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H.R. 4743 (115th): Small Business 7(a) Lending Oversight Reform Act of 2018

The text of the bill below is as of Jan 9, 2018 (Introduced).


I

115th CONGRESS

2d Session

H. R. 4743

IN THE HOUSE OF REPRESENTATIVES

January 9, 2018

(for himself and Ms. Velázquez) introduced the following bill; which was referred to the Committee on Small Business

A BILL

To amend the Small Business Act to strengthen the Office of Credit Risk Management within the Small Business Administration, and for other purposes.

1.

Short title

This Act may be cited as the Small Business 7(a) Lending Oversight Reform Act of 2018.

2.

Definitions

In this Act, the terms Administration and Administrator mean the Small Business Administration and the Administrator thereof, respectively.

3.

Codification of the Office of Credit Risk Management and the Lender Oversight Committee

(a)

In general

The Small Business Act (15 U.S.C. 631 et seq.) is amended—

(1)

by redesignating section 47 as section 49; and

(2)

by inserting after section 46 the following new sections:

47.

Office of Credit Risk Management

(a)

Establishment

There is established within the Administration the Office of Credit Risk Management (in this section referred to as the Office).

(b)

Duties

The Office shall be responsible for supervising—

(1)

any lender making loans under section 7(a) (in this section referred to as a 7(a) lender);

(2)

any participant in a lending program of the Office of Capital Access of the Administration; and

(3)

any small business lending company or a non-Federally regulated lender without regard to the requirements of section 23.

(c)

Director

(1)

In general

The Office shall be headed by the Director of the Office of Credit Risk Management (in this section referred to as the Director), who shall be a career appointee in the Senior Executive Service (as defined in section 3132 of title 5, United States Code).

(2)

Duties

The Director shall be responsible for oversight of the lenders and participants described in subsection (b), including by conducting periodic reviews of the compliance and performance of such lenders and participants.

(d)

Supervision duties for 7(a) lenders

(1)

Reviews

With respect to 7(a) lenders, an employee of the Office shall—

(A)

be present for and supervise any such review that is conducted by a contractor of the Office on the premise of the 7(a) lender; and

(B)

supervise any such review that is not conducted on the premise of the 7(a) lender.

(2)

Review report timeline

Notwithstanding any other requirements of the Office or the Administrator, the Administrator shall develop and implement a review report timeline which shall—

(A)

require the Administrator to—

(i)

deliver a written report of the review to the 7(a) lender not later than 60 business days after the date on which the review is conducted; or

(ii)

if the Administrator expects to submit the report after the end of the 60-day period described in clause (i), notify the 7(a) lender of the expected date of submission of the report and the reason for the delay; and

(B)

if a response by the 7(a) lender is requested in a report submitted under subparagraph (A), require the 7(a) lender to submit responses to the Administrator not later than 45 business days after the date on which the 7(a) lender receives the report.

(e)

Enforcement authority against 7(a) lenders

(1)

Informal enforcement authority

The Director may take an informal enforcement action against a 7(a) lender if the Director finds that the 7(a) lender has violated a requirement under section 7(a) or any requirement in a Standard Operating Procedures Manual or Policy Notice related to a program or function of the Office of Capital Access.

(2)

Formal enforcement authority

(A)

In general

With the approval of the Lender Oversight Committee established under section 48, the Director may take a formal enforcement action against any 7(a) lender if the Director finds that the 7(a) lender has violated—

(i)

a requirement under section 7(a), including a requirement relating to credit elsewhere, or any regulation implementing such section; or

(ii)

any requirement described in a Standard Operating Procedures Manual or Policy Notice, related to a program or function of the Office of Capital Access.

(B)

Enforcement actions

An enforcement action imposed on a 7(a) lender by the Director under subparagraph (A) shall be based on the severity or frequency of the violation and may include assessing a civil monetary penalty against the 7(a) lender in an amount that is not greater than $250,000.

(3)

Appeal by lender

A 7(a) lender may appeal an enforcement action imposed by the Director described in paragraph (2) to the Office of Hearings and Appeals established under section 5(i) or to an appropriate district court of the United States.

(f)

Regulations

Not later than 1 year after the date of the enactment of this section, the Administrator shall issue regulations, after opportunity for notice and comment, to carry out subsection (e).

(g)

Servicing and liquidation responsibilities

During any period during which a 7(a) lender is suspended or otherwise prohibited from making loans under section 7(a), the 7(a) lender shall remain obligated to maintain all servicing and liquidation activities delegated to the lender by the Administrator, unless otherwise specified by the Director.

(h)

Portfolio risk analysis of 7(a) loans

(1)

In general

The Director shall annually conduct a risk analysis of the portfolio of the Administration with respect to all loans guaranteed under section 7(a).

(2)

Report to Congress

On December 1, 2018, and every December 1 thereafter, the Director shall submit to Congress a report containing the results of each portfolio risk analysis conducted under paragraph (1) during the fiscal year preceding the submission of the report, which shall include—

(A)

an analysis of the overall program risk of loans guaranteed under section 7(a);

(B)

an analysis of the program risk, set forth separately by industry concentration;

(C)

without identifying individual 7(a) lenders by name, a consolidated analysis of the risk created by the individual 7(a) lenders responsible for not less than 1 percent of the gross loan approvals set forth separately for the year covered by the report by—

(i)

the dollar value of the loans made by such 7(a) lenders; and

(ii)

the number of loans made by such 7(a) lenders;

(D)

steps taken by the Administrator to mitigate the risks identified in subparagraphs (A), (B), and (C);

(E)

the number of 7(a) lenders, the number of loans made, and the gross and net dollar amount of loans made;

(F)

the number and dollar amount of total defaults, the number and dollar amount of total repurchases, and the percentage and dollar amount of recoveries;

(G)

the number and type of enforcement actions recommended by the Director;

(H)

the number and type of enforcement actions approved by the Lender Oversight Committee established under section 48;

(I)

the number and type of enforcement actions disapproved by the Lender Oversight Committee; and

(J)

the number and dollar amount of civil monetary penalties assessed.

(i)

Budget submission and justification

The Director shall annually provide, in writing, a fiscal year budget submission for the Office and a justification for such submission to the Administrator. Such submission and justification shall—

(1)

include salaries and expenses of the Office and the charge for the lender oversight fees;

(2)

be submitted at or about the time of the budget submission by the President under section 1105(a) of title 31; and

(3)

be maintained in an indexed form and made available for public review for a period of not less than 5 years beginning on the date of submission and justification.

48.

Lender Oversight Committee

(a)

Establishment

There is established within the Administration the Lender Oversight Committee (in this section referred to as the Committee).

(b)

Membership

The Committee shall consist of 11 members selected by the Administrator, of which—

(1)

3 members shall be voting members, 2 of whom shall be career appointees in the Senior Executive Service (as defined in section 3132 of title 5, United States Code); and

(2)

8 members shall be nonvoting members who shall serve in an advisory capacity on the Committee.

(c)

Duties

The Committee shall—

(1)

review reports on lender oversight activities;

(2)

review formal enforcement action recommendations of the Director of the Office of Credit Risk Management with respect to any lender making loans under section 7(a) and any participant in a lending program of the Office of Capital Access of the Administration;

(3)

in carrying out paragraph (2) with respect to formal enforcement actions taken under subsection (d) or (e) of section 23, vote to recommend or not recommend action to the Administrator or a designee of the Administrator;

(4)

in carrying out paragraph (2) with respect to any formal enforcement action not specified under subsection (d) or (e) of section 23, vote to approve, disapprove, or modify the action;

(5)

review, in an advisory capacity, any lender oversight, portfolio risk management, or program integrity matters brought by the Director; and

(6)

take such other actions and perform such other functions as may be delegated to the Committee by the Administrator.

(d)

Meetings

(1)

In general

The Committee shall meet as necessary, but not less frequently than on a quarterly basis.

(2)

Reports

The Committee shall submit to the Administrator a report detailing each meeting of the Committee, including if the Committee does or does not vote to recommend a formal enforcement action of the Director of the Office of Credit Risk Management with respect to a lender.

.

(b)

Transfer of functions

(1)

Office of Credit Risk Management

All functions of the Office of Credit Risk Management of the Small Business Administration, including the personnel, assets, and obligation of the Office of Credit Risk Management, as in existence on the day before the date of the enactment of this Act, shall be transferred to the Office of Credit Risk Management established under section 47 of the Small Business Act, as added by subsection (a).

(2)

Lender Oversight Committee

All functions of the Lender Oversight Committee of the Small Business Administration, including the personnel, assets, and obligations of the Lender Oversight Committee, as in existence on the day before the date of the enactment of this Act, shall be transferred to the Lender Oversight Committee established under section 48 of the Small Business Act, as added by subsection (a).

(c)

Deeming of name

(1)

Office of Credit Risk Management

Any reference in a law, regulation, guidance, document, paper, or other record of the United States to the Office of Credit Risk Management of the Small Business Administration shall be deemed a reference to the Office of Credit Risk Management, established under section 47 of the Small Business Act, as added by subsection (a).

(2)

Lender Oversight Committee

Any reference in a law, regulation, guidance, document, paper, or other record of the United States to the Lender Oversight Committee of the Small Business Administration shall be deemed a reference to the Lender Oversight Committee, established under section 48 of the Small Business Act, as added by subsection (a).

(d)

Technical amendment

Section 3(r)(2) of the Small Business Act (15 U.S.C. 632(r)(2)) is amended by striking regulated SBA lender each place it appears in heading and text and inserting regulated lender.

4.

Definition of credit elsewhere

(a)

In general

The Small Business Act (15 U.S.C. 631 et seq.) is amended—

(1)

by striking section 3(h) (15 U.S.C. 632(h)) and inserting the following:

(h)

The term credit elsewhere means—

(1)

for the purposes of this Act (except as used in section 7(b)), the availability of credit on reasonable terms and conditions to the individual loan applicant from non-Federal, non-State, or non-local government sources, considering factors associated with conventional lending practices, including—

(A)

the business industry in which the loan applicant operates;

(B)

whether the loan applicant is an enterprise that has been in operation for a period of not more than 2 years;

(C)

the adequacy of the collateral available to secure the requested loan;

(D)

the loan term necessary to reasonably assure the ability of the loan applicant to repay the debt from the actual or projected cash flow of the business; and

(E)

any other factor relating to the particular credit application, as documented in detail by the lender, that cannot be overcome except through obtaining a Federal loan guarantee under prudent lending standards; and

(2)

for the purposes of section 7(b), the availability of credit on reasonable terms and conditions from non-Federal sources taking into consideration the prevailing rates and terms in the community in or near where the applicant small business concern transacts business, or the applicant homeowner resides, for similar purposes and periods of time.

; and

(2)

in section 7(a)(1)(A)(i) (15 U.S.C. 636(a)(1)(A)(i)), by inserting The Administrator has the authority to direct, and conduct oversight for, the methods by which lenders determine whether a borrower is able to obtain credit elsewhere. before No financial assistance.

(b)

Technical amendment

Section 18(b) of the Small Business Act (15 U.S.C. 647(b)) is amended to read as follows:

(b)

As used in this Act, the term agricultural enterprises means those small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries.

.

5.

Authority for Administrator to increase amount for general business loans

Section 20 of the Small Business Act (15 U.S.C. 631 note) is amended—

(1)

by redesignating subsection (j) as subsection (f); and

(2)

by adding at the end the following new subsection:

(g)

Authority To increase amount of general business loans

(1)

In general

With respect to fiscal year 2018 and each fiscal year thereafter, if the Administrator determines that the amount of commitments by the Administrator for general business loans authorized under section 7(a) for a fiscal year could exceed the limit on the total amount of commitments the Administrator may make for those loans under this Act, an appropriations Act, or any other provision of law, the Administrator may make commitments for those loans for that fiscal year in an aggregate amount equal to not more than 115 percent of that limit.

(2)

Approval required before exercising authority

(A)

In general

Not later than 30 days before the date on which the Administrator intends to exercise the authority under paragraph (1), the Administrator shall submit notice of intent to exercise the authority to—

(i)

the Committee on Small Business and Entrepreneurship and the Subcommittee on Financial Services and General Government of the Committee on Appropriations of the Senate; and

(ii)

the Committee on Small Business and the Subcommittee on Financial Services and General Government of the Committee on Appropriations of the House of Representatives.

(B)

Approval

The Administrator may not exercise the authority under paragraph (1) unless such exercise of authority has been approved, in writing, by the Committee on Appropriations and the Committee on Small Business and Entrepreneurship of the Senate and the Committee on Appropriations and the Committee on Small Business of the House of Representatives.

(3)

Limitation

The Administrator shall not exercise the authority under paragraph (1) more than once during any fiscal year.

.

6.

Disclosure of waivers

(a)

In general

If the Administrator exercises statutory or regulatory authority to waive a regulation related to a program or function of the Office of Capital Access of the Administration—

(1)

the waiver shall be in writing and shall specify the grounds for approving the waiver; and

(2)

the Administrator shall notify the public of all waivers of regulations approved by the Administration, which notice shall—

(A)

be published in the Federal Register not less than annually;

(B)

cover the period beginning on the date after the last day covered by the previous notice;

(C)

describe the nature of the requirement that has been waived and specify the regulation involved;

(D)

include a brief description of the grounds for approval of the waiver; and

(E)

state how more information about the waiver and a copy of the request and the approval may be obtained.

(b)

No new waiver authority

Nothing in subsection (a) shall be construed as creating new authority for the Administrator to waive regulations of the Administration.

(c)

GAO study on Standard Operating Procedures Manual or Policy Notice waiver process

Not later than 1 year after the date of the enactment of this Act, the Comptroller General of the United States shall submit to the Committee on Small Business and Entrepreneurship of the Senate and the Committee on Small Business of the House of Representatives a report evaluating—

(1)

the methods and specific processes used by the Small Business Administration to waive requirements in Standard Operating Procedures Manual or Policy Notices relating to loans made under section 7(a) of the Small Business Act (15 U.S.C. 636(a)); and

(2)

the number of such waivers granted during the period of 5 fiscal years preceding the date of the enactment of this Act.