[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 2992 Introduced in Senate (IS)]

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114th CONGRESS
  2d Session
                                S. 2992

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


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 25, 2016

 Mr. Vitter (for himself, Mrs. Shaheen, Mr. Risch, Ms. Ayotte, and Mr. 
    Peters) introduced the following bill; which was read twice and 
    referred to the Committee on Small Business and Entrepreneurship

_______________________________________________________________________

                                 A BILL


 
To amend the Small Business Act to strengthen the Office of Credit Risk 
    Management of the Small Business Administration, 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 Act 
of 2016''.

SEC. 2. OFFICE OF CREDIT RISK MANAGEMENT; STRESS ANALYSES.

    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:

``SEC. 47. OFFICE OF CREDIT RISK MANAGEMENT.

    ``(a) In General.--There is within the Administration the Office of 
Credit Risk Management (in this section referred to as the `Office').
    ``(b) Director.--The Office is headed by the Director of the Office 
of Credit Risk Management (in this section referred to as the 
`Director').
    ``(c) Supervision.--
            ``(1) Final reports.--The Director shall issue any final 
        report relating to a review of any entity authorized to issue a 
        loan or loan guarantee under section 7 or under title V of the 
        Small Business Investment Act of 1958 (15 U.S.C. 695 et seq.).
            ``(2) Reviews.--An employee of the Office shall be present 
        for and supervise any full review conducted by a contractor of 
        the Administration.
    ``(d) Enforcement Authority of the Director.--
            ``(1) In general.--In addition to other enforcement actions 
        authorized under regulations promulgated by the Administration, 
        the Director shall impose penalties on any lender that finances 
        loans under section 7(a) if the lender knowingly and 
        repeatedly--
                    ``(A) fails to properly determine and document that 
                a loan is eligible for financing under this Act and 
                regulations promulgated under this Act, including a 
                failure to document that a loan is eligible for 
                financing under section 7(a) because the applicant is 
                unable to obtain credit elsewhere;
                    ``(B) sells the guaranteed portion of a loan under 
                section 5(f) when the proceeds of the loan have not 
                been fully disbursed in accordance with program 
                requirements;
                    ``(C) imposes on an applicant for a loan under 
                section 7(a) a fee that the Administration has not 
                specifically authorized; or
                    ``(D) re-amortizes a loan solely to make the loan 
                appear current.
            ``(2) Penalties.--In addition to the authority of the 
        Administrator to deny liability for a loan, the Director may 
        impose a penalty on a lender that knowingly and repeatedly 
        violates the requirements of section 7(a) and the regulations 
        promulgated under that section, including by committing 
        violations described in paragraph (1), which--
                    ``(A) shall be based on--
                            ``(i) the severity of the violations; and
                            ``(ii) the frequency with which the lender 
                        fails to comply with the requirements; and
                    ``(B) may include--
                            ``(i) issuing the lender a warning and an 
                        order to comply;
                            ``(ii) if the lender is a participant in 
                        the Preferred Lenders Program (in this 
                        subsection referred to as the `program'), as 
                        defined in section 7(a)(2)(C)(iii), suspending 
                        the lender from participating in the program 
                        for a period of not less than 90 days and not 
                        more than 1 year, which shall include the right 
                        of the lender to appeal the decision of the 
                        Director to the Office of Hearings and Appeals;
                            ``(iii) prohibiting the lender from issuing 
                        loans under section 7(a) under processes 
                        determined by the Administrator through 
                        regulation, which shall include the right of 
                        the lender to appeal the decision of the 
                        Director to the Office of Hearings and Appeals;
                            ``(iv) assessing a civil monetary penalty 
                        against the lender in an amount that is not 
                        less than $5,000 and not greater than $250,000, 
                        which shall include the right of the lender to 
                        appeal the decision of the Director to the 
                        Office of Hearings and Appeals;
                            ``(v) prohibiting a lender from selling in 
                        the secondary market, under section 5(f), the 
                        guaranteed portion of any loan made by the 
                        lender; and
                            ``(vi) any other penalty that the Director 
                        determines to be appropriate after considering 
                        the severity and the frequency of the 
                        violations of the lender.
            ``(3) Regulations.--With respect to the penalties described 
        in clauses (ii), (iii), and (iv) of paragraph (2)(B), the 
        Administrator shall--
                    ``(A) not later than 180 days after the date of 
                enactment of this section, propose amendments to any 
                regulations in effect on the date of enactment of this 
                section; and
                    ``(B) not later than 1 year after the date of 
                enactment of this section, publish a final regulation.
            ``(4) Servicing and liquidation responsibilities.--During 
        any period in which a lender is suspended from participating in 
        the program, or if a lender is prohibited from issuing loans 
        under section 7(a), the lender shall remain obligated to 
        maintain all servicing and liquidation activities delegated to 
        the lender by the Administrator.
    ``(e) Report to Congress.--Not later than December 31 of each year, 
the Office shall submit to Congress a report detailing the subject 
matter and frequency of actions taken by the Office during the year 
preceding the submission of the report.

``SEC. 48. PORTFOLIO RISK ANALYSES.

    ``(a) In General.--The Administrator shall annually conduct a risk 
analysis of the portfolio of the Administration with respect to all 
loans issued under section 7(a).
    ``(b) Report.--
            ``(1) In general.--Beginning on April 1, 2018, and annually 
        thereafter, the Director of the Office of Credit Risk 
        Management shall submit to Congress a report containing the 
        results of each portfolio risk analysis conducted under 
        subsection (a).
            ``(2) Contents.--A report submitted under paragraph (1) 
        shall include--
                    ``(A) an analysis of overall program risk;
                    ``(B) an analysis of program risk--
                            ``(i) by industry concentration;
                            ``(ii) by geography; and
                            ``(iii) by program loan interest rates;
                    ``(C) without identifying individual lenders by 
                name, a consolidated analysis of the risk created by 
                the individual lenders responsible for not less than 1 
                percent of the gross loan approvals for the year 
                covered by the report; and
                    ``(D) a summary of the steps taken by the 
                Administration to mitigate the risks identified in 
                subparagraphs (A), (B), and (C).''.

SEC. 3. CREDIT ELSEWHERE.

    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 for section 
        7(b), the availability of credit to the individual loan 
        applicant on reasonable terms and conditions from non-Federal, 
        non-State, or non-local government sources, taking into 
        consideration factors associated with conventional lending 
        practices, including but not limited to--
                    ``(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 less than 2 
                years;
                    ``(C) the adequacy of the collateral available to 
                secure the requested loan; and
                    ``(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
            ``(2) for the purposes of section 7(b), the availability of 
        credit from non-Federal sources on reasonable terms and 
        conditions taking into consideration the prevailing rates and 
        terms in the community in or near where the concern transacts 
        business, or the homeowner resides, for similar purposes and 
        periods of time.''; and
            (2) by striking section 18(b) (15 U.S.C. 647(b)) and 
        inserting the following:
    ``(b) As used in this Act, the term `agricultural enterprises' 
means those businesses engaged in the production of food and fiber, 
ranching, and raising of livestock, aquaculture, and all other farming 
and agricultural related industries.''.

SEC. 4. OVERSIGHT FEES.

    (a) Fees for the Operation of the Office of Credit Risk 
Management.--Section 7(a)(23) of the Small Business Act (15 U.S.C. 
636(a)(23)) is amended--
            (1) in subparagraph (A)--
                    (A) by striking ``With respect to'' and inserting 
                the following:
                            ``(i) Reduction of administration costs.--
                        With respect to''; and
                    (B) by adding at the end the following:
                            ``(ii) Office of credit risk management.--
                        The Administration shall assess and collect a 
                        fee equal to 0.03 percent per year of the 
                        outstanding balance of the deferred 
                        participation share of each loan approved under 
                        this subsection, the proceeds of which shall be 
                        used solely to support the operations of the 
                        Office of Credit Risk Management.''; and
            (2) in subparagraph (B), by striking ``fee assessed'' and 
        inserting ``fees assessed''.
    (b) Secondary Market Sales.--Section 5(g)(4)(A) of the Small 
Business Act (15 U.S.C. 634(g)(4)(A)) is amended by striking the first 
sentence and inserting ``The Administrator shall collect a fee for any 
loan guarantee sold into the secondary market under subsection (f) in 
an amount equal to 50 percent of the portion of the sale price that 
exceeds 108 percent of the outstanding principal amount of the portion 
of the loan guaranteed by the Administration.''.

SEC. 5. REDUCTION OF RISK.

    (a) Lender Concentration.--Section 7(a)(1) of the Small Business 
Act (15 U.S.C. 636(a)(1)) is amended by adding at the end the 
following:
                    ``(D) Portfolio concentrations.--
                            ``(i) Concentration of loans made with no 
                        equity contribution.--
                                    ``(I) In general.--Not later than 
                                December 31 of each year, the 
                                Administrator shall calculate, as of 
                                September 30 of the year in which the 
                                calculation is made and for each lender 
                                that issues loans under this section, 
                                the percentage of loans in the 
                                portfolio of the lender that were made 
                                without a contribution of equity by the 
                                borrower when the purpose of the loan 
                                was to establish a new small business 
                                concern, to effectuate a change of 
                                ownership of a small business concern, 
                                or to purchase real estate.
                                    ``(II) Approval.--If, after making 
                                the calculation required under 
                                subclause (I), the Administrator 
                                determines that more than 15 percent of 
                                the loans of a lender are as described 
                                in that subclause, any loan application 
                                submitted to the lender that would 
                                provide financing without a 
                                contribution of equity by the borrower 
                                and for one of the purposes described 
                                in that subclause may not be approved 
                                under the authority delegated to a 
                                lender as a participant in the 
                                Preferred Lenders Program, as defined 
                                in paragraph (2)(C)(iii) and if 
                                applicable.
                                    ``(III) Exemptions.--Subclause (II) 
                                shall not apply to any lender that 
                                originates loans under section 7(a), 
                                the aggregate amount of which equals 
                                less than 1 percent of the annual total 
                                program authorization, based upon gross 
                                loan approvals for the fiscal year 
                                preceding the year in which the 
                                calculation is made under subclause 
                                (I).
                            ``(ii) Industry concentration.--
                                    ``(I) In general.--Not later than 
                                December 31 of each year, the 
                                Administrator shall calculate, as of 
                                September 30 of the year in which the 
                                calculation is made, for each lender 
                                that issues loans under this section, 
                                and using the applicable 6-digit 
                                classification code under the North 
                                American Industry Classification 
                                System, industry concentrations for 
                                each lender.
                                    ``(II) Approval.--If, after making 
                                the calculation required under 
                                subclause (I), the Administrator 
                                determines that more than 20 percent of 
                                the loans of a lender are concentrated 
                                in a single industry, any loan 
                                application submitted to the lender 
                                from a small business concern operating 
                                in that industry may not be approved 
                                under the authority delegated to the 
                                lender as a participant in the 
                                Preferred Lenders Program, as defined 
                                in paragraph (2)(C)(iii) and if 
                                applicable.
                                    ``(III) Exemptions.--Subclause (II) 
                                shall not apply to any lender that 
                                originates loans under section 7(a), 
                                the aggregate amount of which equals 
                                less than 1 percent of the annual total 
                                program authorization, based upon gross 
                                loan approvals for the fiscal year 
                                preceding the year in which the 
                                calculation is made under subclause 
                                (I).
                    ``(E) Financing in excess of 100 percent.--The 
                Administrator may not approve a loan under subparagraph 
                (D) if the loan provides financing in an amount that is 
                more than 100 percent of the project costs.''.
    (b) Regulations.--
            (1) In general.--The Administrator of the Small Business 
        Administration shall--
                    (A) not later than 180 days after the date of 
                enactment of this Act, issue proposed regulations to 
                implement this section and the amendments made by this 
                section; and
                    (B) not later than 1 year after the date of 
                enactment of this Act, publish final regulations 
                implementing this section and the amendments made by 
                this section.
            (2) Content.--The regulations described in subparagraphs 
        (A) and (B) of paragraph (1) shall include factors, such as the 
        balance sheet equity of a borrower, that a lender may consider 
        when determining whether and how much equity will be required 
        to ensure that a loan is creditworthy.

SEC. 6. ISSUES WITH RESPECT TO LOANS TO SMALL BUSINESS CONCERNS.

    Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is 
amended by adding at the end the following:
            ``(35) Accuracy requirement.--Any lender that is required 
        to report information to the Administration with respect to a 
        loan guaranteed under this subsection on Form 1502, or any 
        successor form that contains the information in Form 1502 as in 
        effect on January 1, 2016, and has been approved by the 
        Director of the Office of Management and Budget under section 
        3507 of title 44, United States Code, shall ensure that the 
        information on such form is complete and accurate.
            ``(36) Use of outside agents.--
                    ``(A) In general.--For a loan made under this 
                subsection, a lender may use an outside agent or lender 
                service provider to assist in identifying potential 
                applicants and with processing, disbursing, servicing, 
                and liquidating the loan, except that the lender, and 
                not any agent, shall be wholly responsible for--
                            ``(i) the accuracy of all information 
                        submitted with respect to the loan;
                            ``(ii) all decisions with respect to the 
                        eligibility and creditworthiness of the loan 
                        applicant; and
                            ``(iii) any actions taken with respect to 
                        the loan.
                    ``(B) Enforcement authority of the 
                administration.--Nothing in subparagraph (A) shall be 
                construed to limit the authority of the Administrator 
                that was in effect on the day before the date of 
                enactment of this paragraph to bring an enforcement 
                action against an outside agent or a lender service 
                provider.
            ``(37) Retaining ownership.--With respect to a loan made 
        under this subsection, a lender may not sell or pledge an 
        amount that is more than the greater of--
                    ``(A) 85 percent of the loan; or
                    ``(B) the percentage of the loan that is guaranteed 
                by the Administration.''.

SEC. 7. REGULATIONS.

    In addition to the regulations required under section 5(b), the 
Administrator of the Small Business Administration shall--
            (1) not later than 180 days after the date of enactment of 
        this Act, issue proposed regulations that--
                    (A) implement all other provisions of this Act and 
                the amendments made by this Act; and
                    (B) provide definitions and requirements with 
                respect to the concepts of--
                            (i) equity injections; and
                            (ii) loans that are 100 percent financed; 
                        and
            (2) not later than 1 year after the date of enactment of 
        this Act, publish final versions of the regulations described 
        in paragraph (1).
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