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Cassandra Jones Havard

Excerpted from: Cassandra Jones Havard, African-American Farmers and Fair Lending: Racializing Rural Economic Space, 12 Stanford Law and Policy Review 333-347, 333-334 (Spring 2001)(185 Footnotes)

In the context of small farm policy, two core democratic principles-- federalism and neutrality--are ultimately flawed as applied.

"[T]he rules and the law may be color-blind, [but] people are not.'

-J. L. Chestnut, Plaintiffs' Attorney Pigford v. Glickman.

The relationship of the federal government to the economic development of the minority-owned farm as a business raises issues of political authority. The United States Department of Agriculture's (USDA) loan qualification scheme allows locally elected farmers--who, with few exceptions, are white--to make substantive decisions regarding an applicant farmer's creditworthiness. For many African-American farmers, this structure has resulted in a sustained lack of access to USDA's low-cost funds and, eventually, to land loss.

The congressional decision that local farmers are able to make the best determinations concerning borrower eligibility for federal agricultural loan funds leads to concerns as to whether Congress' federalism objective of delegation of authority to local constituents can ever be met. As an issue of political authority, the balance of power in the USDA loan scheme between the federal government and local citizens is unique and uneven. The USDA process-- calling for the election of local representatives among the population of farmers within a particular county--gives elected farmers both critical discretion regarding loan eligibility and an opportunity for self- aggrandizement. Racial minority farmers' lack of access to credit--the by- product of this long-standing federal scheme--provides fertile ground for challenging the devolution of authority to local landowners. In the context of small farm policy, two core democratic principles, federalism and neutrality, are ultimately flawed as applied. The ideal of federalism--that state and local governments can share power with the federal government--is lost when programs are not monitored for compliance with stated goals and objectives. The presumed neutrality of the USDA's process for disbursing federal funds raises questions about the congressional purpose given a result that is, at best, described as the deleterious sacrifice of land owned by minority small farmers. Negative biases that should not color a neutral governmental process have been given the aura of federal approval.

This article focuses on how to measure loss when racial discrimination dominates economic policies and results in identifiable economic injustice. More importantly, it draws a nexus between credit availability and intergenerational property transmission. This article concludes that the loss of African-American owned farmland due to discriminatory credit decisions decreases opportunities for inheritance of real property. The proposed changes in federal law set forth in this article can help to remedy the cumulative effects of USDA's financing inequities.

Part I of this paper presents an overview of USDA's role as a financial intermediary. It identifies the goals of the federal agricultural lending program and explains the authority and policy choices given to locally elected farmers. It illustrates the direct competition between friends and neighbors for low-cost loan funds and summarizes the recent class action settlement of claims between African-American farmers and USDA.

Part II describes USDA's approach as one with federalist and economic underpinnings. It identifies the arguments supporting devolution of power from the federal government to local jurisdictions. It also examines the competing theories of information costs, transaction costs, and agency costs as they relate to USDA as a financial intermediary. Finally, it critiques both the federalism and economic justifications of USDA's decision to allow local farmers to make credit decisions. Challenging the fairness to minority constituent concerns of locally controlled political processes, the article suggests that local constituencies that do not mandate accountability for minority interests may unfairly influence the supposedly democratic majoritarian regime. Given the absence of monitoring for compliance within the federal programs, there is inadequate justification for the role of the county committee in the lending process.

Part III discusses fair credit law and concludes that the applicable statute, the Equal Credit Opportunity Act (ECOA) is an inadequate remedy when credit discrimination affects small businesses. That section proposes an alternative way to measure the harm and to correct the authority and operational imbalances. It recommends a change in the make-up of the county committee by allowing locally qualified citizens, who are not farmers, to make the credit decisions. Next, it argues for more stringent monitoring, record keeping and reporting requirements in order to determine promptly whether discriminatory lending patterns exist.

Finally, the article recommends an alternative way to measure actual loss by allowing compensation for loss of prospective inheritance.