1.This Act may be cited as the
Small Business Lending Oversight and
Program Performance Improvement Act of 2007
.
2.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.
.
3.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).
4.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.
.
5.Portfolio
quality evaluation standards
(a)
(1)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)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)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)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)
(1)Deterioration
in loan portfolioIf 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)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)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)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)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)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.
6.
(a)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)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)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.
7.
(a)Transparency in
ranking criteriaThe 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)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)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.
8.Economic
performance evaluation measurements
(a)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)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)The Administrator shall use the information collected under
paragraph (1) to establish the base year statistics for the applicant.
(3)
(A)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)The
Administrator shall request information from a covered loan recipient under
subparagraph (A) not less frequently than once every 4 years.
(c)
(1)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)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.
9.In collecting data and preparing reports
under this Act, the Administrator shall ensure that the privacy and information
of covered loan recipients is protected.
10.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)
(1)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)A written contract described in paragraph (1) shall be
approved by the board of directors of the State or local development
company.
(B)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
evaluationThe 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)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)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)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)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)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.
.
11.Study and
report on examination and review fees
(a)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)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.