[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2288 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 2288

 To establish portfolio quality standards, improve lender oversight by 
    the Small Business Administration, create economic outcome and 
 performance measurements, strengthen the loan programs under section 
   7(a) of the Small Business Act and title V of the Small Business 
            Investment Act of 1958, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 1, 2007

 Ms. Snowe (for herself and Mr. Kerry) introduced the following bill; 
 which was read twice and referred to the Committee on Small Business 
                          and Entrepreneurship

_______________________________________________________________________

                                 A BILL


 
 To establish portfolio quality standards, improve lender oversight by 
    the Small Business Administration, create economic outcome and 
 performance measurements, strengthen the loan programs under section 
   7(a) of the Small Business Act and title V of the Small Business 
            Investment Act of 1958, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Lending Oversight and 
Program Performance Improvement Act of 2007''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) Recent reports by the Government Accountability Office 
        have recommended that the Small Business Administration develop 
        better measurements and methods for measuring the performance 
        of lending programs and the effectiveness of lender oversight.
            (2) A July 2007 report by the Government Accountability 
        Office entitled ``Small Business Administration: Additional 
        Measures Needed to Assess 7(a) Loan Program's Performance'' 
        found the following:
                    (A) Determining the success of the loan programs 
                under section 7(a) of the Small Business Act (15 U.S.C. 
                636(a)) ``is difficult as the performance measures show 
                only outputs--the number of loans provided--and not 
                outcomes, or the fate of the businesses borrowing with 
                the guarantee.''.
                    (B) ``The current measures do not indicate how well 
                the agency is meeting its strategic goal of helping 
                small businesses.''.
                    (C) ``To better ensure that the 7(a) program is 
                meeting its mission responsibility of helping small 
                firms succeed through guaranteed loans, we recommend 
                that the SBA administrator complete and expand the 
                SBA's current work on evaluating the program's 
                performance measures. As part of that effort, at a 
                minimum, the SBA should further utilize the loan 
                performance information it already collects, including 
                but not limited to defaults, prepayments, and number of 
                loans in good standing, to better report how small 
                businesses fare after they participate in the 7(a) 
                program.''.
            (3) A June 2004 report by the Government Accountability 
        Office entitled ``Small Business Administration: New Services 
        for Lender Oversight Reflect Some Best Practices but Strategy 
        for Use Lags Behind'' found that ``Best practices dictate the 
        need for a clear and transparent understanding of how a risk 
        management service and the tools it provides will be used.''.

SEC. 3. DEFINITIONS.

    In this Act--
            (1) the terms ``Administration'' and ``Administrator'' mean 
        the Small Business Administration and the Administrator 
        thereof, respectively;
            (2) the term ``base year'' means the year in which a 
        covered loan recipient receives a loan under section 7(a) of 
        the Small Business Act (15 U.S.C. 636(a)) or the 504 Loan 
        Program;
            (3) the term ``covered lender'' means--
                    (A) a lender participating in the guarantee loan 
                program under section 7(a) of the Small Business Act 
                (15 U.S.C. 636(a)); and
                    (B) a State or local development company 
                participating in the 504 Loan Program;
            (4) the term ``covered loan recipient'' means a person that 
        receives a loan under section 7(a) of the Small Business Act 
        (15 U.S.C. 636(a)) or the 504 Loan Program;
            (5) the term ``economic performance evaluation 
        measurements'' means the economic performance evaluation 
        measurements established under section 8(a);
            (6) the term ``504 Loan Program'' means the program to 
        provide financing to small business concerns by guarantees of 
        loans under title V of the Small Business Investment Act of 
        1958 (15 U.S.C. 695 et seq.), which are funded by debentures 
        guaranteed by the Administrator;
            (7) the term ``portfolio quality evaluation standards'' 
        means the portfolio quality evaluation standards established 
        under section 5(a)(1); and
            (8) the term ``small business concern'' has the same 
        meaning as in section 3 of the Small Business Act (15 U.S.C. 
        632).

SEC. 4. AUTHORITY.

    Section 5 of the Small Business Act (15 U.S.C. 634) is amended--
            (1) in subsection (b)(14), by striking ``other lender 
        oversight activities'' and inserting ``used to improve 
        portfolio performance and lender oversight through technology 
        and software programs designed to increase program loan 
        quality, management, accuracy, and efficiency and program 
        underwriting accuracy and efficiency''; and
            (2) by adding at the end the following:
    ``(i) In establishing lender oversight review fees described in 
subsection (b)(14), the Administrator shall follow cost containment and 
cost control best practices that ensure that such fees are reasonable 
and do not become burdensome or excessive.''.

SEC. 5. PORTFOLIO QUALITY EVALUATION STANDARDS.

    (a) Standards.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Administrator shall develop and 
        publish in the Federal Register portfolio quality evaluation 
        standards for covered lenders, which shall include portfolio 
        quality criteria, including--
                    (A) a liquidation rate;
                    (B) a currency rate;
                    (C) a recovery rate;
                    (D) a delinquency rate; and
                    (E) other portfolio risk indicators.
            (2) Use.--The Administration shall use the portfolio 
        quality evaluation standards--
                    (A) to determine the portfolio quality of a covered 
                lender, in comparison to the portfolio quality of all 
                covered lenders; and
                    (B) for conducting lender oversight of covered 
                lenders.
    (b) Implementation.--The Administrator shall--
            (1) rank and determine a separate score for each covered 
        lender, on each of the portfolio quality evaluation standards;
            (2) combine the portfolio quality rankings described in 
        paragraph (1) to establish the overall lender portfolio quality 
        score for each covered lender, based on the compliance of that 
        covered lender with the portfolio quality evaluation standards;
            (3) provide a covered lender access to--
                    (A) the score of that covered lender for each of 
                the portfolio quality evaluation standards; and
                    (B) the overall portfolio quality score for that 
                covered lender; and
            (4) provide a written explanation of the factors affecting 
        the score described in paragraph (3)(A) for a covered lender to 
        that covered lender.
    (c) Quarterly Evaluations.--Not less frequently than once each 
quarter, the Administrator shall evaluate each covered lender to 
determine whether--
            (1) there has been a statistically significant adverse 
        change in the criteria evaluated under the portfolio quality 
        evaluation standards relating to a covered lender; and
            (2) the portfolio of that covered lender has a higher 
        concentration of loans made to businesses in a specific North 
        American Industry Classification System code (or any successor 
        thereto) than is typical for businesses in that code, as 
        determined by the Administrator.
    (d) Additional Onsite Review.--
            (1) Deterioration in loan portfolio.--If the Administrator 
        determines that there is significant and sustained 
        statistically adverse change in the loan portfolio of a covered 
        lender, based on the quarterly evaluation of that covered 
        lender under subsection (c), the Administrator shall--
                    (A) determine the reason for such deterioration;
                    (B) determine if the deterioration should lead to 
                an onsite review of the loan portfolio of that covered 
                lender;
                    (C) taking into consideration the opinion of the 
                relevant district director of the Administration, 
                determine whether it is appropriate for the 
                Administrator to adjust the preferred lender or other 
                loan making status of that covered lender;
                    (D) document the decision by the Administrator 
                regarding whether to conduct an onsite review or adjust 
                the loan making status of that covered lender; and
                    (E) inform that covered lender of any statistically 
                adverse change in loan quality of the portfolio of that 
                covered lender.
            (2) Adverse changes.--If the Administrator determines there 
        has been a statistically significant adverse change in the 
        criteria evaluated under the portfolio quality evaluation 
        standards relating to a covered lender, the Administrator shall 
        determine whether it is necessary to conduct an onsite review 
        of that covered lender.
            (3) Scope of review.--Any onsite review of a covered lender 
        under this subsection shall focus on--
                    (A) the credit quality of the loans within the 
                portfolio of that covered lender;
                    (B) the soundness of the credit evaluation and 
                underwriting processes and procedures of that covered 
                lender;
                    (C) the adherence by that covered lender to the 
                policies and procedures of the Administration; and
                    (D) any other measures that the Administrator 
                determines appropriate.
    (e) Defaults.--The Administrator shall provide to a covered lender 
information relating to any indicator under the portfolio quality 
evaluation standards that indicate an increased risk of default for 
specific loans.
    (f) Document Retention.--The Administrator shall maintain an 
electronic copy of any document relating to any portfolio quality 
evaluation or onsite review under this section (including documents 
relating to any determination regarding whether to conduct such a 
review).
    (g) Data Collection.--The Administrator shall enter into a contract 
with a fiscal and transfer agent of the Administration under which that 
fiscal and transfer agent shall provide to the Administrator the data 
necessary to conduct the quarterly evaluation of covered lenders using 
the portfolio quality evaluation standards under this section.

SEC. 6. DEFAULT RATE.

    (a) In General.--Using established industry standards for 
calculating loan default rates, and not later than 1 year after the 
date of enactment of this Act, and every year thereafter, the 
Administrator shall calculate a loan default rate for--
            (1) loans under section 7(a) of the Small Business Act (15 
        U.S.C. 636(a));
            (2) loans under the 504 Loan Program; and
            (3) specialty loan programs under section 7(a) of the Small 
        Business Act or the 504 Loan Program, including the Express 
        Loan Program under section 7(a)(31) of the Small Business Act 
        and the Export Working Capital Program under section 7(a)(14) 
        of the Small Business Act.
    (b) Methodology.--Not later than 1 year after the date of enactment 
of this Act, the Administrator shall publish in the Federal Register 
the methodology the Administrator will use to calculate default rates 
under subsection (a).
    (c) Purpose.--The purpose of the default rates calculated under 
subsection (a) is to provide a cumulative default rate for loans under 
section 7(a) of the Small Business Act (15 U.S.C. 636(a)) and loans 
under the 504 Loan Program that may be compared directly to the default 
rates of other commercial loans.

SEC. 7. COMPUTER MODELING.

    (a) Transparency in Ranking Criteria.--The Administrator--
            (1) shall provide each covered lender with the data, 
        factors, statistical methods, ranking criteria, indicators, and 
        other measures used to make the ranking described in section 
        5(b); and
            (2) may not charge a fee for providing the information 
        described in paragraph (1).
    (b) Failure To Provide.--In ranking a covered lender under section 
5(b), the Administrator may not use any data, factor, statistical 
method, ranking criteria, indicator, or other measure that the 
Administrator has not provided to that covered lender.
    (c) Contracts.--Before establishing or modifying any system or 
mechanism for evaluating the making of loans, the accounting for loans, 
the underwriting of loans, or otherwise overseeing loans made by 
covered lenders, the Administrator shall consult with relevant covered 
lenders.

SEC. 8. ECONOMIC PERFORMANCE EVALUATION MEASUREMENTS.

    (a) Measurements.--Not later than 1 year after the date of 
enactment of this Act, the Administrator shall develop and publish in 
the Federal Register economic performance evaluation measurements for 
evaluating the economic performance and economic outcomes of each 
covered loan recipient, which shall include--
            (1) number of individuals employed by that covered loan 
        recipient;
            (2) the annual sales receipts of that covered loan 
        recipient;
            (3) an estimate of the total annual Federal income tax paid 
        by that covered loan recipient;
            (4) whether the covered loan recipient prepaid the covered 
        loan;
            (5) whether the covered loan recipient defaulted on the 
        covered loan;
            (6) the number of businesses operated by covered loan 
        recipients that cease operations; and
            (7) the number of covered loan recipients that establish a 
        new business relating to the business for which that covered 
        loan recipient received a loan under section 7(a) of the Small 
        Business Act (15 U.S.C. 636(a)) or the 504 Loan Program.
    (b) Collection of Information.--
            (1) In general.--On and after the date that is 2 years 
        after the date of enactment of this Act, the Administrator 
        shall electronically collect, as part of the loan application 
        process, from the person applying for a loan under section 7(a) 
        of the Small Business Act (15 U.S.C. 636(a)) or the 504 Loan 
        Program--
                    (A) the number of individuals employed by the 
                applicant;
                    (B) the annual sales receipts of the applicant for 
                the year before the date of the application; and
                    (C) an estimate of the total annual Federal income 
                tax paid by that covered loan recipient.
            (2) Base year.--The Administrator shall use the information 
        collected under paragraph (1) to establish the base year 
        statistics for the applicant.
            (3) Information compliance.--
                    (A) In general.--During the 12-year period 
                beginning on the date that a covered loan recipient 
                receives a loan under section 7(a) of the Small 
                Business Act or the 504 Loan Program, as the case may 
                be, the covered loan recipient shall provide to the 
                Administrator information relating to the economic 
                performance evaluation measurements upon requested.
                    (B) Frequency.--The Administrator shall request 
                information from a covered loan recipient under 
                subparagraph (A) not less frequently than once every 4 
                years.
    (c) Reporting.--
            (1) In general.--Not later than 6 years after the date of 
        enactment of this Act, and every 4 years thereafter, the 
        Administrator shall publish a report assessing the information 
        relating to the economic performance evaluation measurements 
        submitted by covered loan recipients during the period 
        described in paragraph (2), including an evaluation of the 
        aggregate changes, if any, in the economic performance 
        evaluation measurements since the relevant base years for such 
        covered loan recipients.
            (2) Period.--The period described in this paragraph is--
                    (A) for the first report submitted under this 
                subsection, not shorter than the 4-year period before 
                the date of that report;
                    (B) for the second report submitted under this 
                subsection, not shorter than the 8-year period before 
                the date of that report; and
                    (C) for the third report submitted under this 
                subsection, and each report submitted thereafter, not 
                shorter than the 12-year period before the date of that 
                report.

SEC. 9. PRIVACY.

    In collecting data and preparing reports under this Act, the 
Administrator shall ensure that the privacy and information of covered 
loan recipients is protected.

SEC. 10. EXECUTIVE COMPENSATION.

    Section 503 of the Small Business Investment Act of 1958 (15 U.S.C. 
697) is amended by adding at the end the following:
    ``(j) Executive Compensation.--
            ``(1) In general.--Except as provided in paragraph (4), a 
        State or local development company shall have a written 
        contract with each executive or highly paid employee of that 
        development company relating to the employment of that 
        executive or highly paid employee, which shall include, for 
        that executive or employee, the amount of compensation, 
        benefits, and any transfer of anything of value to that 
        executive or highly paid employee, including any rental or 
        sale.
            ``(2) Approval by board of directors.--
                    ``(A) In general.--A written contract described in 
                paragraph (1) shall be approved by the board of 
                directors of the State or local development company.
                    ``(B) Evaluation.--In evaluating a contract 
                described in paragraph (1), the members of the board of 
                directors of a State or local development company 
                shall--
                            ``(i) determine the fair market value of 
                        the benefits received by an executive or highly 
                        paid employee from that development company; 
                        and
                            ``(ii) evaluate the amount paid by other 
                        State or local development companies and 
                        commercial lenders for comparable services, 
                        including, if a rental of property for that 
                        executive or highly paid employee is part of 
                        that contract, the amount of annual rent paid 
                        locally for comparable property.
                    ``(C) Distribution of evaluation.--The board of 
                directors of a State or local development company shall 
                ensure that the information described in subparagraph 
                (B) is made available to each member of that board of 
                directors before the date of the meeting at which the 
                board of directors will determine whether to approve 
                the relevant contract and include the information 
                described in subparagraph (B) in the minutes of that 
                meeting.
                    ``(D) Participation.--An executive or highly paid 
                official, and any other party with personal interest in 
                a contract, shall not attend a meeting of the board of 
                directors to determine whether to approve the contract 
                with that executive or highly paid official, unless the 
                members of the board of directors request that 
                executive or highly paid official respond to questions.
                    ``(E) Voting.--An executive or highly paid 
                official, and any other party with personal interest in 
                a contract, shall not be present during, and shall not 
                vote on, whether to approve the contract with that 
                executive or highly paid official.
            ``(3) Annual reports.--A State or local development company 
        shall report annually to the Administration regarding the terms 
        of each contract with each executive or highly paid official of 
        that development company.
            ``(4) Exception.--This subsection shall not apply to--
                    ``(A) a small State or local development company;
                    ``(B) a State or local development company that 
                makes a low number of loans under the 504 Loan Program; 
                or
                    ``(C) a State or local development company 
                regulated by a State or local government.
            ``(5) Regulations.--The Administrator shall promulgate 
        regulations to carry out this subsection, including defining 
        the terms `executive', `highly paid', `small State or local 
        development company', and `low number of loans'.''.

SEC. 11. STUDY AND REPORT ON EXAMINATION AND REVIEW FEES.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study of the Loan Guaranty Program under section 7(a) of the 
Small Business Act to determine--
            (1) the scope of lender oversight needed by the 
        Administration;
            (2) what other entities regulate the lenders that 
        participate in that loan guaranty program, what activities are 
        being reviewed, and the scope of such reviews;
            (3) how the amounts of examination and review fees are 
        determined by such other regulatory entities, who pays for such 
        fees, and how they compare with examination and review fees 
        proposed in regulations issued by the Administration on May 4, 
        2007;
            (4) how examination and review fees factor into the risk-
        adjusted return on capital (or ``RAROC'') ratings of lenders;
            (5) what would be reasonable fees to be charged for 
        Administration lender oversight;
            (6) whether Administration lender oversight functions can 
        be executed in conjunction with other lender reviews currently 
        required by other regulatory entities, including those that 
        review Federal banks, credit unions, or entities reviewed by 
        the Farm Credit Administration; and
            (7) the impact of lender oversight fees proposed by the 
        Administration on lending to borrowers, including cost changes, 
        availability of credit, and increased or decreased lender 
        participation.
    (b) Report.--The Comptroller General shall submit to Congress a 
report on the results of the study required by subsection (a) not later 
than 1 year after the date of enactment of this Act.
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