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USDA issues final rule on PACA Trust provision

by press release | April 11, 2011

WASHINGTON -- The U.S. Department of Agriculture will issue a final rule April 12 on revising the Perishable Agricultural Commodity Act regulators regarding post-default agreements for payments, according to a press release from the United Fresh Produce Association. The rule will take effect Wednesday, April 13.

As part of the final rule, 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 AMS to adversely affect trust protections.

In June of last year, USDA issued a proposed rule on changes to the PACA Trust provisions. Upon this announcement, United Fresh 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, 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 that 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," Robert Guenther, senior vice president of public policy for United Fresh, said in the April 11 press release. "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 that the PACA Trust was properly perfected prior to the default.