(a)

(1) If a producer makes any fraudulent representation in obtaining a MAL or LDP or in maintaining or settling a loan, or disposes of or moves the loan collateral without the prior written approval of CCC, such loan or LDP will be payable upon demand by CCC. The producer will be liable for:

(i) The amount of the MAL or LDP;

(ii) Any additional amounts paid by CCC for the loan or LDP;

(iii) All other costs which CCC would not have incurred but for the fraudulent representation or the unauthorized disposition or movement of the loan collateral;

(iv) Applicable interest on such amounts;

(v) Liquidated damages under paragraph (e) of this section; and

(vi) About amounts due for a loan, the payment of such amounts may not be satisfied by the forfeiture of loan collateral to CCC of cotton with a settlement value that is less than the total of such amounts or by repayment of such loan at the lower loan repayment rate as prescribed in §1427.19.

(vii) CCC will not assume any loss pertaining to cotton stored in a warehouse for any reason.

(2) If a producer makes a fraudulent representation or if the producer has disposed of, or moved the loan collateral without prior written approval from CCC, the value of such collateral will be equal to its loan value, plus accrued interest, plus warehouse charges, and liquidated damages, as determined by CCC.

(b) If the amount disbursed under a MAL, or in settlement thereof, or LDP exceeds the amount authorized by this subpart, the producer will be liable for repayment of the difference, plus interest. In addition, the commodity pledged as collateral for the loan will not be released to the producer until the difference is repaid.

(c) If the amount collected from the producer in satisfaction of the MAL or LDP is less than the amount required under this subpart, the producer will be personally liable for repayment of the amount of the difference plus applicable interest.

(d) If more than one producer executes a note and security agreement or LDP application with CCC, each producer is jointly and severally liable for the violation of the terms and conditions of the note and security agreement or LDP application and this subpart. Each producer also remains liable for repayment of the entire loan or LDP amount until the loan is fully repaid without regard to their share in the cotton pledged as collateral for the loan or for which the LDP was made. In addition, the producer may not amend the note and security agreement or LDP application for the producer's claimed share in the cotton after execution of the note and security agreement or LDP application by CCC.

(e) The producer and CCC agree that it will be difficult, if not impossible, to prove the amount of damages to CCC if a producer makes any fraudulent representation in obtaining a loan or LDP, in maintaining or settling a loan, or disposing of or moving the loan collateral without the prior written approval of CCC. Accordingly, if CCC determines that the producer has violated the terms or conditions of their requests for a loan or any applicable form required by CCC, liquidated damages will be assessed on the quantity involved in the violation. Liquidated damages assessed in accordance with this section will be determined by multiplying the quantity involved in the violation by 10 percent of the MAL rate applicable to the loan note.

(f) When it has been determined that a violation of the terms and conditions of a loan deficiency application has occurred, CCC will determine the quantity of the cotton involved with respect to such violation and assess liquidated damages by multiplying the quantity of cotton involved in the violation by 10 percent of the MAL rate.

(g) For cases other than first or second offenses, or any offense for which CCC cannot determine good faith when the violation occurred, CCC will:

(1) Assess liquidated damages under paragraph (e) of this section; and

(2) Call the applicable MAL involved in the violation and require repayment of any market loan gain previously realized for the applicable loan, plus any interest previously waived and any storage paid by CCC, and for an LDP, require repayment of the LDP and charges plus interest from the date the LDP was made.

(h) If the county committee acting on behalf of CCC determines that the producer has committed a violation under paragraph (e) of this section, CCC will notify the producer in writing that:

(1) The producer has 30 calendar days to provide evidence and information regarding the circumstances which caused the violation, to the county committee; and

(2) Administrative actions will be taken under paragraph (f) or (g) of this section.

(i) If CCC accelerates the maturity date for a loan under this section, the producer must repay the loan at principal and charges, plus interest and may not repay the loan at the lower of the loan repayment rate under §1427.19 or utilize the provisions of part 1401 of this chapter for such loan.

(j) Any or all of the liquidated damages assessed under paragraph (e) of this section may be waived as determined by CCC.

(k)

(1) Notwithstanding any other provision of this part, for ELS cotton stored as provided in §1427.10(f), the producer is liable for all costs associated with the storage of the cotton while it is stored outside. CCC will make no storage payment or any other payment with respect to ELS cotton stored as provided in §1427.10(f).

(2) The producer of ELS cotton that is stored as provided in §1427.10(f) must:

(i) Certify the quantity of such cotton on the loan application; certify the cotton is packaged in a hermetically sealed bag with an internal humidity level established by the gin as appropriate to safeguard the cotton; certify that packaging materials meet or exceed industry minimum standards; certify that the storage area is suitable for cotton storage and is in an area approved by CCC; certify that the storage area is constructed to prevent water accumulation under the cotton and is outside a 100-year floodplain; and certify that the storage area is serviced by bale handling and transport equipment that will not damage the sealed bag or degrade the storage area;

(ii) Be responsible for any loss in quantity or quality of such cotton;

(iii) If the loan is satisfied by forfeiting the cotton to CCC, be responsible for all costs associated with delivering such cotton to a warehouse designated by CCC, all costs associated with any re-classification and repackaging that may be required by CCC or the warehouse operator to whom the cotton is delivered, all charges by the receiving warehouse for receiving the cotton and issuing an electronic warehouse receipt for the cotton, and other charges as may be levied by the warehouse specific to outside-stored cotton; and

(iv) Not move such cotton after the loan application is submitted to CCC without prior written approval of the county committee. Failure of the producer to receive such permission will subject the producer to administrative actions.

[67 FR 64459, Oct. 18, 2002, as amended at 68 FR 49328, Aug. 18, 2003; 69 FR 12056, Mar. 15, 2004; 71 FR 32427, June 6, 2006; 73 FR 65721, Nov. 5, 2008; 80 FR 134, 139, Jan. 2, 2015]