USDA issues final rule revising PACA Trust provisions

The US Department of Agriculture (USDA) has issued a final rule revising Perishable Agricultural Commodity Act (PACA) provisions regarding post-default agreements for payments. This rule clarifies that PACA’s post-default agreements do not mean a company waives or forfeits its rights to the PACA Trust.

As part of the final rule, which took effect April 13, the new regulation will reverse a series of court decisions holding that post-default payment agreements eliminated PACA Trust protections. Under the new regulation, such post-default agreements for payment will not be considered by the Agricultural Marketing Service (AMS) to adversely affect trust protections.

In June 2010, USDA issued a proposed rule on changes to the PACA Trust provisions. Upon this announcement, the United Fresh Produce Association issued an industry briefing paper, announced the formation of a PACA Trust Working Group, and held an industry webinar to discuss the USDA proposal and industry action. In September 2010, the PACA Trust Working Group submitted comments to USDA on the new rule and asked for key changes, including striking the 180-day provision and modifying the regulation so post-default agreements do not waive or forfeit a supplier’s properly preserved trust rights.

“We are extremely pleased that the PACA Trust final rule issued by USDA has agreed with the industry comments and adopted important changes urged by United Fresh and our allied produce partners,” said Robert Guenther, senior vice-president of public policy for United Fresh. “This change is a very big victory for United Fresh and our members, and will reduce the significant financial burden of potential litigation and collection fees. It also preserves the critical functions of the PACA Trust rights, a fundamental component in the commerce of fresh produce in the United States.”

As part of the final rule, USDA agreed with the comments submitted by United Fresh and now will permit sellers to enter post-default payment agreements without raising the concern that such agreements fall outside payment terms that qualify for PACA trust protection. According to the final rule, such agreements may be oral or in writing (the proposed rule would have required written agreements). Finally, the underlying PACA debt will remain subject to the Trust, assuming the PACA Trust was properly perfected prior to the default.

“It is our interpretation of the statute and regulations that post-default agreements are not an extension of the 30-day maximum time period for pre-transaction agreements that would result in a waiver of the seller’s Trust rights; post-default payment agreements are an attempt to collect a debt that remains due until fully paid,” USDA said in the April 12 Federal Register.

For more information, visit www.unitedfresh.org or call 202-303-3400.