7 U.S.C. § 935 — Insured loans; interest rates and lending

Page 535 TITLE 7—AGRICULTURE § 935 Editorial Notes CODIFICATION In subsecs. (a) and (c), ‘‘chapter 31 of title 31’’, ‘‘such chapter’’, and ‘‘chapter 11 of title 31’’ substituted for ‘‘the Second Liberty Bond Act, as amended’’, ‘‘such Act, as amended’’, and ‘‘the Budget and Accounting Act, 1921 [31 U.S.C. 1 et seq.]’’, respectively, on author- ity of Pub. L. 97–258, § 4(b), Sept. 13, 1982, 96 Stat. 1067, the first section of which enacted Title 31, Money and Finance. AMENDMENTS 1994—Pub. L. 103–354 substituted ‘‘Secretary’’ for ‘‘Ad- ministrator’’ wherever appearing. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective May 11, 1973, see section 12 of Pub. L. 93–32, set out as a note under section 930 of this title. § 935. Insured loans; interest rates and lending levels (a) In general The Secretary is authorized to make insured loans under this subchapter and at the interest rates hereinafter provided to the full extent of the assets available in the fund, subject only to limitations as to amounts authorized for loans and advances as may be from time to time im- posed by the Congress of the United States for loans to be made in any one year, which amounts shall remain available until expended: Provided, That the Congress in the annual appro- priation Act may also authorize the transfer of any excess cash in the fund for deposit into the Treasury as miscellaneous receipts: And provided further, That any such loans and advances shall not be included in the totals of the budget of the United States Government and shall be exempt from any general limitation imposed by statute on expenditures and net lending (budget out- lays) of the United States. (b) Insured loans Loans made under this section shall be insured by the Secretary when purchased by a lender. As used in this chapter, an insured loan is one which is made, held, and serviced by the Sec- retary, and sold and insured by the Secretary hereunder; such loans shall be sold and insured by the Secretary without undue delay. (c) Insured electric loans (1) Hardship loans (A) In general The Secretary shall make insured electric loans, to the extent of qualifying applica- tions for the loans, at an interest rate of 5 percent per year to any applicant for a loan who meets each of the following require- ments: (i) The average revenue per kilowatt- hour sold by the applicant is not less than 120 percent of the average revenue per kil- owatt-hour sold by all utilities in the State in which the applicant provides serv- ice. (ii) The average residential revenue per kilowatt-hour sold by the applicant is not less than 120 percent of the average resi- dential revenue per kilowatt-hour sold by all utilities in the State in which the ap- plicant provides service. (iii) The average per capita income of the residents receiving electric service from the applicant is less than the average per capita income of the residents of the State in which the applicant provides serv- ice, or the median household income of the households receiving electric service from the applicant is less than the median household income of the households in the State. (B) Severe hardship loans In addition to hardship loans that are made under subparagraph (A), the Secretary may make an insured electric loan at an in- terest rate of 5 percent per year to an appli- cant for a loan if, in the sole discretion of the Secretary, the applicant has experienced a severe hardship. (C) Limitation Except as provided in subparagraph (D), the Secretary may not make a loan under this paragraph to an applicant for the pur- pose of furnishing or improving electric service to a consumer located in an urban area (as defined by the Bureau of the Census) if the average number of consumers per mile of line of the total electric system of the ap- plicant exceeds 17. (D) Extremely high rates In addition to hardship loans that are made under subparagraphs (A) and (B), the Secretary shall make insured electric loans, to the extent of qualifying applications for the loans, at an interest rate of 5 percent per year to any applicant for a loan whose resi- dential revenue exceeds 15.0 cents per kilo- watt-hour sold. A qualifying application from such an applicant for the purpose of furnishing or improving electric service to a consumer located outside of an urbanized area shall not be subject to the conditions or limitation of subparagraph (A) or (C). (2) Municipal rate loans (A) In general The Secretary shall make insured electric loans, to the extent of qualifying applica- tions for the loans, at the interest rate de- scribed in subparagraph (B) for the term or terms selected by the applicant pursuant to subparagraph (C). (B) Interest rate (i) In general Subject to clause (ii), the interest rate described in this subparagraph on a loan to a qualifying applicant shall be— (I) the interest rate determined by the Secretary to be equal to the current market yield on outstanding municipal obligations with remaining periods to maturity similar to the term selected by the applicant pursuant to subparagraph (C), but not greater than the rate deter- mined under section 1927(a)(3)(A) of this title that is based on the current market Page 536 TITLE 7—AGRICULTURE § 935 yield on outstanding municipal obliga- tions; plus (II) if the applicant for the loan makes an election pursuant to subparagraph (D) to include in the loan agreement the right of the applicant to prepay the loan, a rate equal to the amount by which— (aa) the interest rate on commercial loans for a similar period that afford the borrower such a right; exceeds (bb) the interest rate on commercial loans for the period that do not afford the borrower such a right. (ii) Maximum rate The interest rate described in this sub- paragraph on a loan to an applicant for the loan shall not exceed 7 percent if— (I) the average number of consumers per mile of line of the total electric sys- tem of the applicant is less than 5.50; or (II)(aa) the average revenue per kilo- watt-hour sold by the applicant is more than the average revenue per kilowatt- hour sold by all utilities in the State in which the applicant provides service; and (bb) the average per capita income of the residents receiving electric service from the applicant is less than the aver- age per capita income of the residents of the State in which the applicant pro- vides service, or the median household income of the households receiving elec- tric service from the applicant is less than the median household income of the households in the State. (iii) Exception Clause (ii) shall not apply to a loan to be made to an applicant for the purpose of furnishing or improving electric service to consumers located in an urban area (as de- fined by the Bureau of the Census) if the average number of consumers per mile of line of the total electric system of the ap- plicant exceeds 17. (C) Loan term (i) In general Subject to clause (ii), the applicant for a loan under this paragraph may select the term for which an interest rate shall be de- termined pursuant to subparagraph (B), and, at the end of the term (and any suc- ceeding term selected by the applicant under this subparagraph), may renew the loan for another term selected by the ap- plicant. (ii) Maximum term (I) Applicant The applicant may not select a term that ends more than 35 years after the beginning of the first term the applicant selects under clause (i). (II) Secretary The Secretary may prohibit an appli- cant from selecting a term that would result in the total term of the loan being greater than the expected useful life of the assets being financed. (D) Call provision The Secretary shall offer any applicant for a loan under this paragraph the option to in- clude in the loan agreement the right of the applicant to prepay the loan on terms con- sistent with similar provisions of commer- cial loans. (3) Other source of credit not required in cer- tain cases The Secretary may not require any appli- cant for a loan made under this subsection who is eligible for a loan under paragraph (1) to obtain a loan from another source as a con- dition of approving the application for the loan or advancing any amount under the loan. (d) Insured telephone loans (1) Hardship loans (A) In general The Secretary shall make insured tele- phone loans, to the extent of qualifying ap- plications for the loans, at an interest rate of 5 percent per year, to any applicant who meets each of the following requirements: (i) The average number of subscribers per mile of line in the service area of the applicant is not more than 4. (ii) The applicant is capable of producing net income or margins before interest of not less than 100 percent (but not more than 300 percent) of the interest require- ments on all of the outstanding and pro- posed loans of the applicant. (iii) The Secretary has approved a tele- communications modernization plan for the State under paragraph (3) and, if the plan was developed by telephone borrowers under this subchapter, the applicant is a participant in the plan. (iv) The average number of subscribers per mile of line in the area included in the proposed loan is not more than 17. (B) Authority to waive tier requirement The Secretary may waive the requirement of subparagraph (A)(ii) in any case in which the Secretary determines (and sets forth the reasons for the waiver in writing) that the requirement would prevent emergency res- toration of the telephone system of the ap- plicant or result in severe hardship to the applicant. (C) Effect of lack of funds On request of any applicant who is eligible for a loan under this paragraph for which funds are not available, the applicant shall be considered to have applied for a loan under subchapter IV. (2) Cost-of-money loans (A) In general The Secretary may make insured tele- phone loans for the acquisition, purchase, and installation of telephone lines, systems, and facilities (other than buildings used pri- marily for administrative purposes, vehicles not used primarily in construction, and cus- tomer premise equipment) related to the fur- nishing, improvement, or extension of rural Page 537 TITLE 7—AGRICULTURE § 935 1 So in original. Probably should be paragraph ‘‘(2)(A)(ii)’’. telecommunications service, at an interest rate equal to the then current cost of money to the Government of the United States for loans of similar maturity, but not more than 7 percent per year, to any applicant for a loan who meets the following requirements: (i) The average number of subscribers per mile of line in the service area of the applicant is not more than 15, or the appli- cant is capable of producing net income or margins before interest of not less than 100 percent (but not more than 500 percent) of the interest requirements on all of the out- standing and proposed loans of the appli- cant. (ii) The Secretary has approved a tele- communications modernization plan for the State under paragraph (3) and, if the plan was developed by telephone borrowers under this subchapter, the applicant is a participant in the plan. (B) Concurrent loan authority On request of any applicant for a loan under this paragraph during any fiscal year, the Secretary shall— (i) consider the application to be for a loan under this paragraph; and (ii) if the applicant is eligible for a loan, make a loan to the applicant under this paragraph in an amount equal to the amount that bears the same ratio to the total amount of loans for which the appli- cant is eligible under this paragraph, as the amount made available for loans under this paragraph for the fiscal year bears to the total amount made available for loans under this paragraph for the fiscal year. (C) Effect of lack of funds On request of any applicant who is eligible for a loan under this paragraph for which funds are not available, the applicant shall be considered to have applied for a loan guarantee under section 936 of this title. (3) State telecommunications modernization plans (A) Approval If, not later than 1 year after final regula- tions are promulgated to carry out this paragraph, any State, either by statute or through the public utility commission of the State, develops a telecommunications mod- ernization plan that meets the requirements of subparagraph (B), the Secretary shall ap- prove the plan for the State. If a State does not develop a plan in accordance with the re- quirements of the preceding sentence, the Secretary shall approve any telecommuni- cations modernization plan for the State that meets the requirements that is devel- oped by a majority of the borrowers of tele- phone loans made under this subchapter who are located in the State. (B) Requirements For purposes of subparagraph (A), a tele- communications modernization plan must, at a minimum, meet the following objec- tives: (i) The plan must provide for the elimi- nation of party line service. (ii) The plan must provide for the avail- ability of telecommunications services for improved business, educational, and med- ical services. (iii) The plan must encourage and im- prove computer networks and information highways for subscribers in rural areas. (iv) The plan must provide for— (I) subscribers in rural areas to be able to receive through telephone lines— (aa) conference calling; (bb) video images; and (cc) data at a rate of at least 1,000,000 bits of information per second; and (II) the proper routing of information to subscribers. (v) The plan must provide for uniform deployment schedules to ensure that ad- vanced services are deployed at the same time in rural and nonrural areas. (vi) The plan must provide for such addi- tional requirements for service standards as may be required by the Secretary. (C) Finality of approval A telecommunications modernization plan approved under subparagraph (A) may not subsequently be disapproved. Notwith- standing paragraphs (1)(A)(iii) and (2)(A)(iii),1 and the Secretary may make a loan to a borrower serving a State that does not have a telecommunication moderniza- tion plan approved by the Secretary if the loan is made less than 1 year after the Sec- retary has adopted final regulations imple- menting this paragraph. (May 20, 1936, ch. 432, title III, § 305, as added Pub. L. 93–32, § 2, May 11, 1973, 87 Stat. 68; amended Pub. L. 94–570, § 3, Oct. 20, 1976, 90 Stat. 2701; Pub. L. 97–35, title I, § 165(a), Aug. 13, 1981, 95 Stat. 379; Pub. L. 101–624, title XXIII, § 2361, Nov. 28, 1990, 104 Stat. 4042; Pub. L. 103–129, § 2(a)(1), (c)(6), Nov. 1, 1993, 107 Stat. 1356, 1364; Pub. L. 103–354, title II, § 235(a)(8), (13), Oct. 13, 1994, 108 Stat. 3221; Pub. L. 115–334, title VI, § 6602(b)(8), (9), Dec. 20, 2018, 132 Stat. 4776, 4777.) Editorial Notes AMENDMENTS 2018—Subsec. (d)(2)(B)(i). Pub. L. 115–334, § 6602(b)(8)(A), struck out ‘‘and a loan under section 948 of this title’’ after ‘‘under this paragraph’’. Subsec. (d)(2)(B)(ii). Pub. L. 115–334, § 6602(b)(8)(B), struck out ‘‘and under section 948 of this title’’ after ‘‘under this paragraph’’ in two places. Subsec. (d)(3)(C). Pub. L. 115–334, § 6602(b)(9), sub- stituted ‘‘the Secretary’’ for ‘‘and section 948(b)(4)(C) of this title, the Secretary and the Governor of the tele- phone bank’’. 1994—Pub. L. 103–354 substituted ‘‘Secretary’’ for ‘‘Ad- ministrator’’ in heading for subsec. (c)(2)(C)(ii)(II) and wherever appearing in text. 1993—Pub. L. 103–129, § 2(c)(6)(A), amended section catchline generally. Subsec. (a). Pub. L. 103–129, § 2(c)(6)(A), inserted head- ing. Subsec. (b). Pub. L. 103–129, § 2(a)(1)(A), (B), (c)(6)(B), redesignated subsec. (c) as (b), inserted heading, and struck out former subsec. (b) which read as follows: Page 538 TITLE 7—AGRICULTURE § 936 ‘‘Insured loans made under this subchapter shall bear interest at 5 per centum per annum, except that the Administrator may make insured loans to electric or telephone borrowers at a lesser interest rate, but not less than 2 per centum per annum, if, in the Adminis- trator’s sole discretion, the Administrator finds that the borrower— ‘‘(1) has experienced extreme financial hardship; or ‘‘(2) cannot, in accordance with generally accepted management and accounting principles and without charging rates to its customers or subscribers so high as to create a substantial disparity between such rates and the rates charged for similar service in the same or nearby areas by other suppliers, provide serv- ice consistent with the objectives of this chapter.’’ Subsec. (c). Pub. L. 103–129, § 2(a)(1)(C), added subsec. (c). Former subsec. (c) redesignated (b). Subsec. (d). Pub. L. 103–129, § 2(a)(1)(A), (C), added sub- sec. (d) and struck out former subsec. (d) which read as follows: ‘‘The Administrator shall make a telephone loan under this subchapter to an applicant therefor who is otherwise qualified to receive such a loan at the highest interest rate (but not less than the lowest in- terest rate, nor higher than the highest interest rate, specified in subsection (b) of this section) at which the borrower would be capable of producing net income or margins before interest payments of at least 100 per- cent (but not more than 150 percent) of the interest re- quirements on all of the applicant’s outstanding and proposed loans.’’ 1990—Subsec. (d). Pub. L. 101–624 added subsec. (d). 1981—Subsec. (b). Pub. L. 97–35 substituted provisions establishing an interest rate at 5 per centum per annum and a lower rate, but not less than 2 per cent, under the enumerated criteria, for provisions estab- lishing standard and special rates, with special rates applicable under enumerated criteria. 1976—Subsec. (b). Pub. L. 94–570 struck out from in- troductory text ‘‘meets either of the following condi- tions’’ after ‘‘borrower which’’; limited par. (1) to the telephone borrowers, substituting provision for an av- erage subscriber density of three or fewer per mile at the end of the most recent calendar year ending at least six months before approval of the loan for prior provision for an average consumer or subscriber den- sity of two or fewer per mile; substituted in par. (2) pro- vision, limited to electric borrowers, respecting having an average consumer density of two or fewer per mile or an average adjusted plant revenue ratio of over 9.0 at end of the most recent calendar year ending at least six months before approval of the loan, determination of such ratio, and defining sum of distribution plant and general plant, gross revenue, and cost of power for prior provision for and average gross revenue per mile which is at least $450 below the average gross revenue per mile of REA-financed electric systems, in the case of electric borrowers, or at least $300 below the average gross revenue per mile of REA-financed telephone sys- tems, in the case of telephone borrowers; and inserted in proviso of par. (2) ‘‘to a telephone or electric bor- rower’’ after ‘‘make a loan’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1981 AMENDMENT Pub. L. 97–35, title I, § 165(d), Aug. 13, 1981, 95 Stat. 379, provided that: ‘‘The amendments made by subsection (a) of this section [amending this section] shall apply to loans the applications for which are received by the Rural Electrification Administration after July 24, 1981.’’ EFFECTIVE DATE OF 1976 AMENDMENT; INTEREST RATE Pub. L. 94–570, § 4, Oct. 20, 1976, 90 Stat. 2702, provided that: ‘‘This Act [amending this section and section 931 of this title and enacting provisions set out as a note under section 901 of this title] shall take effect upon en- actment [Oct. 20, 1976] except that insured loans made pursuant to applications for such loans which would otherwise lose eligibility for special rate financing upon such enactment, received by the Rural Elec- trification Administration and still pending on the date of enactment of this Act [Oct. 20, 1976], shall bear inter- est as determined under section 305(b) of the Rural Electrification Act of 1936 before its amendment by this Act [former provisions of subsec. (b) of this section].’’ EFFECTIVE DATE Section effective May 11, 1973, see section 12 of Pub. L. 93–32, set out as a note under section 930 of this title. § 936. Guaranteed loans; accommodations and subordination of liens; interest rates; assign- ability of guaranteed loans and related guar- antees The Secretary may provide financial assist- ance to borrowers for purposes provided in this chapter by guaranteeing loans, in the full amount thereof, made by the National Rural Utilities Cooperative Finance Corporation and any other legally organized lending agency, or by accommodating or subordinating liens or mortgages in the fund held by the Secretary as owner or as trustee or custodian for purchases of notes from the fund, or by any combination of such guarantee, accommodation, or subordina- tion. The Secretary shall not provide such as- sistance to any borrower of a telephone loan under this chapter unless the borrower specifi- cally applies for such assistance. No fees or charges shall be assessed for any such accommo- dation or subordination. Guaranteed loans shall bear interest at the rate agreed upon by the bor- rower and the lender. Guaranteed loans, and ac- commodation and subordination of liens or mortgages, may be made concurrently with an insured loan. The amount of guaranteed loans shall be subject only to such limitations as to amounts as may be authorized from time to time by the Congress of the United States: Pro- vided, That any amounts guaranteed hereunder shall not be included in the totals of the budget of the United States Government and shall be exempt from any general limitation imposed by statute on expenditures and net lending (budget outlays) of the United States. As used in this subchapter a guaranteed loan is one which is initially made, held, and serviced by a legally organized lending agency and which is guaran- teed by the Secretary hereunder. A guaranteed loan, including the related guarantee, may be assigned to the extent provided in the contract of guarantee executed by the Secretary under this subchapter; the assignability of such loan and guarantee shall be governed exclusively by said contract of guarantee. (May 20, 1936, ch. 432, title III, § 306, as added Pub. L. 93–32, § 2, May 11, 1973, 87 Stat. 69; amended Pub. L. 94–124, § 1, Nov. 4, 1975, 89 Stat. 677; Pub. L. 97–35, title I, § 165(b), Aug. 13, 1981, 95 Stat. 379; Pub. L. 101–624, title XXIII, § 2362, Nov. 28, 1990, 104 Stat. 4042; Pub. L. 103–354, title II, § 235(a)(13), Oct. 13, 1994, 108 Stat. 3221; Pub. L. 110–234, title VI, § 6102(b), May 22, 2008, 122 Stat. 1195; Pub. L. 110–246, § 4(a), title VI, § 6102(b), June 18, 2008, 122 Stat. 1664, 1956; Pub. L. 115–334, title VI, § 6602(b)(10), Dec. 20, 2018, 132 Stat. 4777.)