Information on Commodity Credit Corporation Loan Repayment Practices

In response to a congressional request, GAO gathered information relating to: (1) past and present Commodity Credit Corporation (CCC) repayment practices; (2) the statutory and regulatory authority which allows CCC to decide how loan repayments are to be divided between principal and interest, as well as the authority to establish a memorandum account for accrued interest; (3) what a memorandum account is and whether it meets generally accepted accounting principles; (4) how CCC repayment practices differ from commercial banking practices; and (5) other CCC loan programs which allow repayments to be applied first to loan principal.

The CCC allows loan repayments for the Tobacco and Peanut Support Programs to be applied first to principal and then to interest. This is contrary to commercial practices, which generally provide for the application of loan collections first to accrued interest due and then to the principal indebtedness. After the principal is liquidated, repayments are then applied to interest receivable. Cash received beyond liquidation of accrued interest is returned to the tobacco associations. However, if the cash collected after the loan principal is liquidated is insufficient to liquidate the total interest due, the account is closed and the receivable waived. There is no statutory authority which specifically states how loan repayments are to be applied. Broad general authority allows the Secretary of Agriculture to administratively determine what portion of loan repayments are to be applied to principal and interest. The Secretary exercises his authority to provide for a tobacco price-support program through a docket passed by the CCC Board of Directors, which he approves. The Secretary also used this authority to establish a memorandum of account for accrued interest on nonrecourse loans; however, the memorandum of account did not meet generally accepted accounting practices and is no longer used.