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

<DOC>





                                                       Calendar No. 512
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, Mr. 
  Peters, and Mr. Enzi) introduced the following bill; which was read 
       twice and referred to the Committee on Small Business and 
                            Entrepreneurship

                              June 9, 2016

               Reported by Mr. Vitter, with an amendment
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 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,

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Small Business Lending 
Oversight Act of 2016''.</DELETED>

<DELETED>SEC. 2. OFFICE OF CREDIT RISK MANAGEMENT; STRESS 
              ANALYSES.</DELETED>

<DELETED>    The Small Business Act (15 U.S.C. 631 et seq.) is 
amended--</DELETED>
        <DELETED>    (1) by redesignating section 47 as section 49; 
        and</DELETED>
        <DELETED>    (2) by inserting after section 46 the 
        following:</DELETED>

<DELETED>``SEC. 47. OFFICE OF CREDIT RISK MANAGEMENT.</DELETED>

<DELETED>    ``(a) In General.--There is within the Administration the 
Office of Credit Risk Management (in this section referred to as the 
`Office').</DELETED>
<DELETED>    ``(b) Director.--The Office is headed by the Director of 
the Office of Credit Risk Management (in this section referred to as 
the `Director').</DELETED>
<DELETED>    ``(c) Supervision.--</DELETED>
        <DELETED>    ``(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.).</DELETED>
        <DELETED>    ``(2) Reviews.--An employee of the Office shall be 
        present for and supervise any full review conducted by a 
        contractor of the Administration.</DELETED>
<DELETED>    ``(d) Enforcement Authority of the Director.--</DELETED>
        <DELETED>    ``(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--</DELETED>
                <DELETED>    ``(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;</DELETED>
                <DELETED>    ``(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;</DELETED>
                <DELETED>    ``(C) imposes on an applicant for a loan 
                under section 7(a) a fee that the Administration has 
                not specifically authorized; or</DELETED>
                <DELETED>    ``(D) re-amortizes a loan solely to make 
                the loan appear current.</DELETED>
        <DELETED>    ``(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--</DELETED>
                <DELETED>    ``(A) shall be based on--</DELETED>
                        <DELETED>    ``(i) the severity of the 
                        violations; and</DELETED>
                        <DELETED>    ``(ii) the frequency with which 
                        the lender fails to comply with the 
                        requirements; and</DELETED>
                <DELETED>    ``(B) may include--</DELETED>
                        <DELETED>    ``(i) issuing the lender a warning 
                        and an order to comply;</DELETED>
                        <DELETED>    ``(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;</DELETED>
                        <DELETED>    ``(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;</DELETED>
                        <DELETED>    ``(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;</DELETED>
                        <DELETED>    ``(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</DELETED>
                        <DELETED>    ``(vi) any other penalty that the 
                        Director determines to be appropriate after 
                        considering the severity and the frequency of 
                        the violations of the lender.</DELETED>
        <DELETED>    ``(3) Regulations.--With respect to the penalties 
        described in clauses (ii), (iii), and (iv) of paragraph (2)(B), 
        the Administrator shall--</DELETED>
                <DELETED>    ``(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</DELETED>
                <DELETED>    ``(B) not later than 1 year after the date 
                of enactment of this section, publish a final 
                regulation.</DELETED>
        <DELETED>    ``(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.</DELETED>
<DELETED>    ``(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.</DELETED>

<DELETED>``SEC. 48. PORTFOLIO RISK ANALYSES.</DELETED>

<DELETED>    ``(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).</DELETED>
<DELETED>    ``(b) Report.--</DELETED>
        <DELETED>    ``(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).</DELETED>
        <DELETED>    ``(2) Contents.--A report submitted under 
        paragraph (1) shall include--</DELETED>
                <DELETED>    ``(A) an analysis of overall program 
                risk;</DELETED>
                <DELETED>    ``(B) an analysis of program risk--
                </DELETED>
                        <DELETED>    ``(i) by industry 
                        concentration;</DELETED>
                        <DELETED>    ``(ii) by geography; and</DELETED>
                        <DELETED>    ``(iii) by program loan interest 
                        rates;</DELETED>
                <DELETED>    ``(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</DELETED>
                <DELETED>    ``(D) a summary of the steps taken by the 
                Administration to mitigate the risks identified in 
                subparagraphs (A), (B), and (C).''.</DELETED>

<DELETED>SEC. 3. CREDIT ELSEWHERE.</DELETED>

<DELETED>    The Small Business Act (15 U.S.C. 631 et seq.) is 
amended--</DELETED>
        <DELETED>    (1) by striking section 3(h) (15 U.S.C. 632(h)) 
        and inserting the following:</DELETED>
<DELETED>    ``(h) The term `credit elsewhere' means--</DELETED>
        <DELETED>    ``(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--</DELETED>
                <DELETED>    ``(A) the business industry in which the 
                loan applicant operates;</DELETED>
                <DELETED>    ``(B) whether the loan applicant is an 
                enterprise that has been in operation for a period of 
                less than 2 years;</DELETED>
                <DELETED>    ``(C) the adequacy of the collateral 
                available to secure the requested loan; and</DELETED>
                <DELETED>    ``(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</DELETED>
        <DELETED>    ``(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</DELETED>
        <DELETED>    (2) by striking section 18(b) (15 U.S.C. 647(b)) 
        and inserting the following:</DELETED>
<DELETED>    ``(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.''.</DELETED>

<DELETED>SEC. 4. OVERSIGHT FEES.</DELETED>

<DELETED>    (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--</DELETED>
        <DELETED>    (1) in subparagraph (A)--</DELETED>
                <DELETED>    (A) by striking ``With respect to'' and 
                inserting the following:</DELETED>
                        <DELETED>    ``(i) Reduction of administration 
                        costs.--With respect to''; and</DELETED>
                <DELETED>    (B) by adding at the end the 
                following:</DELETED>
                        <DELETED>    ``(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</DELETED>
        <DELETED>    (2) in subparagraph (B), by striking ``fee 
        assessed'' and inserting ``fees assessed''.</DELETED>
<DELETED>    (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.''.</DELETED>

<DELETED>SEC. 5. REDUCTION OF RISK.</DELETED>

<DELETED>    (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:</DELETED>
                <DELETED>    ``(D) Portfolio concentrations.--
                </DELETED>
                        <DELETED>    ``(i) Concentration of loans made 
                        with no equity contribution.--</DELETED>
                                <DELETED>    ``(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.</DELETED>
                                <DELETED>    ``(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.</DELETED>
                                <DELETED>    ``(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).</DELETED>
                        <DELETED>    ``(ii) Industry concentration.--
                        </DELETED>
                                <DELETED>    ``(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.</DELETED>
                                <DELETED>    ``(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.</DELETED>
                                <DELETED>    ``(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).</DELETED>
                <DELETED>    ``(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.''.</DELETED>
<DELETED>    (b) Regulations.--</DELETED>
        <DELETED>    (1) In general.--The Administrator of the Small 
        Business Administration shall--</DELETED>
                <DELETED>    (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</DELETED>
                <DELETED>    (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.</DELETED>
        <DELETED>    (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.</DELETED>

<DELETED>SEC. 6. ISSUES WITH RESPECT TO LOANS TO SMALL BUSINESS 
              CONCERNS.</DELETED>

<DELETED>    Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) 
is amended by adding at the end the following:</DELETED>
        <DELETED>    ``(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.</DELETED>
        <DELETED>    ``(36) Use of outside agents.--</DELETED>
                <DELETED>    ``(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--</DELETED>
                        <DELETED>    ``(i) the accuracy of all 
                        information submitted with respect to the 
                        loan;</DELETED>
                        <DELETED>    ``(ii) all decisions with respect 
                        to the eligibility and creditworthiness of the 
                        loan applicant; and</DELETED>
                        <DELETED>    ``(iii) any actions taken with 
                        respect to the loan.</DELETED>
                <DELETED>    ``(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.</DELETED>
        <DELETED>    ``(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--</DELETED>
                <DELETED>    ``(A) 85 percent of the loan; or</DELETED>
                <DELETED>    ``(B) the percentage of the loan that is 
                guaranteed by the Administration.''.</DELETED>

<DELETED>SEC. 7. REGULATIONS.</DELETED>

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

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 be responsible for 
        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 review conducted on the premises of a 
        lender.
    ``(d) Enforcement Authority of the Director.--
            ``(1) In general.--The Director shall impose not less than 
        1 penalty under paragraph (2) on any lender that makes 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 or 
                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 other actions, including 
        enforcement actions, authorized under regulations promulgated 
        by the Administrator, the Director may impose a penalty on a 
        lender that knowingly and repeatedly violates the requirements 
        of this Act or the regulations promulgated under this Act, 
        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), 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 unless the Director specifies 
        otherwise.
            ``(5) Use of penalties.--Any monetary penalties collected 
        under paragraph (2) shall be used solely to lower the subsidy 
        rate of loans made under section 7(a).
            ``(6) Applicability to lenders supervised by the 
        administration.--The authority of the Director under this 
        section shall be exercised with respect to a small business 
        lending company or a non-Federally regulated lender without 
        regard to the requirements of section 23.
    ``(e) Report to Congress.--Not later than December 31, 2017, and 
each year thereafter, the Office shall submit to Congress a report 
detailing the subject matter and frequency of actions by lenders that 
led the Office to impose penalties under subsection (d)(2) during the 
fiscal 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 guaranteed 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) during the fiscal year preceding the submission 
        of the report.
            ``(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; and
                            ``(ii) by geography;
                    ``(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 AND OTHER 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.--
                        Beginning on October 1, 2016 or the date that 
                        is 30 days after the date of enactment of this 
                        clause, whichever is later, the Administration 
                        shall assess, collect, and retain a fee in an 
                        amount that is not greater than 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.--
            (1) In general.--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.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2017.

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.--Except as 
                                provided in clause (iii), not later 
                                than December 31, 2017, and each year 
                                thereafter, the Administrator shall 
                                calculate, as of September 30 of the 
                                year in which the calculation is made 
                                and for each lender that makes loans 
                                under this section under the authority 
                                delegated to the lender as a 
                                participant in the Preferred Lenders 
                                Program (in this subparagraph referred 
                                to as the `program'), as defined in 
                                paragraph (2)(C)(iii), 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 or to 
                                effectuate a change of ownership of a 
                                small business concern.
                                    ``(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 program.
                            ``(ii) Industry concentration.--
                                    ``(I) In general.--Except as 
                                provided in clause (iii), not later 
                                than December 31, 2017, and each year 
                                thereafter, the Administrator shall 
                                calculate, as of September 30 of the 
                                year in which the calculation is made, 
                                for each lender that makes loans under 
                                this section under the authority 
                                delegated to the lender as a 
                                participant in the program, 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 program.
                            ``(iii) Exemptions.--Clauses (i) and (ii) 
                        shall not apply to any lender that originates 
                        loans under section 7(a) if the aggregate 
                        amount of the originations of the lender made 
                        during the fiscal year preceding the year in 
                        which the calculation would otherwise be made 
                        under clauses (i)(I) and (ii)(I) equals less 
                        than 1 percent of the annual total program 
                        authorization for that fiscal year.
                    ``(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 provide definitions and 
        requirements with respect to the concepts of equity 
        contributions and loans that are 100 percent financed.

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) 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, provided 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 
                to bring an action against an outside agent or a lender 
                service provider.
            ``(36) Retaining ownership.--With respect to a loan made 
        under this subsection beginning on October 1 of the first 
        fiscal year after the date of enactment of this paragraph, a 
        lender may not, unless the lender has obtained the approval of 
        the Administrator, sell 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 the Administrator 
        deems necessary to implement all other provisions of this Act 
        and the amendments made by this Act; 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).
                                                       Calendar No. 512

114th CONGRESS

  2d Session

                                S. 2992

_______________________________________________________________________

                                 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.

_______________________________________________________________________

                              June 9, 2016

                       Reported with an amendment