Our Take
USDA is doing what the SBA learned too late: credit quality collapses quietly before regulators act, and one failed bank shows the cost of ignoring it.
Why it matters
Rural lenders face sudden eligibility loss in a $12 billion program already stressed by over $1 billion in delinquencies. The move signals federal impatience with underwriting failures in government-backed lending and may force smaller institutions to tighten credit standards or exit the space.
Do this week
Rural lenders: audit your OneRD portfolio delinquency rates and documentation standards against USDA's stated criteria for the 10 sanctioned entities before year-end, so you can preempt similar action.
USDA Ejects 10 Lenders Over Delinquent Loan Spike
The U.S. Department of Agriculture barred 10 lenders—five banks, three credit unions, and two nondepository firms—from its OneRD rural development loan guarantee program, citing responsibility for approximately $620 million in delinquent loans. The sanctioned group includes Celtic Bank (Salt Lake City, $4.8 billion in assets), Byline Bancorp (Chicago, $9.9 billion), Genisys Credit Union (Auburn Hills, Michigan, $6.4 billion), and Community Bank & Trust-West Georgia, which failed in May (per USDA announcement).
USDA stated the 10 lenders accounted for 47 percent of OneRD's total delinquent portfolio. The program had $1 billion in problem loans as of February, with $300 million in repayments and losses paid out in the preceding 12 months (per USDA disclosure). OneRD, created in 2020 to streamline rural lending applications, now carries $12 billion in active loan volume and has grown steadily despite rising defaults.
Agriculture Secretary Brooke Rollins said the department has "absolutely no tolerance for the irresponsible and noncompliant actions of these lenders." The ban is permanent unless regulations allow appeal, though at least one sanctioned lender—Genisys—has already signaled intent to seek informal review.
One Failed Bank Reveals a Wider Pattern
Community Bank & Trust's May failure is the canary in the coal mine. Its CEO, Jeremy Gilpin, was past chairman of the National Rural Lenders Association and a senior executive at Greater Nevada Credit Union (also sanctioned) before joining Community Bank in 2024. His presence at multiple failed or failing lenders suggests the problem was not isolated underwriting lapses but systematic credit culture weakness across a network of institutions.
The timing matters because the SBA faced identical credit-quality shocks in its 7(a) program, forcing it to raise lender fees and tighten underwriting a year ago after delinquencies outpaced revenues. USDA is moving faster than the SBA did, which suggests the federal government learned from that delay. Many sanctioned lenders also participate in the 7(a) program, meaning Celtic Bank, Ready Capital, and others now face reputational and operational pressure on two fronts.
OneRD is small by federal lending standards ($2.9 billion in fiscal 2026 funding authority), but concentration of defaults in 10 lenders means the program's stability depends on credit quality at a handful of intermediaries. USDA's action removes uncertainty about enforcement but forces remaining lenders to assume that delinquency audits are coming and tighter underwriting is now the cost of participation.
What Lenders Should Do Now
Rural lenders should pull delinquency reports for their OneRD and 7(a) portfolios and map them against the performance metrics that triggered USDA's ban. The agency did not publish its specific delinquency threshold, so lenders must model conservatively. If your OneRD delinquency rate exceeds 5–7 percent (industry rule-of-thumb for program viability), document remediation immediately and report to USDA before the agency flags you in an audit.
Compliance officers should also review loan files for the underwriting standards USDA has flagged as deficient. Documentation completeness, income verification depth, and collateral appraisals are the most likely vectors for enforcement. Lenders that rely on OneRD as a material revenue source should begin diversifying funding sources, as future sanctions could widen.
Finally, institutions with ties to the sanctioned lenders—either shared ownership, shared management, or correspondent relationships—should conduct conflict-of-interest reviews. Gilpin's movement between sanctioned entities suggests USDA may scrutinize networks, not just individual performance.