[Congressional Record Volume 164, Number 74 (Tuesday, May 8, 2018)]
[House]
[Pages H3812-H3815]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SMALL BUSINESS 7(A) LENDING OVERSIGHT REFORM ACT OF 2018
Mr. CHABOT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 4743) to amend the Small Business Act to strengthen the
Office of Credit Risk Management within the Small Business
Administration, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 4743
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 7(a) Lending
Oversight Reform Act of 2018''.
SEC. 2. DEFINITIONS.
In this Act, the terms ``Administration'' and
``Administrator'' mean the Small Business Administration and
the Administrator thereof, respectively.
SEC. 3. CODIFICATION OF THE OFFICE OF CREDIT RISK MANAGEMENT
AND THE LENDER OVERSIGHT COMMITTEE.
(a) In General.--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 new
sections:
``SEC. 47. OFFICE OF CREDIT RISK MANAGEMENT.
``(a) Establishment.--There is established within the
Administration the Office of Credit Risk Management (in this
section referred to as the `Office').
``(b) Duties.--The Office shall be responsible for
supervising--
``(1) any lender making loans under section 7(a) (in this
section referred to as a `7(a) lender');
``(2) any Lending Partner or Intermediary participant of
the Administration in a lending program of the Office of
Capital Access of the Administration; and
``(3) any small business lending company or a non-Federally
regulated lender without regard to the requirements of
section 23.
``(c) Director.--
``(1) In general.--The Office shall be headed by the
Director of the Office of Credit Risk Management (in this
section referred to as the `Director'), who shall be a career
appointee in the Senior Executive Service (as defined in
section 3132 of title 5, United States Code).
``(2) Duties.--The Director shall be responsible for
oversight of the lenders and participants described in
subsection (b), including by conducting periodic reviews of
the compliance and performance of such lenders and
participants.
``(d) Supervision Duties for 7(a) Lenders.--With respect to
7(a) lenders, an employee of the Office shall--
``(1) be present for and supervise any such review that is
conducted by a contractor of the Office on the premise of the
7(a) lender; and
``(2) supervise any such review that is not conducted on
the premise of the 7(a) lender.
``(e) Enforcement Authority Against 7(a) Lenders.--
``(1) Informal enforcement authority.--The Director may
take an informal enforcement action against a 7(a) lender if
the Director finds that the 7(a) lender has violated a
statutory or regulatory requirement under section 7(a) or any
requirement in a Standard Operating Procedures Manual or
Policy Notice related to a program or function of the Office
of Capital Access.
``(2) Formal enforcement authority.--
``(A) In general.--With the approval of the Lender
Oversight Committee established under section 48, the
Director may take a formal enforcement action against any
7(a) lender if the Director finds that the 7(a) lender has
violated--
``(i) a statutory or regulatory requirement under section
7(a), including a requirement relating to credit elsewhere;
or
``(ii) any requirement described in a Standard Operating
Procedures Manual or Policy Notice, related to a program or
function of the Office of Capital Access.
``(B) Enforcement actions.--An enforcement action imposed
on a 7(a) lender by the Director under subparagraph (A) shall
be based on the severity or frequency of the violation and
may include assessing a civil monetary penalty against the
7(a) lender in an amount that is not greater than $250,000.
``(3) Appeal by lender.--A 7(a) lender may appeal an
enforcement action imposed by the Director described in this
subsection to the Office of Hearings and Appeals established
under section 5(i) or to an appropriate district court of the
United States.
``(f) Regulations.--Not later than 1 year after the date of
the enactment of this section, the Administrator shall issue
regulations, after opportunity for notice and comment, to
carry out subsection (e).
``(g) Servicing and Liquidation Responsibilities.--During
any period during which a 7(a) lender is suspended or
otherwise prohibited from making loans under section 7(a),
the 7(a) lender shall remain obligated to maintain all
servicing and liquidation activities delegated to the lender
by the Administrator, unless otherwise specified by the
Director.
``(h) Portfolio Risk Analysis of 7(a) Loans.--
``(1) In general.--The Director shall annually conduct a
risk analysis of the portfolio of the Administration with
respect to all loans guaranteed under section 7(a).
``(2) Report to congress.--On December 1, 2018, and every
December 1 thereafter, the Director shall submit to Congress
a report containing the results of each portfolio risk
analysis conducted under paragraph (1) during the fiscal year
preceding the submission of the report, which shall include--
``(A) an analysis of the overall program risk of loans
guaranteed under section 7(a);
``(B) an analysis of the program risk, set forth separately
by industry concentration;
``(C) without identifying individual 7(a) lenders by name,
a consolidated analysis of the risk created by the individual
7(a) lenders responsible for not less than 1 percent of the
gross loan approvals set forth separately for the year
covered by the report by--
``(i) the dollar value of the loans made by such 7(a)
lenders; and
``(ii) the number of loans made by such 7(a) lenders;
``(D) steps taken by the Administrator to mitigate the
risks identified in subparagraphs (A), (B), and (C);
``(E) the number of 7(a) lenders, the number of loans made,
and the gross and net dollar amount of loans made;
``(F) the number and dollar amount of total losses, the
number and dollar amount of total purchases, and the
percentage and dollar amount of recoveries at the
Administration;
``(G) the number and type of enforcement actions
recommended by the Director;
``(H) the number and type of enforcement actions approved
by the Lender Oversight Committee established under section
48;
[[Page H3813]]
``(I) the number and type of enforcement actions
disapproved by the Lender Oversight Committee; and
``(J) the number and dollar amount of civil monetary
penalties assessed.
``(i) Budget Submission and Justification.--The Director
shall annually provide, in writing, a fiscal year budget
submission for the Office and a justification for such
submission to the Administrator. Such submission and
justification shall--
``(1) include salaries and expenses of the Office and the
charge for the lender oversight fees;
``(2) be submitted at or about the time of the budget
submission by the President under section 1105(a) of title
31; and
``(3) be maintained in an indexed form and made available
for public review for a period of not less than 5 years
beginning on the date of submission and justification.
``SEC. 48. LENDER OVERSIGHT COMMITTEE.
``(a) Establishment.--There is established within the
Administration the Lender Oversight Committee (in this
section referred to as the `Committee').
``(b) Membership.--The Committee shall consist of at least
8 members selected by the Administrator, of which--
``(1) 3 members shall be voting members, 2 of whom shall be
career appointees in the Senior Executive Service (as defined
in section 3132 of title 5, United States Code); and
``(2) the remaining members shall be nonvoting members who
shall serve in an advisory capacity on the Committee.
``(c) Duties.--The Committee shall--
``(1) review reports on lender oversight activities;
``(2) review formal enforcement action recommendations of
the Director of the Office of Credit Risk Management with
respect to any lender making loans under section 7(a) and any
Lending Partner or Intermediary participant of the
Administration in a lending program of the Office of Capital
Access of the Administration;
``(3) in carrying out paragraph (2) with respect to formal
enforcement actions taken under subsection (d) or (e) of
section 23, vote to recommend or not recommend action to the
Administrator or a designee of the Administrator;
``(4) in carrying out paragraph (2) with respect to any
formal enforcement action not specified under subsection (d)
or (e) of section 23, vote to approve, disapprove, or modify
the action;
``(5) review, in an advisory capacity, any lender
oversight, portfolio risk management, or program integrity
matters brought by the Director; and
``(6) take such other actions and perform such other
functions as may be delegated to the Committee by the
Administrator.
``(d) Meetings.--
``(1) In general.--The Committee shall meet as necessary,
but not less frequently than on a quarterly basis.
``(2) Reports.--The Committee shall submit to the
Administrator a report detailing each meeting of the
Committee, including if the Committee does or does not vote
to approve a formal enforcement action of the Director of the
Office of Credit Risk Management with respect to a lender.''.
(b) Supervision Duties for 7(a) Lenders.--Effective January
1, 2019, subsection (d) of section 47 (as added by subsection
(a)) is amended to read as follows:
``(d) Supervision Duties for 7(a) Lenders.--
``(1) Reviews.--With respect to 7(a) lenders, an employee
of the Office shall--
``(A) be present for and supervise any such review that is
conducted by a contractor of the Office on the premise of the
7(a) lender; and
``(B) supervise any such review that is not conducted on
the premise of the 7(a) lender.
``(2) Review report timeline.--
``(A) In general.--Notwithstanding any other requirements
of the Office or the Administrator, the Administrator shall
develop and implement a review report timeline which shall--
``(i) require the Administrator to--
``(I) deliver a written report of the review to the 7(a)
lender not later than 60 business days after the date on
which the review is concluded; or
``(II) if the Administrator expects to submit the report
after the end of the 60-day period described in clause (i),
notify the 7(a) lender of the expected date of submission of
the report and the reason for the delay; and
``(ii) if a response by the 7(a) lender is requested in a
report submitted under subparagraph (A), require the 7(a)
lender to submit responses to the Administrator not later
than 45 business days after the date on which the 7(a) lender
receives the report.
``(B) Extension.--The Administrator may extend the time
frame described in subparagraph (A)(i)(II) with respect to a
7(a) lender as the Administrator determines necessary.''.
(c) Transfer of Functions.--
(1) Office of credit risk management.--All functions of the
Office of Credit Risk Management of the Small Business
Administration, including the personnel, assets, and
obligation of the Office of Credit Risk Management, as in
existence on the day before the date of the enactment of this
Act, shall be transferred to the Office of Credit Risk
Management established under section 47 of the Small Business
Act, as added by subsection (a).
(2) Lender oversight committee.--All functions of the
Lender Oversight Committee of the Small Business
Administration, including the personnel, assets, and
obligations of the Lender Oversight Committee, as in
existence on the day before the date of the enactment of this
Act, shall be transferred to the Lender Oversight Committee
established under section 48 of the Small Business Act, as
added by subsection (a).
(d) Deeming of Name.--
(1) Office of credit risk management.--Any reference in a
law, regulation, guidance, document, paper, or other record
of the United States to the Office of Credit Risk Management
of the Small Business Administration shall be deemed a
reference to the Office of Credit Risk Management,
established under section 47 of the Small Business Act, as
added by subsection (a).
(2) Lender oversight committee.--Any reference in a law,
regulation, guidance, document, paper, or other record of the
United States to the Lender Oversight Committee of the Small
Business Administration shall be deemed a reference to the
Lender Oversight Committee, established under section 48 of
the Small Business Act, as added by subsection (a).
(e) Technical Amendment.--Section 3(r)(2) of the Small
Business Act (15 U.S.C. 632(r)(2)) is amended by striking
``regulated SBA lender'' each place it appears in heading and
text and inserting ``regulated lender''.
SEC. 4. DEFINITION OF CREDIT ELSEWHERE.
(a) In General.--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 as used in
section 7(b)), the availability of credit on reasonable terms
and conditions to the individual loan applicant from non-
Federal, non-State, or non-local government sources,
considering factors associated with conventional lending
practices, including--
``(A) the business industry in which the loan applicant
operates;
``(B) whether the loan applicant is an enterprise that has
been in operation for a period of not more than 2 years;
``(C) the adequacy of the collateral available to secure
the requested loan;
``(D) the loan term necessary to reasonably assure the
ability of the loan applicant to repay the debt from the
actual or projected cash flow of the business; and
``(E) any other factor relating to the particular credit
application, as documented in detail by the lender, that
cannot be overcome except through obtaining a Federal loan
guarantee under prudent lending standards; and
``(2) for the purposes of section 7(b), the availability of
credit on reasonable terms and conditions from non-Federal
sources taking into consideration the prevailing rates and
terms in the community in or near where the applicant
business concern transacts business, or the applicant
homeowner resides, for similar purposes and periods of
time.''; and
(2) in section 7(a)(1)(A)(i) (15 U.S.C. 636(a)(1)(A)(i)),
by inserting ``The Administrator has the authority to direct,
and conduct oversight for, the methods by which lenders
determine whether a borrower is able to obtain credit
elsewhere.'' before ``No financial assistance''.
(b) Technical Amendment.--Section 18(b) of the Small
Business Act (15 U.S.C. 647(b)) is amended to read as
follows:
``(b) As used in this Act, the term `agricultural
enterprises' means those small business concerns engaged in
the production of food and fiber, ranching, and raising of
livestock, aquaculture, and all other farming and
agricultural-related industries.''.
SEC. 5. AUTHORITY FOR ADMINISTRATOR TO INCREASE AMOUNT FOR
GENERAL BUSINESS LOANS.
Section 20 of the Small Business Act (15 U.S.C. 631 note)
is amended--
(1) by redesignating subsection (j) as subsection (f); and
(2) by adding at the end the following new subsection:
``(g) Authority To Increase Amount of General Business
Loans.--
``(1) In general.--Subject to paragraphs (2) and (3) and
with respect to fiscal year 2019 and each fiscal year
thereafter, if the Administrator determines that the amount
of commitments by the Administrator for general business
loans authorized under section 7(a) for a fiscal year could
exceed the limit on the total amount of commitments the
Administrator may make for those loans under this Act, an
appropriations Act, or any other provision of law, the
Administrator may make commitments for those loans for that
fiscal year in an aggregate amount equal to not more than 115
percent of that limit.
``(2) Notice required before exercising authority.--Not
later than 30 days before the date on which the Administrator
intends to exercise the authority under paragraph (1), the
Administrator shall submit notice of intent to exercise the
authority to--
``(A) the Committee on Small Business and Entrepreneurship
and the Subcommittee on Financial Services and General
Government of the Committee on Appropriations of the Senate;
and
``(B) the Committee on Small Business and the Subcommittee
on Financial Services and General Government of the Committee
on Appropriations of the House of Representatives.
``(3) Limitation.--The Administrator shall not exercise the
authority under paragraph (1) more than once during any
fiscal year.''.
[[Page H3814]]
SEC. 6. ESTABLISHING A PROCESS FOR WAIVERS.
(a) In General.--If the Administrator exercises statutory
or regulatory authority to waive a regulation or a
requirement in the Standard Operating Procedures Manual or
Policy Notice related to a program or function of the Office
of Capital Access of the Administration, the waiver shall be
in writing and be maintained in an indexed form.
(b) No New Waiver Authority.--Nothing in subsection (a)
shall be construed as creating new authority for the
Administrator to waive regulations of the Administration.
SEC. 7. REPEAL OF SMALL BUSINESS LOAN LOSS REPORT.
Subsection (b) of section 10 of the Small Business Act (15
U.S.C. 639(b)) is repealed.
The SPEAKER pro tempore (Mr. Hill). Pursuant to the rule, the
gentleman from Ohio (Mr. Chabot) and the gentlewoman from New York (Ms.
Velazquez) each will control 20 minutes.
The Chair recognizes the gentleman from Ohio.
General Leave
Mr. CHABOT. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
and include extraneous material on the bill under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Ohio?
There was no objection.
Mr. CHABOT. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, although the economy is starting to recover, small
businesses continue to face a rigid lending environment that challenges
growth and job creation. With options limited, small businesses
regularly turn to the SBA, the Small Business Administration, for
assistance.
With nearly 70,000 loans made in fiscal year 2017, the 7(a) Loan
Program is the SBA's largest capital access tool and is reserved for
creditworthy small businesses that cannot access traditional or
conventional bank lending.
{time} 1500
In recent years, the program has experienced rapid growth, which
spiked congressional interest and resulted in numerous hearings and
meetings to evaluate the SBA's oversight of lenders.
After careful consideration, I, along with the ranking member, Ms.
Velazquez, determined legislation was needed to ensure the integrity of
the program and to safeguard the American taxpayers' dollars. As a
result, in January of this year, we introduced H.R. 4743, the Small
Business 7(a) Lending Oversight Reform Act of 2018, this bill.
H.R. 4743 contains important oversight reforms that strengthen the
SBA's Office of Credit Risk Management and the SBA's Lender Oversight
Committee. H.R. 4743 also bolsters the credit elsewhere test which acts
as a gatekeeper into this government guarantee program.
With the reforms outlined in this provision, the credit elsewhere
test will be clarified and refocused on a borrower's ability to access
the program. The changes to the credit elsewhere test will ensure the
program is being used by eligible and deserving small businesses.
Additionally, H.R. 4743 outlines a portfolio risk analysis that the
SBA must perform. With any program that has a government role, healthy
and vigorous oversight is required to protect the taxpayers. H.R. 4743
provides this for the 7(a) Loan Program and for the Nation's small
businesses.
Mr. Speaker, I want to thank the ranking member, Ms. Velazquez, for
all of her hard work and interest in this topic, and I also want to
thank all of the members of the committee who have had a role in
exploring this issue.
The bill has broad, bipartisan support--as many of our bills often
do. I urge my colleagues to vote ``yes'' on H.R. 4743, and I reserve
the balance of my time.
Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise in support of H.R. 4743, a bipartisan, bicameral
bill that will improve oversight of the 7(a) Loan Program, the SBA's
flagship lending product.
At the beginning of this Congress, our committee held a series of
hearings to take the temperature of the 7(a) program. We actively
investigated how it is being utilized, and we worked with stakeholders
to address the deficiencies that were identified.
Both lenders and the agency have said oversight could be improved and
transparency increased with legislative action. This bill is the
product of that feedback and will make long overdue reforms to the
program.
The legislation increases transparency and uniformity for both
lenders and the agency by codifying the Office of Credit Risk
Management and Lender Oversight Committee. It also requires the Office
to internally submit a budget to ensure there is justification of the
fees, salaries, and expenses used to carry out oversight functions.
We also heard that the credit elsewhere test--a bedrock of the
program--was not clear and lacked a verification component. This bill
better clarifies the credit elsewhere test and bolsters substantiation
of how it is fulfilled.
Finally, we all remember 2015, when the program ran out of authority
to lend before the end of the year. This created an artificial run on
the lenders to get loans approved, unfairly harmed small businesses
that needed credit, and ultimately required congressional intervention.
Today's bill incorporates provisions from legislation I introduced
earlier this year, empowering the Administrator to request additional
lending capacity from Congress to meet unexpected demands late in the
fiscal year.
H.R. 4743 strikes a meaningful balance between strong oversight and
protecting the interests of small businesses that need loans.
Mr. Speaker, I urge Members to support this legislation, and I
reserve the balance of my time.
Mr. CHABOT. Mr. Speaker, I yield such time as he may consume to the
gentleman from Mississippi (Mr. Kelly), chairman of the Subcommittee on
Investigations, Oversight and Regulations.
Mr. KELLY of Mississippi. Mr. Speaker, I thank the chairman for
yielding. In my district, the Small Business Administration has made
tremendous and direct impact with the 7(a) Loan Program by helping
small businesses that are not able to find or obtain capital through
traditional or conventional markets.
To acquire a 7(a) loan, participating lenders must determine that a
small business cannot receive credit elsewhere. In practice, this is
called the credit elsewhere test. The test became the focus of my
subcommittee hearing in March of 2017, when the Committee reviewed the
7(a) Loan Program.
As conservatives, we must safeguard American taxpayer dollars. A
government guarantee program needs strong oversight to make sure
adequate safeguards are in place. That is why 7(a) oversight must begin
with the credit elsewhere test.
This is exactly what H.R. 4743 proposes. It strengthens the credit
elsewhere test and provides transparency to factors most commonly used
by lenders as they move small businesses through the 7(a) loan process.
Additionally, H.R. 4743 increases the oversight capabilities of the
Office of Credit Risk Management and the Lender Oversight Committee.
These reforms will support the program while protecting American
taxpayer dollars.
Mr. Speaker, I want to thank the chairman and the ranking member for
taking up this issue and working with all Members to ensure oversight
is paramount, and I urge my colleagues to support this much-needed
legislation.
Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, in crafting H.R. 4743, the chairman and I worked closely
with our Senate counterparts, the SBA, and the lending industry.
Everyone had a seat at the table, and through debate and compromise, we
arrived at a legislative product we can all be proud of, and that, most
importantly, will help deserving small businesses access loans.
Mr. Speaker, I would like to take this opportunity to thank Chairman
Chabot and Senators Risch and Cardin for their bipartisanship. And,
finally, I would like to thank our staff for working diligently on this
important bill.
Mr. Speaker, I urge my colleagues to vote ``yes,'' and I yield back
the balance of my time.
Mr. CHABOT. Mr. Speaker, I yield myself such time as I may consume to
close.
Mr. Speaker, I want to thank the gentlewoman for her leadership on
this
[[Page H3815]]
issue. I would also like to thank the staffs on both sides of the
aisle, and I would also like to thank the chairman of the
Appropriations Committee, Rodney Frelinghuysen, for his assistance in a
bump that we ran into at the eleventh hour there.
He was a classmate of mine. We both came in in the historic class of
1994, and he will be leaving at the end of this term. He is going to be
greatly missed, but, in any event, I want to thank Chairman
Frelinghuysen.
Mr. Speaker, to conclude, the 7(a) Loan Program is an important
capital access resource for the Nation's small businesses. However,
with any government guarantee program, strong oversight is mandatory to
safeguard American taxpayer dollars. H.R. 4743 institutes strong and
critical reforms to make sure oversight is front and center as this
program is administered by the SBA.
H.R. 4743 ensures the program will only be utilized by small
businesses that truly require its services, and I urge my colleagues to
support the bipartisan reforms instituted in H.R. 4743.
Finally, I want to again thank the gentlewoman from New York and the
staffs and everyone else involved in this. I understand it might not be
the norm everywhere these days, but, in our committee, it is business--
and I should say--it is small business as usual. The gentlewoman was
really a pleasure to work with on this and many other issues, so I
thank the gentlewoman very much for her work.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. McClintock). The question is on the
motion offered by the gentleman from Ohio (Mr. Chabot) that the House
suspend the rules and pass the bill, H.R. 4743, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________