[Federal Register Volume 60, Number 226 (Friday, November 24, 1995)]
[Proposed Rules]
[Pages 57980-57982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28447]



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SMALL BUSINESS ADMINISTRATION
13 CFR Part 103


Policies of General Application

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to President Clinton's regulatory review 
directive, the Small Business Administration has completed a page-by-
page and line-by-line review of its regulations. As a result, SBA is 
proposing to streamline its regulations by eliminating many rules and 
simplifying and improving those that remain. This proposed rule would 
reorganize and streamline the entire Part 103, which covers the 
standards one must meet to conduct business with SBA. It makes the 
standards clearer and more understandable to those who are regulated, 
and easier for SBA to enforce.

DATES: Written comments must be submitted on or before December 26, 
1995.


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ADDRESSES: Written comments may be sent to David Kohler, Regulatory 
Reform Team Leader (103), Small Business Administration, 409 3rd Street 
SW., Suite 13, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Michael Dowd, Director, Office of Loan 
Programs, at (202) 205-6490.

SUPPLEMENTARY INFORMATION: 13 CFR Part 103 contains SBA's policies 
governing the standards for suspending or revoking the privileges of 
persons who conduct business with SBA on behalf of applicants or 
lenders. This proposed rule reorganizes and streamlines Part 103, 
making it easier to understand and enforce. It changes the title of the 
Part to ``Standards for Conducting Business with SBA'' to describe more 
clearly the scope of the regulations. The sections stating the 
statutory provisions underlying the Part and its purpose--103.13 and 
103.13-1--are eliminated as unnecessary. The proposed rule renumbers 
the sections that remain: present Secs. 103.13-2 through 103.13-6 would 
become Secs. 103.1-103.5. The proposed rule clarifies the existing 
definitions of agents who appear before SBA on behalf of applicants for 
assistance, adds definitions for ``packagers'' and ``lender service 
providers,'' and provides that these two categories of agents are 
specifically covered by SBA's requirements governing conduct of 
business. It also amends, in certain respects, and adds greater 
specificity to the definition of ``good cause'' for which the 
Administrator may revoke or suspend the privilege for conducting 
business with SBA. It adds provisions prescribing the use and form of 
lender service provider agreements which must contain certain 
provisions regarding services to be provided and compensation, 
including a prohibition on secondary market premium sharing. In 
addition to these substantive changes, the proposed rule is written in 
clearer, more straightforward language than the present Part.
    It is SBA's intention to require all packagers, lender service 
providers, and agents to register with SBA for purposes of keeping 
track of who is performing such activities on behalf of applicants for 
assistance or lenders. SBA also intends to develop a code of ethical 
and professional responsibility based upon the substance of the 
proposed regulations which it will enforce with respect to all agents. 
Finally, SBA will provide training for anyone or any entity that wishes 
to represent applicants for SBA assistance or provide services to 
lenders. The development of these initiatives will take place over the 
next fiscal year, in consultation with representatives of the affected 
industries. To the extent that they require modifications of these 
proposed regulations, such modifications will ensue in later 
rulemakings.

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. Sec. 601, et seq.), and the 
Paperwork Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this proposed rule involves internal 
administrative procedures and would not be considered a significant 
rule within the meaning of Executive Order 12866 and would not have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
Sec. 601, et seq. It is not likely to have an annual economic effect of 
$100 million or more, result in a major increase in costs or prices, or 
have a significant adverse effect on competition or the United States 
economy.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this proposed rule, if adopted in final form, would 
contain no new reporting or record keeping requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
would not have any federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 103

    Standards for conducting business with SBA, procedures for 
suspension or revocation of privileges, compensation allowed to agents.

    Accordingly, pursuant to the authority set forth in sections 5 and 
13 of the Small Business Act, 15 U.S.C. Secs. 634 and 642, SBA hereby 
proposes to revise part 103 of Title 13, Code of Federal Regulations 
(CFR), as follows:
    Part 103 would be revised to read as follows:

PART 103--STANDARDS FOR CONDUCTING BUSINESS WITH SBA

103.1  Key Definitions.
103.2  Who may conduct business with SBA?
103.3  May SBA suspend or revoke an agent's privilege?
103.4  What is ``good cause'' for suspension or revocation?
103.5  How does SBA regulate an agent's fees and provision of 
service?

    Authority: Secs. 5, 13, 72 Stat. 385, 394 (15 U.S.C. 634, 642).


Sec. 103.1  Key Definitions.

    (a) Agent means an authorized representative, including an 
attorney, accountant, consultant, manufacturer's representative, 
packager, lender service provider or any other person representing an 
applicant or participant.
    (b) The term conduct business with SBA means:
    (1) preparing or submitting on behalf of an applicant an 
application for financial assistance of any kind, assistance from the 
Investment Division of SBA, or assistance in procurement and technical 
matters;
    (2) preparing or processing on behalf of a lender or a participant 
in any of SBA's programs an application for federal financial 
assistance;
    (3) participating with or communicating in any way with officers or 
employees of SBA on an applicant's, participant's, or lender's behalf; 
and
    (4) such other activity as SBA reasonably shall determine.
    (c) Applicant means any person, firm, concern, corporation, 
partnership, cooperative or other business enterprise applying for any 
type of assistance from SBA.
    (d) Lender Service Provider means an agent who carries out lender 
functions in originating, disbursing, servicing, or liquidating a 
specific SBA business loan or loan portfolio for compensation from the 
lender. SBA determines whether or not one is a ``lender service 
provider'' on a loan-by-loan basis.
    (e) Packager means an agent who is employed and compensated by an 
applicant or lender to prepare the applicant's application for 
financial assistance from SBA. SBA determines whether or not one is a 
``packager'' on a loan-by-loan basis.
    (f) Participant means an entity that is participating in any of the 
financial, investment, or business development programs authorized by 
the Small Business Act or Small Business Investment Act of 1958.


Sec. 103.2  Who may conduct business with SBA?

    (a) If you are an applicant, a participant, a partner of an 
applicant or participant partnership, or serve as an officer of an 
applicant, participant corporation, or limited liability company, you 
may conduct business with SBA without a representative.
    (b) If you are an agent, you may conduct business with SBA on 
behalf of an applicant, participant or lender, unless representation is 
otherwise prohibited by law or the regulations in 

[[Page 57982]]
this or any other part of Title 13. For example, persons debarred under 
the SBA or Government-wide debarment regulations may not conduct 
business with SBA. SBA may request that any agent supply written 
evidence of his or her authority to act on behalf of an applicant, 
participant, or lender as a condition of revealing any information 
about the applicant's, participant's, or lender's current or prior 
dealings with SBA.


Sec. 103.3  May SBA suspend or revoke an agent's privilege?

    The Administrator of SBA or designee may, for good cause, suspend 
or revoke the privilege of any agent to conduct business with SBA. Part 
134 of this chapter states the procedures for appealing the decision to 
suspend or revoke the privilege. The suspension or revocation remains 
in effect during the pendency of any administrative proceedings under 
Part 134 of this chapter.


Sec. 103.4  What is ``good cause'' for suspension or revocation?

    Any unlawful or unethical activity is good cause for suspension or 
revocation of the privilege to conduct business. This includes:
    (a) Attempting to influence any employee of SBA or a lender, by 
gifts, bribes or other unlawful or unethical activity, with respect to 
any matter involving SBA assistance.
    (b) Soliciting for the provision of services to an applicant by 
another entity when there is an undisclosed business relationship 
between the two parties.
    (c) Violating ethical guidelines which govern the profession or 
business of the agent or which are published at any time by SBA.
    (d) Implying or stating that the work to be performed for an 
applicant will include use of political or other special influence with 
SBA. Examples include indicating that the entity is affiliated with or 
paid, endorsed or employed by SBA, and advertising using the words 
Small Business Administration or SBA or its seal or symbol, and giving 
a ``guaranty'' to an applicant that the application will be approved.
    (e) Charging or proposing to charge any fee that does not bear a 
necessary and reasonable relationship to the services actually rendered 
or expenses actually incurred in connection with a matter before SBA or 
which is materially inconsistent with the provisions of an applicable 
compensation agreement or lender service provider agreement. A fee 
based solely on a percentage of a loan or guarantee amount can be 
reasonable, depending on the circumstances of a case and the services 
actually rendered.
    (f) Engaging in any conduct indicating a lack of business integrity 
or business honesty, including debarment, criminal conviction, or civil 
judgment within the last seven years for fraud, embezzlement, theft, 
forgery, bribery, falsification or destruction of records, false 
statements, receiving stolen property, false claims, or obstruction of 
justice.
    (g) Acting as both a lender service provider and a packager for an 
applicant on the same SBA business loan. A limited exception to this 
``two master'' prohibition exists in the following circumstances:
    (1) The lender service provider: is asked by the lender to perform 
packaging services on a loan, will be compensated solely by the lender, 
and provides a written disclosure to the applicant; or
    (2) The packager: is first asked to package the loan by the lender, 
and is first asked to package the loan only after the lender has 
decided to make the loan and the terms of the loan have been 
established.
    (h) Violating materially the terms of any compensation agreement or 
lender service provider agreement provided for in section 103.5.
    (i) Violating or assisting in the violation of any SBA regulations, 
policies, or procedures of which the applicant has been made aware.


Sec. 103.5  How does SBA regulate an agent's fees and provision of 
service?

    (a) Any applicant, agent, packager, or lender service provider must 
execute and provide to SBA a compensation agreement or lender service 
provider agreement governing the compensation charged for services 
rendered or to be rendered to the applicant or lender in any matter 
involving SBA assistance. SBA provides the form of compensation 
agreement and a suggested form of lender service provider agreement to 
be used by agents.
    (b) Compensation agreements must provide that in cases where SBA 
deems the compensation unreasonable, the agent, packager or lender 
service provider must: reduce the charge to an amount SBA deems 
reasonable, refund any sum in excess of the amount SBA deems reasonable 
to the applicant, and refrain from charging or collecting, directly or 
indirectly, from the applicant an amount in excess of the amount SBA 
deems reasonable.
    (c) Each lender service provider must enter into a written 
agreement with each lender for whom it acts in that capacity. SBA will 
review all such agreements. Such agreements need not contain each and 
every provision found in the SBA's suggested form of agreement. 
However, each agreement must indicate that both parties agree not to 
engage in any sharing of secondary market premiums, that the services 
to be provided are accurately described, and that the agreement is 
otherwise consistent with SBA requirements. Subject to the prohibition 
on splitting premiums, lenders have reasonable discretion in setting 
compensation for lender service providers. Such compensation will 
generally be considered reasonable unless:
    (1) The compensation is clearly excessive in light of industry 
standards and the services to be performed; and
    (2) The excess compensation is adversely affecting the loan terms 
provided to applicants.

    Dated: November 13, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-28447 Filed 11-22-95; 8:45 am]
BILLING CODE 8025-01-P