[Federal Register Volume 76, Number 138 (Tuesday, July 19, 2011)]
[Proposed Rules]
[Pages 42593-42595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18007]


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DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4279

RIN 0570-AA81


Conditions of Guarantee

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Rural Business-Cooperative Service is proposing to amend 
its regulations for the Business and Industry Guaranteed Loan Program 
to ensure the Agency has sufficient right(s) for reimbursement when an 
Agency guaranteed portion of a loan is sold to a holder. This action is 
necessary because the rule is not sufficiently clear that the use of 
loan funds for purposes not approved by the Agency is a reason to find 
the guarantee unenforceable regardless of whether the guaranteed 
portion of the loan has been sold to a holder. This action ensures the 
Agency has sufficient rights for reimbursement when an Agency 
guaranteed portion of the loan is sold to a holder.

[[Page 42594]]


DATES: Comments on this proposed rule must be received on or before 
August 18, 2011. A second public comment period will not be held.

ADDRESSES: You may submit comments to this proposed rule by any of the 
following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
     Hand Delivery/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Mr. David Lewis, Rural Development, 
Business Programs, U.S. Department of Agriculture, 1400 Independence 
Avenue, SW., Stop 3224, Washington, DC 20250-3221; e-mail: 
[email protected]; telephone (202) 690-0797.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be not significant for purposes of 
Executive Order 12866 and has not been reviewed by the Office of 
Management and Budget (OMB).

Programs Affected

    The Catalog of Federal Domestic Assistance Program number assigned 
to the Business and Industry Guaranteed Loan Program is 10.782.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' Rural Development has determined 
that this action does not constitute a major Federal action 
significantly affecting the quality of the human environment and, in 
accordance with the National Environmental Policy Act (NEPA) of 1969, 
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not 
required.

Executive Order 12372, Intergovernmental Consultation

    The program is subject to the provisions of Executive Order 12372, 
which requires intergovernmental consultation with State and local 
officials. Consultation will be completed at the time of the action 
performed.

Executive Order 12988, Civil Justice

    This rule has been reviewed under Executive Order 12988, Civil 
Justice Reform. The Agency has determined that this rule meets the 
applicable standards provided in section 3 of the Executive Order. 
Additionally, (1) All state and local laws and regulations that are in 
conflict with this rule will be preempted; (2) no retroactive effect 
will be given to the rule; and (3) administrative appeal procedures, if 
any, must be exhausted before litigation against the Department or its 
agencies may be initiated, in accordance with the regulations of the 
National Appeals Division of USDA at 7 CFR part 11.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
final rule impose substantial direct compliance costs on state and 
local governments. Therefore, consultation with states is not required.

Regulatory Flexibility Act Certification

    Under section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 
605(b), the Agency certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The Agency 
made this determination based on the fact that this regulation only 
impacts those who choose to participate in the program. Small entity 
applicants will not be impacted to a greater extent than large entity 
applicants.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandates Reform Act of 1995.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This executive order imposes requirements on Rural Development in 
the development of regulatory policies that have tribal implications or 
preempt tribal laws. Rural Development has determined that the proposed 
rule does not have a substantial direct effect on one or more Indian 
tribe(s) or on either the relationship or the distribution of powers 
and responsibilities between the Federal Government and Indian tribes. 
Thus, this proposed rule is not subject to the requirements of 
Executive Order 13175. If a tribe determines that this rule has 
implications of which Rural Development is not aware and would like to 
engage with Rural Development on this rule, please contact Rural 
Development's Native American Coordinator at (202) 690-1681 or 
[email protected].

Paperwork Reduction Act

    This rule contains no new reporting or recordkeeping requirements 
that would require approval under the Paperwork Reduction Act of 1995 
(44 U.S.C. chapter 35).

E-Government Act Compliance

    Rural Development is committed to complying with the E-Government 
Act, to promote the use of the Internet and other information 
technologies, to provide increased opportunities for citizen access to 
Government information and services, and other purposes.

I. Background

    The Agency reviewed 7 CFR 4279.72, which is composed of three 
paragraphs, the first two of which are pertinent.
    Section 4279.72(a) lays out the conditions under which a guarantee 
is not enforceable. The text separately identifies four such 
conditions:
    1. In cases of fraud or misrepresentation of which a lender or 
holder has actual knowledge at the time it becomes such lender or 
holder or which a lender or holder participates in or condones;
    2. To the extent that any loss is occasioned by a provision for 
interest on interest;
    3. To the extent any loss is occasioned by the violation of usury 
laws, negligent servicing, or failure to obtain the required security 
regardless of the time at which the Agency acquires knowledge thereof; 
and
    4. To the extent that loan funds are used for purposes other than 
those specifically approved by the Agency in its Conditional 
Commitment.

[[Page 42595]]

    Section 4279.72(b) discusses rights and liabilities when a 
guaranteed portion of a loan is sold to a holder. It states, in part, 
that the lender will be liable for payments made by USDA to any holder 
in the event of ``material fraud, negligence or misrepresentation by 
the lender or the lender's participation in or condoning of such 
material fraud, negligence or misrepresentation.'' Section 4279.72(b) 
does not, however, refer to the other conditions listed in Sec.  
4279.72(a).
    The Agency believes the lender's responsibility to reimburse the 
Agency for the improper activity should not be dependent upon whether 
the lender or holder owns the loan guarantee. However, the Agency is 
concerned that this policy is not sufficiently clear in this 
regulation. Therefore, the Agency is clarifying its position on this 
matter. The regulatory change is not retroactive nor does it affect the 
rights of current holders. However, the Agency recognizes that the 
issue should be clarified in the regulation. Accordingly, the Agency is 
proposing to make these changes in this proposed rule.

II. Discussion of Change

    Section 4279.72(a) addresses the lender's coverage under the loan 
note guarantee. It also identifies those instances when the conduct of 
a holder may jeopardize their interest in the loan note guarantee. 
Section 4279.72(b) addresses the holder's coverage under the loan note 
guarantee. The change being made by this rule clarifies that having a 
holder purchase part of the loan note guarantee does not increase the 
coverage provided to the lender under the loan note guarantee. 
Therefore, the Agency will require the lender to reimburse it for any 
amount it pays to a holder that would not have been paid to a lender 
under Sec.  4279.72(a).
    The Agency is proposing to revise Sec.  4279.72(b) to address the 
situation discussed in the ``Background'' section and similar 
situations.

List of Subjects in 7 CFR Part 4279

    Loan programs--Business and industry--Rural development assistance, 
Rural areas.
    For the reasons set forth in the preamble, chapter XLII, title 7 of 
the Code of Federal Regulations is proposed to be amended as follows:

Chapter XLII--Rural Business-Cooperative Service and Rural Utilities 
Service, Department of Agriculture

PART 4279--GUARANTEED LOANMAKING

    1. The authority citation for part 4279 is revised to read as 
follows:

    Authority:  5 U.S.C. 301; 7 U.S.C. 1932(a); and 7 U.S.C. 1989.

Subpart A--General

    2. Amend Sec.  4279.72 by revising the last sentence of paragraph 
(b) to read as follows:


Sec.  4279.72  Conditions of guarantee.

* * * * *
    (b) * * * The lender will reimburse the Agency for any payments the 
Agency makes to a holder of lender's guaranteed loan that, under the 
Loan Note Guarantee, would not have been paid to the lender had the 
lender retained the entire interest in the guaranteed loan and not 
conveyed an interest to a holder.
* * * * *

    Dated: July 12, 2011.
Dallas Tonsager,
Under Secretary Rural Development.
[FR Doc. 2011-18007 Filed 7-18-11; 8:45 am]
BILLING CODE 3410-XY-P