Rhoda Rein was stunned by the bank’s decision: agriculture loan denied. The 25-year U.S. Bank customer, anticipating approval on a $27,000 operating loan, listened in disbelief as a bank representative cited the rationale behind the denial: animal reproduction is forbidden.
The details of Rein’s loan denial might draw concern from livestock producers, particularly due to the seemingly contradictory explanations offered by U.S. Bank.
Twenty minutes east of Denver, alongside her husband, Darren Miller, Rein runs Darren Miller Stables, a 46-stall horse training and breeding business on 40 acres.
Since the 1990s, Rein has been a client of U.S. Bank at the Hampden Crossing branch, obtaining business loans on a consistent basis. In 2003, she opened a line of credit attached to Darren Miller Stables, revolving at a roughly 8% interest rate. In 2018, the interest rate began climbing and hit 11.25% by April 2019. Alarmed, Rein consulted with Tracey Romero, her U.S. Bank representative, and chose to apply for a new loan and start over with a lower interest rate. According to Rein, the NAICS code 112920 (equine production) was used in the application.
However, when the paperwork came back, the loan was denied. The initial application was turned down April 21; an appeal was turned down April 24.
On May 1, U.S. Bank sent Rein an explanatory letter: “After careful review of your application, we are unable to extend credit to you at this time for the following reasons: Product is not considered appropriate for this industry.”
Rein visited the Hampden Crossing branch to get an explanation on May 8. “I couldn’t believe it and Tracey also seemed shocked,” Rein recalls. “I went into Tracey’s office, and she said we’d been denied because we engaged in animal reproduction. She had already appealed because it was an existing line of credit with a big history. We’d been there almost 30 years, but even the appeal was denied.”
The Hampden Crossing branch of U.S. Bank was contacted by Farm Journal and directed all questions toward U.S. Bank communications.
Darren Miller Stables’ income is almost entirely from horse training, Rein explains. “I could prove to U.S. Bank that only 10% of our income was from animal reproduction. Tracey told me when she appealed the underwriter’s decision, she told them that, but U.S. Bank had a list of internal businesses it didn’t support. The underwriter didn’t have a problem with horse training, but an issue with animal reproduction.”
On May 10, Erik Venning, Hampden Crossing branch manager, announced approval of her loan at 10%.
“Erik said they’d discussed everything with upper level management, realized the denial was a mistake, and offered me a new loan," Rein says. "But high interest is why I complained in the very beginning,” she says. “He told me the offer was firm, but that if I could find something better, to bring it in and they’d take a look. It was like price-matching at Walmart, and it made things seem even crazier.”
Rein filed complaints with the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Consumer Protection Financial Bureau (CPFB) in late May.
The OCC responded June 6, noting the issues had been addressed, but the OCC was also under the impression horse breeding was prohibited for loan eligibility by U.S. Bank.
The OCC response mirrors Rein’s assertion her eventual loan approval was due to involvement with horse training not breeding. On May 10, Venning and Romero appealed the loan application a second time, providing clarification of Rein’s income related to “the exact nature of the business. After review, the industry code (NAICS) was updated to accurately reflect the majority of your business as horse training and the application was approved.”
Contradictions and Codes
How did improper coding set off alarm bells for an activity that is, and was, according to U.S. Bank, not prohibited from the start? Ashley Arrington believes U.S. Bank’s explanation is incomplete. “It’s just my opinion, but animal reproduction must have been prohibited at some point, otherwise the code wouldn’t have triggered a kick-out,” she says. Arrington is the founder of AgriAuthority, an ag consulting company providing services in asset acquisition, business valuation and growth consulting.
U.S. Bank’s correspondence on May 1 and June 6, moves from the general to the specific, Arrington says. “The May 1 letter states the ‘product was not appropriate for the industry’ and that could potentially make sense for a lot of reasons, but the June 6 letter contradicts that. The June 6 letter gets really specific and says there are some industries U.S. Bank does not provide credit to, and moves away from the possibility that the wrong product was requested. It’s the June 6 letter that pops out to me because it goes into detail about horse breeding.”
Was it an error? “It may have been an error as far as someone putting in the wrong NAICS code, but it had to have been a prohibited industry in order for that code to kick out,” Arrington explains. “It appears U.S. Bank went right back in, put in a code for horse training, and suddenly the approval came through.”