Section 1 Short title
This Act may be cited as the “Small Business 7(a) Lending Oversight Reform Act of 2018”.
Small Business 7(a) Lending Oversight Reform Act of 2018
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.
Sec. 2 Definitions
In this Act, the terms Administration and Administrator mean the Small Business Administration and the Administrator thereof, respectively.
Sec. 3 Codification of the Office of Credit Risk Management and the Lender Oversight Committee
by redesignating section 47 as section 49; and
by inserting after section 46 the following:
“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—The Office is headed by the Director of the Office of Credit Risk Management (in this section referred to as the Director), who shall—
“(1) be a career appointee in a Senior Executive Service position (as defined in section 3132 of title 5, United States Code); and
“(2) be responsible for oversight of the lenders and participants described in subsection (b), including by conducting periodic reviews of the compliance and performance of those 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 review of a 7(a) lender that is conducted by a contractor of the Office on the premises of the 7(a) lender; and
“(B) supervise any review of a 7(a) lender that is not conducted on the premises 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-business-day period described in clause (i), notify the 7(a) lender in writing of the expected submission day 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 a response 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
“(i) In general—Any enforcement action taken with respect to a 7(a) lender by the Director under subparagraph (A)—
“(I) shall be based on the severity or frequency of the violation; and
“(II) 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 enactment of the Small Business 7(a) Lending Oversight Reform Act of 2018, the Administrator shall issue regulations, after opportunity for notice and comment under section 553 of title 5, United States Code, to carry out subsection (e).
“(g) Servicing and liquidation responsibilities—During any period during which a 7(a) lender is suspended from participating under section 7(a), or if a 7(a) lender is 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 an annual 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 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 by dollar and amount of loans for the year covered by the report;
“(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 gross and net number of loans made, and the gross and net dollar amount of loans made;
“(F) the number and dollar amount of total defaults and total repurchases, and the percentage and total 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—Effective for the first fiscal year occurring after the date of enactment of the Small Business 7(a) Lending Oversight Reform Act of 2018, and each fiscal year thereafter, the Director shall provide, in writing a budget submission and justification for the submission to the Administrator, which shall—
“(1) include the salaries and expenses of the Office and 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, United States Code; 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.
“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 appointed by the Administrator, of whom—
“(1) 3 members shall be voting members, of whom 2 shall be career appointees serving in a Senior Executive Service position (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 a formal enforcement action taken under subsection (d) or (e) of section 23, vote to recommend the action or vote to not recommend the action to the Administrator or a designee of the Administrator;
“(4) in carrying out paragraph (2) with respect to any other formal enforcement action not otherwise specified in 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 of the Office of Credit Risk Management; 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.”
Transfer of functions—
Office of Credit Risk Management— All functions of the Office of Credit Risk Management of the Administration, including the personnel, assets, and obligations of the Office of Credit Risk Management, as in existence on the day before the date of 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).
Lender Oversight Committee— All functions of the Lender Oversight Committee of the Administration, including the personnel, assets, and obligations of the Lender Oversight Committee, as in existence on the day before the date of 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).
Deeming of name—
Office of Credit Risk Management— Any reference in a law, regulation, document, paper, or other record of the United States to the Office of Credit Risk Management of the Administration shall be deemed a reference to the Office of Credit Risk Management of the Administration established under section 47 of the Small Business Act, as added by subsection (a).
Lender Oversight Committee— Any reference in a law, regulation, document, paper, or other record of the United States to the Lender Oversight Committee of the Administration shall be deemed a reference to the Lender Oversight Committee of the Administration established under section 48 of the Small Business Act, as added by subsection (a).
in section 3(r)(2) (15 U.S.C. 632(r)(2))—
in this paragraph heading, by striking “SBA”; and
in the matter preceding subparagraph (A), by striking “SBA”; and
in section 18 (15 U.S.C. 647), by striking subsection (b) and inserting the following:
“(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.”
Sec. 4 Definition of credit elsewhere
The Small Business Act (15 U.S.C. 631 et seq.) is amended—
in section 3 (15 U.S.C. 632), by striking subsection (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.”
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”.
Sec. 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—
by redesignating subsection (j) as subsection (f); and
by adding at the end the following:
“(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 total 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 the intent of the Administrator 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 the 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.”
Sec. 6 Disclosure of waivers
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—
the waiver shall be in writing and shall specify the grounds for approving the waiver; and
the Administrator shall notify the public of all waivers of regulations approved by the Administration, which notice shall—
be published in the Federal Register not less than annually;
cover the period beginning on the date after the last day covered by the previous notice;
describe the nature of the requirement that has been waived and specify the regulation involved;
include a brief description of the grounds for approval of the waiver; and
state how more information about the waiver and a copy of the request and the approval may be obtained.
No new waiver authority— Nothing in subsection (a) shall be construed as creating new authority for the Administrator to waive regulations of the Administration.
GAO study on standard operating procedures manual or policy notice waiver process— Not later than 1 year after the date of 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—
the methods and specific processes used by the Administration to waive requirements in the 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
the number of waivers described in paragraph (1) granted during the period of 5 fiscal years preceding the date of enactment of this Act.