Federal Farm Loan Act
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| Other short titles | Federal Farm Loan Act of 1916 |
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| Long title | An Act to provide capital for agricultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create Government depositaries and financial agents for the United States. |
| Enacted by | the 64th United States Congress |
| Effective | July 17, 1916 |
| Citations | |
| Public law | 64-158 |
| Statutes at Large | 39 Stat. 360 |
| Legislative history | |
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The Federal Farm Loan Act of 1916 (Pub.L. 64–158, 39 Stat. 360, enacted July 17, 1916) was a United States federal law aimed at increasing credit to rural family farmers. It did so by creating a federal farm loan board, twelve regional farm loan banks and tens of farm loan associations. The act was signed into law by President of the United States Woodrow Wilson.
In 1908, the Administration of Theodore Roosevelt commissioned a study on the problems facing rural families. At this point in U.S. history, these families made up the largest demographic of Americans. The commission concluded that access to credit was one of the most serious problems facing rural farmers and recommended the introduction of a cooperative credit system.
Four years later, Presidents William Howard Taft and Woodrow Wilson sent a commission of Americans to study cooperative credit systems for farmers in Europe. Components of such European programs at the time included cooperative land-mortgage banks and rural credit unions. This commission concluded that the best form of cooperative credit system would include both long-term credit to cover land mortgages and short-term credit to cover regular business needs.
The most visible component of the Act were the loans to individual farmers and their families. Under the act, farmers could borrow up to 50% of the value of their land and 20% of the value of their improvements. The minimum loan was $100 and the maximum was $10,000. Loans made through the Act were paid off through amortization over 5 to 40 years.
Borrowers also purchased shares of the National Farm Loan Association. This meant that it served as a cooperative agency that lent money from farmer to farmer. This was heavily influenced by a successful cooperative credit system in Germany called Landschaft.
The next most visible component of the Act were the mortgage-backed bonds that were issued. The rate of interest on the mortgages could be no more than 1 percent higher than the rate of interest on the bonds. This spread covered the issuers' administrative costs, but did not lead to a significant profit. In addition, the maximum rate of interest on the bonds was 6 percent, ensuring that borrowing costs for farmers was often much lower than before the Act was passed.
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