been recently made and are not yet due.

Analysis of the notes now outstanding shows clearly the need for this legislation. Out of the 712,752 notes on the books on May 31, 1949, 473,729 were emergency crop and feed loans made in the years 1918 to 1936 and 101,556 were 1934-35 drought-relief loans. This means that 575,285 of the 712,752 loans now on the books, more than 80 percent of the total, were made in the year 1936 or before. If it is costing the Government only a dollar a year to service these loans, which seems like a conservative estimate, it is costing the taxpayers more than half a million dollars each year to carry on the books loans which years of persistent effort have failed to collect and which will probably never be collected.

EXISTING ADJUSTMENT AUTHORITY

The experience of the Department of Agriculture in compromising, settling, and adjusting overdue loans of this type under its existing authority indicates clearly that the recovery on these long-overdue notes is not worth the cost and effort of trying to collect them.

The Department of Agriculture has two existing statutes under which it is authorized to adjust, compromise, and in some instances cancel these overdue feed-seed-drought loans. They are the act of December 20, 1944 (Public Law 518, Seventy-eighth Cong.; 58 Stat. 836); and subsection (g), section 41, title IV, of the Bankhead-Jones Farm Tenant Act as amended by the Farmer's Home Administration Act of 1946, approved August 14. 1946 (Public Law 731. Seventyninth Cong.; 60 Stat. 1062).

Under the act of December 20, 1944, the Secretary of Agriculture has authority to compromise or adjust feed-seed and drought loans when, after investigation, he finds that the debt has been due and payable for 5 years, the borrower is unable to pay the debt in full and has no reasonable prospect of being able to do so, he has acted in good faith to meet his obligation, and the principal is not more than $1,000. The Secretary is authorized to cancel such notes if the principal remaining unpaid is less than $10, or if the debtor is deceased and there is no reasonable prospect of collecting from his estate, if he has been discharged of his debts in bankruptev, or if his whereabouts are unknown

The adjustment and cancellation authority provided in the Farmers Home Administration Act of 1946 is substantially the same as that in the act of December 20, 1944, except that the maximum loan which could be adjusted by the Secretary was increased to $10.000, cancellations were restricted to claims of $100 or less, and authority was given to cancel claims of $10 or less when further collection efforts appeared to be "ineffectual or likely to prove uneconomical."

Under the authority of these two laws, the Department of Agricul ture has been attempting to settle and adjust these old loans for the past several years. As is natural under such circumstances, their collection efforts have been directed at the "cream of the crop"those claims which field representatives felt had the best prospects for successful negotiation and settlement. Even under such circumstances, however, the results clearly indicate the futility of trying to collect most of these old obligations.

The report of the Farmers Home Administration on the cumulative results of compromise, adjustment, and cancellation settlements under Public Laws 518 and 731. up to December 31, 1948, shows the following: A total of 288,460 delinquent claims comprising an aggregate unpaid balance of $41,459,718 have been settled and for its effort the Government has received a total of $4,117,557, approximately 10 percent of the amount due and only $14.28 per claim, including those which have been canceled outright.

ANALYSIS OF THE BILL

The bill contains three major provisions: (1) It directs the Secretary to collect, liquidate, compromise, or adjust within 2 years after the effective date of the act all claims arising from such loans made after

January 1, 1936, which were mature or past due on January 1, 1949; (2) it cancels outright all claims and judgments arising from loans made prior to January 1, 1936; (3) it authorizes the Secretary to accept as full discharge of the obligation payment in full of the unpaid principal on loans made after January 1, 1936, and prior to January 1, 1942, which were mature and past due on January 1, 1949, if such a settlement offer is made prior to the filing of a suit for collection of the claim.

The net result of the bill is to remove outright from the books of the FHA some 500,000 overdue and now virtually uncollectible loans made prior to January 1, 1936, and to instruct that agency to proceed forthwith to collect under the authority of existing law the past due loans made since that date, with an offer to borrowers whose loans are more than 7 years old to settle for the full amount of the unpaid principal if payment is made promptly.

Section 1: The first paragraph of this section enumerates the loans which are included in the provisions of this bill. All the loans enumerated are now administered by the Farmers Home Administration. Subsections (1) and (2): The reference in these subsections to claims made or arising after certain dates refers to the date the original obligation was created and not to the date of any renewal note which may have been taken for the unpaid balance of the original obligation. Thus, if the original obligation was made prior to January 1, 1936, the loan would be canceled in spite of the fact that the unpaid balance of the original loan might also be evidenced by a renewal note or a judgment taken at a later date. If a renewal note represents an additional new obligation, as well as obligations originally created prior to January 1, 1936, or January 1. 1942. those portions of the note representing the earlier obligations would be treated in the manner applicable to the date of the original obligations.

Section 2: This section does not create any rights or extinguish any obligations but is merely a directive to the Secretary of Agriculture to expedite the collection, compromise, and adjustment of the loans described in section 1.