Reps. Steve Watkins (R., Kan.) and Roger Marshall (R., Kan.) co-sponsored a bill introduced this week, the Enhancing Credit Opportunities in Rural America Act (H.R. 1872), which would allow community banks to lower loan rates and more efficiently serve borrowers by exempting interest income on farm real estate and rural mortgage loans from taxation.

H.R. 1872 will offer farmers, ranchers and rural homeowners greater flexibility to service their loans from community banks by exempting interest on qualifying rural loans from taxable income.

Watkins explained that small-town lenders are crucial to the viability of rural America. Community banks and their agricultural customers have, unfortunately, had to adjust to years of weak commodity prices while family farm debts have become increasingly highly leveraged.

“In fact, farm delinquencies are, sadly, at their highest rate in nine years,” Watkins said. “This timely legislation would give greater certainty to small-town folks by enhancing and expanding rural access to credit.”

The Independent Community Bankers of America (ICBA) expressed support for the legislation.

“ICBA strongly supports the Enhancing Credit Opportunities in Rural America Act, which will allow community banks to offer lower rates to rural borrowers and homeowners in communities across the nation,” ICBA president and chief executive officer Rebeca Romero Rainey said. “Community banks, which make 80% of all agricultural loans across the banking industry, should play on the same level playing field as other providers of credit in rural America that already enjoy these same advantages.”

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Under the Enhancing Credit Opportunities in Rural America Act, interest earned on loans secured by agricultural real estate would not be taxable. The bill would provide similar relief to interest on loans secured by rural single-family homes that are the principal residence of the borrower in towns with a population of less than 2,500. Together, these provisions will offer community bankers greater flexibility to work with farmers who may have trouble servicing their debt while giving lenders a strong incentive to remain in the rural farming and housing markets.