Section 202(b) of the Packers and Stockyards Act, 1921 (the Act), as amended (7 U.S.C. 181 et seq. ), specifies that it is unlawful for any packer, swine contractor, or live poultry dealer to either make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect. In administering this provision of the Act, the United States Secretary of Agriculture (Secretary) determines whether the conduct of regulated entities is considered a violation of the Act.

In the past, each determination has been analyzed using general principles in a case-by-case basis, exercising the regulatory flexibility Congress provided when it passed the Act. Provisions of the 2008 Farm Bill (Public Law 110-234) require the Secretary to promulgate regulations establishing criteria the Secretary would consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of the Act. See Sec. 11006(1). The Secretary originally delegated responsibility for establishing the required criteria to the Grain Inspection, Packers and Stockyards Administration (GIPSA), which subsequently merged with the Agricultural Marketing Service (AMS). AMS now administers the regulations under the Act and has undertaken this rulemaking. To meet the statutory requirement, AMS proposes adding a new § 201.211 to 9 CFR part 201—Regulations Under the Packers and Stockyards Act (P&S regulations), retaining the necessarily flexible framework for the Secretary's determinations, while providing criteria that supports the transparency of the Secretary's determinations. Accordingly, the regulated industry and the public will have a reference to the general framework that AMS will use to determine whether there is an unlawful preference or advantage under section 202(b) of the Act.

Proposed § 201.211 would require the Secretary to consider one or more of four specified criteria when determining whether any undue or unreasonable preference or advantage has been given or made to any particular person or locality in any respect in violation of section 202(b) of the Act. The Secretary would not be limited to considering only the four proposed criteria, but could also take other factors into consideration as appropriate on a case-by-case basis. We discuss each of the four proposed criteria later in this document.

A 60-day comment period is provided to allow interested persons to respond to this proposed rule. All written comments received in response to this proposed rule by the date specified will be considered.

The Packers and Stockyards Division (PSD) of AMS's Fair Trade Practices Program oversees day-to-day administration of the P&S regulations and is called upon to investigate alleged violations of section 202(b) of the Act, many related to contractual dealings with livestock producers, swine production contract growers, and poultry growers. Other entities, including retailers and the public, can also be harmed by violations of section 202(b). Difficulty lies in determining whether particular instances of preferences or advantages made or given to one or more persons or localities would be undue or unreasonable and violations of the Act.

As mentioned above, the 2008 Farm Bill directs the Secretary to establish criteria the Secretary will consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of the Act. At the time the 2008 Farm Bill was enacted, what is now PSD operated within GIPSA. GIPSA undertook the responsibility for developing criteria for consideration. In June 2010, GIPSA published a proposed rule (75 FR 35338; June 22, 2010) that was never finalized, due to Congressional prohibitions included in the Consolidated Appropriations Acts for fiscal years 2012 through 2015, which disallowed any further work on the new criteria rulemaking. See Sec. 721, Public Law 112-55, November 18, 2011; Sec. 742, Public Law 113-6, March 26, 2013; Sec. 744, Public Law 113-76, January 17, 2014; and Sec. 731, Public Law 113-235, December 16, 2014. GIPSA resumed its efforts to promulgate the required criteria in December 2016 with publication of a second proposed rule (81 FR 92703; December 20, 2016), but decided to take no further action on that proposal (82 FR 48603; October 18, 2017).

The Secretary is issuing this NPRM to establish criteria to consider when determining whether a violation of section 202(b) of the Act has occurred as required by the 2008 Farm Bill. The proposed criteria would provide an analytical framework to evaluate whether a violation may have occurred. This proposed rule addresses a situation occasionally encountered in the industry, namely the need to determine whether a preference or advantage in a specific instance is undue or unreasonable. AMS intends the proposed new regulation to establish a framework for consideration of potential violations of section 202(b) of the Act, to bring transparency to the Secretary's determination process for the industry.

This proposed rule would establish criteria the Secretary would consider in determining whether an undue or unreasonable preference or advantage has been made or given in violation of the Act, and therefore establish an appropriate framework for analysis. It is not unusual for buyers or sellers of livestock or poultry to receive advantages. For example, as between two competing sellers, one may receive a better price from a buyer. The Act only prohibits those preferences or advantages that are undue or unreasonable. It follows that there are legitimate reasons for the existence of preferences or advantages that are not undue or unreasonable. Reasonable differences in contract terms may result from negotiations over particular interests between the parties. It is not the purpose of the Act to interfere with contract negotiations or to upset the traditional principles of freedom of contract. Nor does the Act statutorily create an entitlement to obtain the same type of contract offered to other producers or growers. However, greater clarity on the terms associated with grower contracts could increase transparency in the marketplace and reduce the claims of undue or unreasonable preference.

Under proposed § 201.211, the Secretary would consider one or more specific criteria when determining whether a packer, swine contractor, or live poultry producer has made or given any undue or unreasonable preference or advantage to any particular person or locality in any respect. Proposed § 201.211 lists four criteria for consideration and would provide that the Secretary not be limited to consideration of those four criteria.

Under proposed § 201.211(a), the Secretary would consider whether the preference or advantage under consideration cannot be justified on the basis of a cost savings related to dealing with different producers, sellers, or growers. Under proposed § 201.211(b), the Secretary would consider whether the preference or advantage in question cannot be justified on the basis of meeting a competitor's prices. Under proposed § 201.211(c), the Secretary would consider whether the preference or advantage in question cannot be justified on the basis of meeting other terms offered by a competitor. Under proposed § 201.211(d), the Secretary would consider whether the preference or advantage in question cannot be justified as a reasonable business decision that would be customary in the industry.

Historically, the Secretary has considered some of these criteria and other factors similar to these in determining whether or not to bring an enforcement action regarding an alleged violation of the Act. AMS has based its proposal on the experience of PSD, which has administered the Packers and Stockyards Act and regulations and understands what complaints are commonly made regarding compliance. AMS is proposing this list of criteria that the Secretary would consider, but it is also proposing that the Secretary have the flexibility to consider other criteria that may be relevant on a case-by-case basis. In doing so, AMS is attempting to strike a balance between the interests of all segments of the industry. On the one hand, AMS is charged with protecting producers, growers, retailers, and others, including the public, from potential harm resulting from undue or unreasonable preferences or advantages. On the other hand, AMS recognizes that among the numerous complaints examined in the past, many preferences and advantages made or given to individuals or groups in the industry have been determined to be lawful, and relatively few have been determined to be undue or unreasonable.

Legitimate disparities in contract terms could be attributed to reasonable business negotiations between contracting parties. For example, price differences offered to different sellers could reflect differences in transportation costs to a slaughter facility or could reflect one producer's ability and willingness to supply livestock in the early morning hours to start the day's processing while others cannot. Disparate contract terms are not considered undue or unreasonable just because they are not identical.

For example, a live poultry dealer pays a premium to one poultry grower who agrees to use experimental vaccines, thus putting the grower at increased risk of financial loss if the vaccine proves to be unsuccessful and the birds die or do not grow well. Based on the criteria in proposed § 201.211, the apparent preference or advantage might be justified on the basis of the company saving the expense of testing the vaccines though other means, and the premium paid to the grower for providing the extra service of testing vaccines and for accepting greater financial risk might not be considered undue or unreasonable. In another example, a livestock packer pays higher prices later in the day or week after competitors have raised the market price. Based on the criteria in proposed § 201.211, the apparent preference or advantage might be justified as necessary to meet competitors' prices, and the higher price might not be considered undue or unreasonable. Finally, where a live poultry dealer's competitors have offered long term contracts to their growers, the poultry dealer finds that he must offer comparable terms to his growers in the same locality. Based on the criteria in proposed § 201.211, the apparent preference given to growers in that locality is unlikely to be considered undue or unreasonable because the difference in contract terms might be justified by the need to meet a competitor's other contract terms in that locality.

On the other hand, some preferences or advantages might be considered undue or unreasonable if they are so unfair that they would tend to restrain trade, creating such excessively favorable conditions for one or more persons that their competitors would have reduced chances of business success. For instance, premiums offered to one person or locality but not offered to other persons or localities similarly situated could constitute a violation of the Act. A livestock packer negotiating preferential live basis prices with only one favored livestock supplier and not with similarly situated suppliers, may be in violation of the Act. PSD would examine the proposed criteria and likely conclude that the packer cannot justify its actions on the basis of cost savings, meeting a competitor's prices, meeting other terms offered by a competitor, or as a reasonable business decision.

Under proposed § 201.211(a) through (c), the Secretary would consider whether preferences or advantages made or given to one or more persons are based on cost savings related to dealing with different producers, sellers, or growers, or the need to meet a competitor's prices or other contract terms. For example, a live poultry dealer offering a higher base price to a favored grower, but not to other growers in the same complex with the same housing types, may be in violation of the Act. The Secretary would consider the proposed criteria. Under criterion (a), there would be no cost savings in a higher base price. But under criteria (b) and (c), the Secretary would consider whether the higher base price meets a competitor's price or other terms. If the reason for giving the favored grower the higher price cannot be justified by meeting a competitor's price or other terms, then the higher base price may be an undue or unreasonable preference or advantage.

Under proposed 201.211(d), the Secretary would consider whether the preference or advantage cannot be justified as a reasonable business decision that is customary in the industry. A packer, swine contractor, or live poultry dealer may have a legitimate business reason for treating some persons or groups more favorably than others. For example, it is customary in the cattle industry for the packer to pay freight expenses on live weight purchases, but not on carcass weight purchases. Based on the criteria in proposed § 201.211, it is unlikely that the apparent preference or advantage to live weight cattle sellers in that situation would be considered undue or unreasonable because it could be justified as a reasonable business decision that is customary in the industry. In another example, a live poultry dealer may pay a premium to growers who construct new poultry houses or update their houses with the latest technology. Based on the criteria in proposed § 201.211, such a premium might be justified as a reasonable business decision that would be customary in the industry, so it is unlikely that the Secretary would determine the preference or advantage to be undue or unreasonable.

Live poultry dealers, packers, and swine contractors should enter into contracts that do not discriminate, unless the differences are due to cost, meeting competitors prices, or normal industry standards. Preferences that are not grounded in ordinary business considerations may be based upon reasons of unjust advantage. AMS believes these criteria promote honest competition in the supply chain, instead of advantages that could result from bribery or other influences. Therefore, AMS focused on four criteria that promote honest competition: Cost savings, meeting a competitor's prices, meeting other terms offered by a competitor, and other reasonable business reasons for preference and advantages.

While the agency expects a short-term increase in the cost of review for livestock producers, poultry growers, and regulated entities in existing contracts, in the long-term, innovative contracts should be less costly to negotiate even when those contracts provide for preferences and advantages. Because this framework of criteria could be understood in the context of ordinary and customary business decisions, regulated entities may more easily review contracts for compliance with the Act.

By following a framework of criteria that promote fair dealing based in rational decision-making, AMS promotes protection for producers and localities that might be otherwise have been unable to obtain preferential contract terms or price advantages. This, therefore, should also improve the negotiating position of growers and producers.

AMS expects that adding the proposed criteria described above to the P&S regulations would provide a framework in which the Secretary can consider potential violations of the Act, help the industry understand what the Secretary would consider when evaluating violation claims, and fulfill the Congressional mandate to establish criteria for making determinations regarding potentially unacceptable conduct under the Act.

AMS is issuing this rule in conformance with Executive Orders 12866 and 13563, which direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits, including potential economic, environmental, public health and safety effects, distributive impacts, and equity. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility.

In the development of this proposed rule, AMS determined to take a different approach to developing the necessary criteria than previous rulemaking efforts. AMS determined that including the proposed criteria as part of the framework for consideration of preferences and advantages in buyer-seller contracts would best serve the needs of the industry and fulfill the 2008 Farm Bill mandate. AMS expects the proposed new regulation would bring transparency to considerations of potential violations of section 202(b) of the Act and certainty to industry members forging contracts related to the buying and selling of poultry and livestock. The proposed rule is not expected to provide any environmental, public health, or safety benefits.

This proposed rule has been determined to be significant for the purposes of Executive Order 12866 and therefore has been reviewed by OMB. This proposed rule is expected to be an Executive Order 13771 regulatory action. Details on the estimated costs of this proposed rule can be found in the rule's economic analysis.

AMS is proposing a new § 201.211, which would provide four criteria in response to requirements of the 2008 Farm Bill for the Secretary of Agriculture to consider in determining whether a packer, swine contractor, or live poultry dealer has engaged in conduct resulting in an undue preference or advantage to any particular person or locality in any respect in violation of section 202(b) of the Act. Based on its familiarity with the industry, PSD prepared an economic analysis of proposed § 201.211 as part of the regulatory process. The economic analysis presents the cost-benefit analysis of proposed § 201.211. PSD then discusses the impact on small businesses.

This proposed rule is independent of previous rulemaking. PSD reviewed certain cost projections developed in conjunction with previous rulemaking in analyzing the regulatory impact of this proposed rule. All costs and benefits described in this economic analysis pertain to the language in this proposed rule.

The 2008 Farm Bill requires the Secretary of Agriculture to promulgate a regulation establishing criteria that the Secretary will consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of section 202(b) of the Act. This rulemaking is to fulfill that requirement.

Responsibility for establishing the required criteria was originally delegated to the Grain Inspection, Packers and Stockyards Administration (GIPSA), which subsequently merged with AMS. AMS now administers the regulations under the Act and has undertaken this rulemaking.

For this economic analysis, PSD considered the impact of three alternatives for this proposed rule. PSD considered the impact of maintaining the status quo, the impact of adopting regulatory language that had been proposed in 2016, and the impact of adopting the current proposed language.

PSD considered the impact of taking no further action on a previous version of § 201.211 GIPSA  1 had proposed on December 20, 2016. 2 GIPSA subsequently provided notice in the Federal Register on October 18, 2017, 3 that it would take no further action on the 2016 proposed rule. Taking no action would result in no additional out-of-pocket costs to businesses in the livestock and poultry industries but would not fulfill the requirements of the 2008 Farm Bill.

AMS could have proposed the same regulatory language proposed as in the 2016 proposed rule. The 2016 proposed rule contained six criteria the Secretary would consider in determining whether conduct or action constitutes an undue or unreasonable preference or advantage and a violation of section 202(b) of the Act. To determine the impact of adopting the 2016 proposed rule, PSD looked to the estimated costs of the rule contained in the economic analysis discussed in detail in the notice of proposed rulemaking. The total first year costs of the proposed rule in 2016 were $15.37 million.

This current rulemaking represents a different approach than previous rulemakings that would establish an analytical framework for considering whether a violation of section 202(b) of the Act has occurred. The proposed rule includes new criteria to bring transparency to the determination process for the industry. PSD estimates that the total first year costs of this proposed rule are $9.67 million.

As required by the 2008 Farm Bill, proposed § 201.211 specifies criteria the Secretary would consider when determining whether an undue or unreasonable preference or advantage has occurred in violation of section 202(b) of the Act. The proposed criteria provide a framework to analyze whether a particular person or locality receives an undue or unreasonable preference or advantage as compared to other similarly situated persons or localities. AMS expects the proposed four criteria would clarify the legal standard for the public and promote honest competition, fair dealing, and improve the negotiating position of growers and producers.

PSD has estimated the costs and benefits of the proposed rule assuming the final rule is published and effective in May 2020. The costs and benefits of the proposed rule are discussed in order below.

PSD believes that the costs of proposed § 201.211 would mostly consist of the direct costs of reviewing and, if necessary, re-writing marketing and production contracts to ensure that packers, swine contractors, and live poultry dealers are not providing an undue or unreasonable preference or advantage to any livestock producer, swine production contract grower, or poultry grower compared to other similarly situated person or localities. PSD also believes that proposed § 201.211 may lead to additional litigation costs to test court precedents relating to section 202(b) violations. In past cases, courts have considered whether a specific preference or advantage would be a violation of the Act if the preference or advantage did not harm competition. However, AMS does not intend to create criteria that conflict with case precedent, so PSD expects that court precedents relating to competitive harm are likely to remain unchanged.

Proposed § 201.211 does not impose any new requirements on regulated entities, but would serve as guidance for their compliance with section 202(b) of the Act. Since the proposed rule would clarify the Secretary's consideration of unlawful undue or unreasonable preferences or advantages, regulated entities should face less risk of violating the Act. Because of this reduced risk, and the fact that PSD does not expect court precedents requiring the demonstration of harm or potential harm to competition to change, PSD does not expect the proposed rule to result in a decrease in the use of alternative marketing agreements  4 (AMAs), poultry tournament systems, or other incentive payment systems, or decreased economic efficiencies in the cattle, hog, and poultry industries. Additionally, PSD does not expect the proposed rule to inhibit the ability of regulated entities and producers and growers to develop and enter into mutually advantageous contracts.

To estimate costs, PSD divided costs into two major categories, direct and indirect costs. In addition, PSD expects there are two direct costs: Administrative costs and litigation costs.

With respect to direct costs, administrative costs for regulated entities would include items such as review of marketing and production contracts, additional record keeping, 5 and all other associated administrative office work to demonstrate that they do not provide an undue or unreasonable preference or advantage to any livestock producer, swine production contract grower, or poultry grower compared to other similarly situated person or localities.

Litigation costs for the livestock and poultry industries would initially increase while precedent confirming decisions are established. However, since court precedents have generally required the demonstration of harm to competition, PSD expects the increased litigation costs would decline after initial court decisions. Once precedents are confirmed, PSD expects additional litigation to decline.

With respect to indirect costs, those costs include costs caused by changes in supply and/or demand and any resulting efficiency losses in the national markets for beef, pork, and chicken and the related input markets for cattle, hogs, and poultry resulting from the direct costs of the proposed rule.

To estimate administrative costs of the proposed rule, PSD relied on its experience reviewing contracts and other business records commonly maintained in the livestock and poultry industries for compliance with the Act and regulations. PSD has data on the number of production contracts between swine production contract growers and swine contractors and poultry growers and live poultry dealers. PSD estimated the number of cattle marketing contracts between producers and packers based on the number of feedlots and the percentage of livestock procured under AMAs. PSD then multiplied hourly estimates of the administrative functions of reviewing and revising contracts by average hourly labor costs for administrative, management, and legal personnel to arrive at the total estimated administrative costs. PSD measured all costs in constant 2016 dollars in accordance with guidance on complying with E.O. 13771. 6

Since packers, swine contractors, and live poultry dealers would likely choose to review their contracts as a precautionary measure to ensure that they are not engaging in conduct or action that in any way gives an undue or unreasonable preference or advantage to any livestock producer, swine production contract grower, or poultry grower, PSD estimates that the regulated entities would review each contract or each contract type once and would renegotiate any contracts that contain language that could be considered a violation of section 202(b) of the Act.

One may view this estimate as an upper bound to the direct cost of the proposed rule, as not every packer, swine contractor, or live poultry dealer would choose to conduct such a review. Some may choose to “wait and see” what effect, if any, the rule had on the industry, and if courts ruled on it in any way that would warrant such a review of their contracts.

Based on PSD's experience, it developed estimates for regulated entities of the number of hours for attorneys and company managers to review and revise marketing and production contracts and for administrative staff to make changes, copy, and obtain signed copies of the contracts. For poultry contracts, PSD estimates that each unique contract type would require one hour of attorney time to review and rewrite a contract, two hours of company management time, and for each individual contract, one hour of administrative time, and one hour of additional record keeping time. 7 PSD estimates that each of the 93 live poultry dealers who report to PSD rely on 10 unique contract types on average. PSD data indicates that there are 24,101 individual poultry growing contracts. PSD estimates that each of the 237 hog packers has 10 marketing agreements. The 2017 Census of Agriculture (Ag. Census)  8 indicates that the universe of swine production contracts in the U.S. is 8,557. For hog production and marketing contracts, PSD estimates that each production contract and marketing agreement would require one-half hour of attorney time to review and rewrite a contract, one hour of company management time, one hour of administrative time, and one hour of additional record keeping time. For cattle processors, PSD estimates that each of the estimated 1,099 marketing agreements would require one hour of attorney time to review and rewrite a contract, two hours of company management time, one hour of administrative time, and one hour of additional record keeping time. 9

PSD multiplied estimated hours to conduct these administrative tasks by the average hourly wages for managers at $62/hour, attorneys at $84/hour, and administrative assistants at $36/hour as reported by the U.S. Bureau of Labor Statistics in its Occupational Employment Statistics to arrive at its estimate of contract review costs for regulated entities. 10

PSD recognizes that contract review costs would also be borne by livestock producers, swine production contract growers, and poultry growers. PSD estimates that each livestock producer, swine production contract grower, and poultry grower would, in its due course of business, spend one hour of time reviewing a contract or marketing agreement and would spend one-half hour of its attorney's time to review the contract. As with the regulated entities, one may view this estimate as an upper bound to the direct cost of the proposed rule, as not every producer or grower would choose to conduct such a review. Some may choose to “wait and see” what effect, if any, the rule had on the industry, and if courts ruled on it in any way that would warrant such a review of their contracts.

PSD multiplied one hour of livestock producer, swine production contract grower, and poultry grower management time and one-half hour of attorney time to conduct the marketing and production contract review by the average hourly wages for attorneys at $84/hour and managers at $62/hour as reported by the U.S. Bureau of Labor Statistics in its Occupational Employment Statistics to arrive at its estimate of contract review costs for livestock producers, swine contract growers, and poultry growers. PSD then applied this cost to the estimated 1,099 cattle marketing contracts, 2,370 hog marketing contracts, 8,557 hog production contracts, and 24,101 poultry growing contracts that have been reported to PSD.

After determining the administrative costs to both the regulated entities and those they contract with, PSD added the administrative costs of the regulated entities and the livestock producers, swine production contract growers, and poultry growers together to arrive at the first-year total estimated administrative costs attributable to the regulation. A summary of the first-year total estimated administrative costs for proposed § 201.211 appear in the following table:

The first-year total administrative costs are $7.89 million for proposed § 201.211, and include costs for cattle, hogs, and poultry because packers, swine contractors, live poultry dealers, livestock producers, swine production contract growers, and poultry growers would conduct administrative functions of contract review and record keeping in response to the regulation. The administrative costs are the highest for poultry, followed by hogs and cattle. This is due to the greater prevalence of contract growing arrangements in the poultry industry.

In considering the costs of the rules it proposed in 2016, GIPSA performed an in-depth analysis of litigation costs expected as a result of the package of four proposed new regulations. 11 GIPSA estimated the total costs of litigating a case alleging violations of the P&S Act. The main costs are attorney fees to litigate a case in a court of law. The cost of litigating a case includes the costs to all parties including the respondent and the USDA in a case brought by the USDA and the costs of the plaintiff and the defendant in the case of private litigation.

To estimate litigation costs for the 2016 proposed rules, GIPSA examined the actual cases decided under the P&S Act from 1926 to 2014 as reported by the National Agricultural Law Center at the University of Arkansas. 12 The litigation costs estimated in the 2016 proposed rules are measured in constant 2016 dollars and are for regulated entities, producers, and growers. The 2016 analysis of litigation costs estimated that the interim final rule at § 201.3(a) was the primary source of litigation costs and that the litigation costs for all four proposed rules were counted under § 201.3(a). 13 The 2016 analysis split out the estimated litigation costs between sections 202(a) and 202(b).

The National Agricultural Law Center at the University of Arkansas has not reported any additional cases decided under the P&S Act since 2015. Since proposed § 201.211 would establish criteria for violations of section 202(b) and there has not been any new recent litigation reported by the National Agricultural Law Center at the University of Arkansas, PSD used the estimated litigation costs associated with section 202(b) from the 2016 proposed rules as the starting point for this proposed rule.

The 202(b) estimated litigation costs serve as an upper boundary of estimated costs since the estimates assumed that § 201.3(a) and § 201.211 would both be promulgated. PSD estimates that there would be additional litigation when § 201.211 becomes effective, even in the absence of § 201.3(a). Therefore, PSD uses the following 202(b) litigation costs estimates in Table 14 from the 2016 proposed rule as the estimated first-year litigation costs assuming the rule becomes effective in May 2020. 14

PSD expects proposed § 201.211 would result in an additional $1.77 million in litigation costs in the first full year after the rule becomes effective. Using the number of complaints PSD has received from industry participants as an indicator, PSD estimates that the majority of the litigation will be in the poultry industry. Most of the complaints concerning undue or unreasonable preferences that PSD has received since 2009 have come from the poultry industry.

The total first-year direct costs of proposed § 201.211 are the sum of administrative and litigation costs from above and are summarized in the following table.

PSD estimates that the total direct costs of proposed § 201.211 to be $9.67 million. As the above table shows, the costs are highest for the poultry industry, followed by hogs and cattle. The primary reason is the high utilization of growing contracts and the corresponding higher estimated administrative costs in the poultry industry. To put this direct cost in perspective, the actual impact on retail prices from these direct costs would be less than one one-hundredth of a cent.

PSD estimates that the indirect costs of proposed § 201.211 on the cattle, hog, and poultry industries are zero. For the purposes of this analysis, indirect costs are social welfare losses due to any potential price and output changes from the direct costs of proposed rule and in are addition to the direct costs (administrative and litigation costs) on regulated entities, producers, and growers who are directly impacted by the proposed rule. The economy will experience indirect costs, for example, if the proposed rule causes packers and live poultry dealers to reduce production, increasing the price of meat products and reducing the amount of meat consumed by consumers.

As previously discussed, the regulation clarifies the Secretary's consideration of whether a conduct or action constitutes an undue or unreasonable preference or advantage. PSD does not expect, therefore, that proposed § 201.211 would result in a decreased use of AMAs, use of poultry grower ranking systems or other incentive pay, reduced capital formation, inhibit development of new contracts, or decreased economic efficiencies in the livestock, meat and poultry industries. Accordingly, PSD does not project indirect costs resulting from decreases in AMAs, reduced capital, efficiency losses, or lost consumer and producer surplus. Indirect costs that could theoretically be anticipated are due to shifts in industry demand and supply curves resulting from the increases in industry direct costs attributable to the proposed rule. These shifts may result in quantity and price changes in the retail markets for beef, pork, and poultry, and the related input markets for cattle, hogs, and poultry. However, litigation costs are unrelated to the quantity of production—in other words, they are not marginal costs—so it is not appropriate to include them in the amount of a supply curve shift. Contract reviews and revisions are somewhat related to production quantity, but even they are less than fully compelling as a component of marginal cost. These nuances are not reflected in the assessment that follows, and thus it should be interpreted as a bounding exercise.

To calculate an upper bound on this type of indirect costs based on supply curves shifting, PSD modeled the impact of the increase in direct costs of implementing proposed § 201.211 in a Marketing Margins Model (MMM) framework. 16 The MMM allows for the estimation of changes in consumer and producer prices and quantities produced caused by changes in supply and demand in the retail markets for beef, pork, and poultry and the input markets for cattle, hogs, and poultry.

PSD modeled—again, as a bounding exercise—the indirect costs as an inward (or upward) shift in the supply curves for beef, pork, and poultry. This has the effect of increasing the equilibrium prices and reducing the equilibrium quantity produced. This also has the effect of reducing the derived demand for cattle, hogs, and poultry, which causes a reduction in the equilibrium prices and quantity produced. Economic theory suggests that these shifts in the supply curves and derived demand curves will result in price and quantity impacts and potential dead weight losses to society. 17

To estimate the output and input supply and demand curves for the MMM, PSD constructed linear supply and demand curves around equilibrium price and quantity points using price elasticities of supply and demand from the GIPSA Livestock Meat and Marketing Study and from USDA's Economic Research Service. 18 With the supply curves established from this data, PSD then shifted the supply curves for beef, pork, and chicken up by the amount of the increase in direct costs for each industry. PSD calculated the new equilibrium prices and quantities in the input markets resulting from the decreases in derived demand that result from higher direct costs. This allows for the calculation of the indirect cost from the lower relative quantity produced at the relatively higher price when the industry's direct costs increase.

The calculation of an upper bound on the price impacts from the increases in direct costs from proposed § 201.211 resulted in price increases of less than one one-hundredth of a cent in retail prices for beef, pork, and poultry. This is because the increase in direct costs is very small in relation to total industry costs. 19 The result is that the price and quantity effects from the increases in direct costs are indistinguishable from zero and, therefore, PSD concludes that the indirect costs of proposed § 201.211 for each industry are also zero.

PSD added all direct costs to the indirect costs (equal to zero), to arrive at the estimated total first-year costs of proposed § 201.211. The total first-year costs are summarized in Table 4.

PSD estimates that the total costs would be $9.67 million in the first year of implementation.

To arrive at the estimated ten-year administrative costs of proposed § 201.211, PSD estimates that in each of the first five years, 20 percent of all contracts will either expire and need to be renewed each year or new marketing and production contracts will be put in place each year. While PSD expects the costs of reviewing and revising, if necessary, each contract would remain constant in the first five years, it expects the administrative costs would be lower after the first year because the direct administrative costs of reviewing and revising contracts would only apply to the 20 percent of expiring contracts or new contracts. PSD estimates that in the second five years, the direct administrative costs of reviewing and revising contracts would decrease by 50 percent per year as the contracts would already reflect language modifications, if any, necessitated by implementation of the regulation. PSD estimates that after ten years, the direct administrative costs would return to where they would have been absent the rule, and the additional administrative costs associated with the rule would remain at $0 after ten years.

In estimating the estimated ten-year litigation costs of proposed § 201.211, PSD expects the litigation costs to be constant for the first five years while courts are setting precedents for the interpretation of § 201.211. PSD expects that case law with respect to the regulation would be settled after five years and by then, industry participants would know how PSD would enforce the regulation and how courts would interpret the regulation. The effect of courts establishing precedents is that litigation costs would decline after five years as the livestock and poultry industries understand how the courts interpret the regulation.

To arrive at the estimated ten-year litigation costs of proposed § 201.211, PSD estimates that litigation costs for the first five years would occur at the same rate and at the same cost as in the first full year of the rule ending in May 2021. In the sixth through tenth years, PSD estimates that additional litigation costs would decrease each year and return to where they would have been absent the rule in the tenth year after the rule is effective and remain at $0 after 10 years. PSD estimates this decrease in litigation costs to be linear with the same decrease in costs each year.

The ten-year total costs of proposed § 201.211 appear in the table below. 20

Based on the analysis, PSD expects the ten-year total costs would be $29.05 million.

The total costs of proposed § 201.211 in the table above show that the costs are highest in the first year, decline to a constant and significantly lower level over the next four years, and then gradually decrease again over the subsequent five years. Costs to be incurred in the future are less expensive than the same costs to be incurred today. This is because the money that would be used to pay the costs in the future could be invested today and earn interest until the time period in which the costs are incurred.

To account for the time value of money, the costs of the regulation to be incurred in the future are discounted back to today's dollars using a discount rate. The sum of all costs discounted back to the present is called the present value (PV) of total costs. PSD relied on both a three percent and seven percent discount rate as discussed in Circular A-4. 22 PSD measured all costs using constant 2016 dollars.

PSD calculated the PV of the ten-year total costs of the regulation using both a three percent and seven percent discount rate and the PVs appear in the following table.

PSD expects the PV of the ten-year total costs would be $26.31 million at a three percent discount rate and $23.33 million at a seven percent discount rate.

PSD annualized the PV of the ten-year total costs (referred to as annualized costs) of proposed § 201.211 using both a three percent and seven percent discount rate as required by Circular A-4 and the results appear in the following table. 23

PSD expects the annualized costs of § 201.211 would be $3.08 million at a three percent discount rate and $3.32 million at a seven percent discount rate.

PSD also annualized the PV of the ten-year total costs into perpetuity of proposed § 201.211 using both a three percent and seven percent discount rate following the guidance on complying with E.O. 13771 and the results appear in the following table. 24

PSD expects the costs of § 201.211 annualized into perpetuity would be $0.69 million at a three percent discount rate and $1.21 million at a seven percent discount rate. Based on the costs in Table 8 and in accordance with guidance on complying with E.O. 13771, the single primary estimate of the costs of this proposed rule is $1.21 million, the total costs annualized in perpetuity using a 7 percent discount rate.

PSD was unable to quantify the benefits of § 201.211. However, proposed § 201.211 contains several provisions that PSD expects would improve economic efficiencies in the regulated markets for cattle, hogs, and poultry and reduce market failures. Regulations that increase the amount of relevant information available to market participants, protect private property rights, and foster competition improve economic efficiencies and generate benefits for consumers and producers.

Proposed § 201.211 would increase the amount of relevant information available to market participants and offset any potential abuse of buyer-side market power by clearly stating to all contracting parties the criteria that the Secretary will consider in determining whether conduct or action constitutes an undue or unreasonable preference or advantage in violation of 202(b) of the Act.

The regulation would also reduce the risk of violating section 202(b) because it would clarify the criteria that the Secretary will consider in determining whether the conduct or action in the livestock and poultry industries constitutes an undue or unreasonable preference or advantage and a violation of section 202(b) of the Act. Other benefits of clarifying the criteria may include: Reducing litigation risk; decreasing contracting costs; promoting competitiveness and fairness in contracting; and providing protections for livestock producers, swine production contract growers, and poultry growers.

Benefits to the livestock and poultry industries and the cattle, hog, and poultry markets would also arise from improving parity of negotiating power between packers, swine contractors, and live poultry dealers and livestock producers, swine production contract growers, and poultry growers. The improvement in parity would come when contracting parties negotiate new contracts and when they review and renegotiate any existing contract terms that contain language that could be considered a violation of section 202(b) of the Act.

Since the regulation would increase the amount of relevant information by clarifying what might be considered an undue or unreasonable preference, it would increase parity in negotiating contracts, and thereby reduce the ability to abuse buyer-side market power with the resulting welfare losses. 25 Establishing parity of negotiating power in contracts promotes fairness and equity and is consistent with PSD's mission to protect fair trade practices, financial integrity, and competitive markets for livestock, meats, and poultry. 26

PSD expects the ten-year annualized costs of § 201.211 would be $3.08 million at a three percent discount rate and $3.32 million at a seven percent discount rate and the costs annualized into perpetuity to be $0.69 million at a three percent discount rate and $1.21 million at a seven percent discount rate. PSD expects the costs would be highest for the poultry industry due to its extensive use of poultry growing contracts, followed by the hog industry and the cattle industry, respectively.

PSD was unable to quantify the benefits of the proposed regulation, but they explained numerous qualitative benefits that would protect livestock producers, swine production contract growers, and poultry growers, promote fairness and equity in contracting, increase economic efficiencies, and reduce the negative effects of market failures throughout the entire livestock and poultry value chain. The primary benefit of proposed § 201.211 would be reduced occurrences of undue or unreasonable preferences or advantages and increased economic efficiencies in the marketplace. This benefit of additional enforcement of the Act would accrue to all segments of the value chain in the production of livestock and poultry, and ultimately to consumers.

The Small Business Administration (SBA) defines small businesses by their North American Industry Classification System Codes (NAICS). 27 SBA considers broiler and turkey producers/growers and swine contractors, NAICS codes 112320, 112330, and 112210 respectively, to be small businesses if sales are less than $1,000,000 per year. Cattle feeders are considered small if they have less than $8 million in sales per year. Beef and pork packers, NAICS 311611, are small businesses if they have fewer than 1,000 employees.

The Packers and Stockyards Act regulates live poultry dealers, which is a group similar but not identical to the NAICS category for poultry processors. Poultry processors, NAICS 311611, are considered small business if they have fewer than 1,250 employees. PSD applied SBA's definition for small poultry processors to live poultry dealers as the best standard available, and considers live poultry dealers with fewer than 1,250 employees to be small businesses.

PSD maintains data on live poultry dealers from the annual reports these firms file with PSD. Currently, 93 live poultry dealers would be subject to the proposed regulation. Seventy-Four of the live poultry dealers would be small businesses according to the SBA standard. Although there were many more small businesses than large, small business produced only about 6.5 percent of the poultry in the United States in 2017.

Live poultry dealers classified as large businesses are responsible for about 93.5 percent of the poultry contracts. Assuming that small businesses would bear 6.5 percent of the costs, in the first year the regulation is effective, $222,687  28 would fall on live poultry dealers classified as small businesses. This amounts to average estimated costs for each small live poultry dealer of $3,009.

As of February 2019, PSD records identified 381 beef and pork packers actively purchasing cattle or hogs for slaughter. Many firms slaughtered more than one species of livestock. Of the 381 beef and pork packers, 172 processed both cattle and hogs, 144 processed cattle but not hogs, and 65 processed hogs but not cattle.

PSD estimates that small businesses accounted for 23.1 percent of the cattle and 19.2 percent of the hogs slaughtered in 2017. If the costs of implementing proposed § 201.211 are proportional to the number of head processed, then in first full year the regulation would be effective, PSD estimates that $126,501  29 in additional costs would fall on beef packers classified as small businesses. This amounts to estimated costs of $407 for each small beef packer.

In total, $81,603  30 in additional first-year costs would be expected to fall on pork packers classified as small businesses, and $30,863  31 would fall on swine contractors classified as small businesses. This amounts to average estimated costs for each small pork packer of $356, and average estimated costs for each small swine contractor of $286 in the first year the regulation would be effective. To the extent that smaller beef and pork packers rely on AMA purchases less than large packers, the estimates might tend to overstate costs.

Ten-year annualized costs discounted at a three percent rate would be $61,097 for the cattle and beef industry, $32,463 for the hog and pork industry, and $119,271 for the poultry industry. This amounts to annualized costs of $196 for each beef packer, $103 for each pork packer, $82 for each swine contractor, and $1,612 for each live poultry dealer that is a small business. The total annualized costs for regulated small businesses would be $212,830.

Ten-year annualized costs at a seven percent discount rate would be $64,458 for the regulated cattle and beef industry, $35,416 for the regulated hog and pork industry, and $125,696 for the poultry industry. This amounts to ten-year annualized costs of $207 for each beef packer, $112 for each pork packer, $90 for each swine contractor, and $1,699 for each live poultry dealer that is a small business. The total ten-year annualized costs at 7 percent for regulated small businesses would be $225,570.

The table below lists the estimated additional costs associated with the proposed regulation in the first year. It also lists annualized costs discounted at three percent and seven percent discount rates, and annualized PV of costs extended into perpetuity discounted at three and seven percent.

In considering the impact on small businesses, PSD considered the average costs and revenues of each regulated small business impacted by proposed § 201.211. The number of small businesses impacted, by NAICS code, as well as the costs per entity in the first-year, ten-year annualized costs per entity at both the three percent and seven percent discount rates, and annualized PV of the total costs extended into perpetuity discounted at three and seven percent appear in the following table.

The following table compares the average per entity first-year and annualized costs of proposed § 201.211 to the average revenue per establishment for all regulated small businesses in the same NAICS code. The annualized costs are slightly higher at the seven percent rate than at the three percent rate, so only the seven percent rate is included in the table as the more conservative estimate.

I. Background Information

The 7(a) Loan Program is a business loan program authorized by section 7(a) of the Small Business Act (15 U.S.C. 636(a)) and is governed primarily by the regulations in part 120 of Title 13 of the Code of Federal Regulations (CFR). The core mission of the 7(a) Loan Program is to provide SBA-guaranteed financial assistance to small businesses that lack access to capital on reasonable terms and conditions in order to support our nation's economy.

Under the 7(a) Loan Program, a lender (Lender) participates with SBA by making loans directly to eligible small businesses and SBA guarantees a portion of each loan made by Lenders in the program. The Lender is responsible for funding and servicing the loan and must comply with SBA's Loan Program Requirements (as defined in 13 CFR 120.10) throughout the life of the loan. SBA may delegate to a Lender the authority to approve small business loans made under the 7(a) Loan Program. The Lender may also sell the guaranteed portion of a 7(a) loan in SBA's secondary market and, in certain circumstances, may securitize or sell a participating interest in the unguaranteed portion of a 7(a) loan. In the event that a borrower defaults on a 7(a) loan, the Lender must conduct the liquidation efforts and, if applicable, litigation efforts in accordance with SBA Loan Program Requirements. The Lender and SBA share in the loss, if any, in accordance with their respective interests in the loan.

Most Lenders participating in the 7(a) Loan Program are depository institutions that have a primary Federal regulator ( e.g., the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA)) that oversees the Lender's lending activities. SBA also has the statutory authority under section 7(a)(17) of the Small Business Act to authorize non-federally regulated entities to make 7(a) loans, including entities that have state-regulators. Under this authority, SBA has authorized SBA Supervised Lenders to make loans in the 7(a) Loan Program. SBA Supervised Lenders are defined in 13 CFR 120.10 to include SBLCs and NFRLs, and are subject to SBA regulation, oversight and enforcement, including the imposition of civil monetary penalties.

SBLCs, as defined in 13 CFR 120.10, are non-depository lending institutions that are authorized only to make loans pursuant to section 7(a) of the Small Business Act and loans to Intermediaries in SBA's Microloan program. SBLCs are regulated, supervised and examined solely by SBA, except for the subset of SBLCs defined as Other Regulated SBLCs in 13 CFR 120.10. In January of 1982, SBA imposed a moratorium on issuing additional SBA lending authorities (referred to as SBLC Licenses) to SBLCs. Today, there are fourteen (14) SBLCs with full authority to make 7(a) loans up to the maximum loan amount (currently $5 million). 1 An entity may purchase one of the fourteen SBLC Licenses from an existing SBLC with SBA's prior written approval.

NFRLs, as defined in 13 CFR 120.10, are business concerns that are subject to regulation, supervision and oversight by a state regulator that must be satisfactory to SBA. By definition, an NFRL's lending activities are not regulated by a Federal Financial Institution Regulator (as defined in 13 CFR 120.10). Typically, NFRLs are organized as state licensed Business and Industrial Development Companies (BIDCOs), but may also include other types of state-regulated lending institutions, such as non-profit corporations or financial institutions without Federal deposit insurance or share insurance protection.

To become an SBA Supervised Lender, a prospective applicant must be qualified as determined by SBA in its sole discretion. Applicants must meet, inter alia, the participation criteria and ethical requirements for all Lenders set forth in the regulations at 13 CFR 120.140 and 120.410, the regulations specific to SBA Supervised Lenders (13 CFR 120.460 through 120.465) and, if applicable, the regulations specific to SBLCs (13 CFR 120.470 through 120.490). An entity interested in becoming an SBA Supervised Lender must submit an application to SBA containing the information specified in SBA's Standard Operating Procedures 50 10, Lender and Development Company Loan Programs, as amended from time to time (SOP 50 10). 2

In this proposed rule, SBA aims to enhance the application and review process for organizations seeking to participate as an SBA Supervised Lender in the 7(a) Loan Program and to mitigate the risk inherent in their participation in the program. The proposed changes would improve efficiencies associated with applications submitted to SBA by prospective SBLCs and NFRLs, including transactions involving a change of ownership or control, without compromising performance or increasing risk to the 7(a) Loan Program.

This rule also proposes to incorporate into the regulations the factors SBA considers in its evaluation of an SBA Supervised Lender application, including an assessment of the applicant's capitalization, organizational structure, the risk associated with its business plan, the professional qualifications and the historical loan performance record of the applicant and its management team (including key employees), the prior history or involvement of the Applicant or its management team (including key employees) with any SBA program, and other relevant information obtained by SBA through due diligence.

Typically, SBA Supervised Lenders are non-depository institutions, and, as such, rely on secondary market loan sales, warehouse lines of credit, participations or securitizations to support their lending operations. These activities, by their nature, create additional risk to SBA. Many of the changes in this proposed rule, including changes related to the safety and soundness and the lending activities of SBA Supervised Lenders ( e.g., capital maintenance requirements), seek to mitigate the increased risk associated with the operations of SBA Supervised Lenders.

SBA proposes to amend the following sections in 13 CFR part 120:

1. Section 120.460 What are SBA's additional requirements for SBA Supervised Lenders ?

SBA proposes to add new paragraphs (c) and (d) to § 120.460. Paragraph (c) would incorporate into the regulations a requirement that NFRLs must employ qualified full-time professional management, as is currently required of SBLCs. This new paragraph would clarify the meaning of qualified full-time professional management for SBA Supervised Lenders to include, at a minimum, the employment of a chief executive officer or equivalent to manage daily operations, a chief credit/risk officer, and at least one other full-time employee qualified by training and experience to carry out the SBA Supervised Lender's business plan. Existing SBA Supervised Lenders would not be required to comply with the new regulatory definition of qualified full-time professional management unless, after the effective date of a final rulemaking, they make or acquire any 7(a) loans or engage in a transaction that constitutes a change of ownership or control of the SBA Supervised Lender. Based on the quarterly condition reports and the annual reports that are required to be submitted to the Agency by SBA Supervised Lenders (including audited financial statements), most SBA Supervised Lenders already comply with the proposed new definition of qualified full-time professional management. SBA believes this proposed rule represents the minimum level of oversight and responsibility necessary for a lender receiving the benefit of SBA loan guarantees.

SBA is proposing to add a new paragraph (d) to limit an NFRL's lending area for 7(a) loan originations to the state in which the NFRL's primary state regulator is located. A number of NFRLs participating in the 7(a) Loan Program currently have limitations imposed by state law or by their state regulator that restrict their lending activities to the state in which their primary state regulator is located. In recent years, however, certain state regulators have permitted NFRLs to expand their business plan and lending area to make loans outside of the state or even nationwide. SBA is concerned that state regulators may not have sufficient resources or capacity to adequately supervise, regulate and examine NFRLs with a business plan to make or acquire 7(a) loans outside of their state, and SBA does not have the resources necessary to fill in the gaps in oversight and enforcement.

SBA has also found that many NFRLs lack the experience and expertise necessary to manage the risks associated with multistate lending, such as the financial risks inherent in the servicing and liquidation of 7(a) loans in other state jurisdictions. With the exception of two NFRLs, approximately 90% of the lending by NFRLs within the 7(a) Loan Program is done within the state where the NFRL's primary state regulator is located. In an effort to manage the risks associated with NFRLs participating in the 7(a) Loan Program, SBA proposes to incorporate a new paragraph (d) to limit the lending area of NFRLs (with respect to 7(a) loans only) to the state in which their primary state regulator is located, except that an NFRL's lending area may include a local trade area that is contiguous to such state ( e.g., a city or metropolitan statistical area that is bisected by a state line) if the NFRL receives SBA's prior written approval. This is consistent with the general understanding that state-regulated lenders focus on economic development in their state and local communities. Existing NFRLs would not be subject to this requirement unless, after the effective date of a final rulemaking, they make or acquire any 7(a) loans or engage in a transaction that constitutes a change of ownership or control of the NFRL. For further discussion on the impact of this proposed rule see the initial regulatory flexibility analysis (IRFA) below.

2. Section 120.462 What are SBA's additional requirements on capital maintenance for SBA Supervised Lenders ?

SBA is authorized to supervise the safety and soundness of NFRLs and regulate their lending activities pursuant to section 23(a) of the Small Business Act. See 15 U.S.C. 650(a). Currently, NFRLs must maintain the minimum amount of capital established by their state regulator to meet SBA's regulatory requirements for capital maintenance. See 13 CFR 120.462(d). SBA has determined, however, that the minimum level of capital established by an NFRL's state regulator may not be sufficient to manage the credit risk associated with an NFRL's lending operation or the potential loss to SBA due to an NFRL's financial failure. 3 This rule proposes to amend the regulations to require NFRLs to maintain a baseline minimum amount of capital necessary for participation in the 7(a) Loan Program. The proposed minimum amount of capital that an NFRL would need to maintain would be equal to the higher of (1) the minimum amount of capital required by the NFRL's state regulator, or (2) $2,500,000. Existing NFRLs that have capital amounts less than the proposed minimum would have three years after the effective date of a final rulemaking to reach the new minimum capital amount. An NFRL that does not meet the new minimum capital requirement by the end of the three-year period could remain in the program but would not be permitted to make or acquire 7(a) loans after such date, until it satisfies the requirement. In addition, the new minimum capital requirement would apply immediately in the event of a change of ownership or control of an NFRL during the three-year time frame.

SBA believes that most NFRLs already comply with this requirement  4 and that it represents the baseline minimum level of capital necessary for an NFRL to maintain while making loans with the benefit of SBA loan guarantees. The proposed new minimum level of capital is equal to one-half the amount of minimum capital proposed for SBLCs in this rulemaking (see Section III.A.6 below), consistent with SBA's intent in this proposed rule to limit 7(a) loan making by NFRLs to the state in which their primary state regulator is located (as opposed to nationwide for SBLCs).

3. Section 120.466 SBA Supervised Lender application.

SBA proposes to add a new § 120.466 to incorporate into the regulations a new application and review process for prospective SBA Supervised Lenders. SBA proposes to evaluate applications through an initial review and, if warranted, a final review.

The initial review, as proposed under § 120.466(a), would require an SBA Supervised Lender applicant to submit a written plan (known as a Lender Assessment Plan (LAP)). The LAP would allow SBA to more effectively review key elements of an application and reach a preliminary assessment about the qualifications of an applicant more quickly and efficiently. SBA recognizes that the current SBA Supervised Lender application process can be costly for the applicant and represents an inefficient use of SBA's time and limited resources.

An initial review phase would assist SBA in identifying incomplete applications and unqualified applicants much earlier in the review process. The initial review will include an initial assessment of the applicant's business plan, capitalization and professional management team (including key employees). As part of this initial review, SBA may also require an in-person interview between the applicant and appropriate employees of the Office of Capital Access. The interview will serve as an opportunity for the applicant to explain the information provided in its LAP and answer any preliminary questions posed by SBA. During the initial review phase, SBA may also contact listed and unlisted references and verify the accuracy of the information provided in the LAP.

If SBA determines, based on the information provided in the LAP and in the in-person interview (if required), that the applicant may proceed to the final review phase, it will notify the applicant in writing. Notification by SBA that the applicant may proceed to final review does not mean that the applicant will be favorably assessed or approved by SBA to participate as an SBA Supervised Lender in the 7(a) Loan Program. If SBA notifies an applicant in writing that it may not proceed to the final review, the applicant may not submit a new LAP until nine months from the date of such notification. This nine month time period should allow sufficient time for the applicant to address any issues identified by SBA during the initial review phase without overburdening SBA with premature resubmissions. SBA will determine whether a LAP submitted during this nine month time period is being submitted by the same applicant.

The final review, as proposed under § 120.466(b), would require each SBA Supervised Lender applicant to submit a complete application as further described in official SBA policies and procedures. 5 A complete application would update the information disclosed in the LAP and would provide additional information for SBA's review, such as the applicant's organizational documents, operational plan, credit policies, internal control policies, loan risk rating system, capital adequacy plan, proposed credit facilities, organizational chart, audited financial statements, bank statements, legal opinions and other necessary documentation. After completion of the final review, SBA (the Director, Office of Financial Assistance, in consultation with the Director, Office of Credit Risk Management) will issue a final decision to approve or deny the application. SBA believes the proposed new application and review process will provide greater clarity and transparency, will expedite SBA's review of applications, and may be less burdensome for applicants and on SBA's limited administrative resources.

SBA recognizes that in some instances an SBA Supervised Lender applicant may be able to cure certain deficiencies in its application over a period of time, such as raising additional capital to support its business plan, adding more experienced members to its management team, or demonstrating to SBA a longer track record of successful loan making performance. This proposed rule provides that if an SBA Supervised Lender's application is denied, the applicant may submit a new LAP and restart the application process anytime after 18 months from the date of denial. SBA believes this 18 month time period is necessary to avoid resubmissions from declined applicants before sufficient time has elapsed for meaningful changes to occur and to be reflected in an SBA Supervised Lender application.

Lastly, under § 120.466(c), SBA is proposing to require an entity seeking to become an NFRL to have at least one year of current operating and relevant commercial lending experience before the entity may submit an application to become an SBA Supervised Lender. The requirement of having at least one year of experience is consistent with the standards that have been established for other SBA business loan programs, such as the Microloan Program, where entities are required to have at least one year of prior experience in order to be eligible to participate in the program as an Intermediary.

4. Section 120.467 Evaluation of SBA Supervised Lender applicants.

SBA proposes to add a new § 120.467 to incorporate into the regulations the factors that SBA currently considers in evaluating an SBA Supervised Lender applicant. SBA's evaluation includes a review of, among other things, the applicant's business plan, organizational structure, operational plan, management qualifications, the historical performance of the loans originated by the applicant or attributable to its management team, the applicant's capitalization, financial projections and liquidity, and prior history or involvement of the applicant or its management team (including key employees) with any SBA guaranteed lending program or any other Federal or state lending program. In addition, SBA reviews the results of background investigations ( e.g., through SBA Form 1081) and other information obtained through due diligence, such as reference checks.

In addition, this proposed rule makes it clear that SBA may prohibit individuals or entities from participating as an officer, director, manager, owner or key employee of an applicant if such individual or entity: (1) Has a previous record of failing to comply with SBA Loan Program Requirements; (2) previously participated in a material way with any past or present SBA Lender or Intermediary that failed to maintain satisfactory SBA performance; (3) previously defaulted on any Federal loan or Federally assisted financing that resulted in the Federal Government or any of its agencies or departments sustaining a loss in any of its programs; or (4) ever failed to pay when due any debt or obligation, including any amounts in dispute, to the Federal Government or guaranteed by the Federal Government (including but not limited to taxes or business or student loans). These provisions are consistent with SBA's current policies in evaluating an SBA Supervised Lender applicant.

5. Section 120.468 Change of ownership or control requirements for SBA Supervised Lenders.

SBA proposes to move the regulation applicable to a change of ownership or control of an SBLC (§ 120.475) to a new § 120.468 with certain modifications. The purpose of this change is to incorporate into the regulations the current policy requirement that all SBA Supervised Lenders, including NFRLs, must obtain SBA approval prior to any change of ownership or control. This proposed rule provides clarification as to what would be considered a change of ownership or control, including any series of transfers that, in the aggregate over an 18 month period, transfers 10 percent or more of an SBA Supervised Lender's stock or ownership interests. This rule also seeks to add a new paragraph (a)(5) to clarify that the definition of a change of ownership or control includes any transaction or event that results in any change in the possession (direct or indirect) of the right to control, or the power to direct or cause the direction of, the management or policies of an SBA Supervised Lender. The rule also clarifies that SBA Supervised Lenders must receive SBA prior written approval before entering into any definitive agreement regarding a change of ownership or control.

This rule also proposes to incorporate into the regulations as § 120.468(c) the current policy that a new application (as described above in new § 120.466) must be submitted to SBA in connection with a change of ownership or control of an SBA Supervised Lender.

In addition, this proposed rule would add a new paragraph (d) to provide an SBA Supervised Lender with the opportunity to voluntarily surrender its SBA lending authority ( i.e., its SBLC License or its NFRL lending authority) and withdraw from the 7(a) Loan Program with SBA's prior written approval. This would provide SBA Supervised Lenders with a path to exit the 7(a) Loan Program in an efficient and organized manner. As proposed, a voluntary surrender would require an SBA Supervised Lender to (i) transfer its entire loan portfolio to one or more Lenders acceptable to SBA, and (ii) enter into a withdrawal agreement. The purpose of the withdrawal agreement is to resolve any outstanding issues between the SBA Supervised Lender and SBA, including any outstanding monetary liabilities.

6. Section 120.471 What are the minimum capital requirements for SBLCs ?

SBA proposes to amend § 120.471(a) to increase the minimum capital requirement for SBLCs, which has not been updated since 1996. SBA has determined that the current minimum capital requirement that an SBLC must maintain ( i.e., the greater of $1 million or 10 percent of the aggregate of its share of all outstanding loans) is insufficient to assure an SBLC's continued financial viability or provide for any necessary growth. In 1996, the maximum 7(a) loan amount was $1,000,000. The maximum 7(a) loan amount has increased several times since then, the last time occurring in September of 2010. Section 1111 of the Small Business Jobs Act of 2010 (SBJA), Pub. L. 111-240, 124 Stat. 2504, which was enacted on September 27, 2010, permanently increased the maximum guaranteed portion and the maximum loan amount for 7(a) loans. Under the SBJA, the maximum 7(a) loan amount was increased from $2 million to $5 million and the maximum 7(a) loan guaranteed portion was increased to the current amount of $3,750,000. 6 No corresponding changes were made by SBA to increase the minimum capital requirements for SBA Supervised Lenders either at that time or in connection with any of the prior increases in the maximum 7(a) loan amount that have occurred since 1996.

This proposed rule would adopt a new minimum capital requirement for SBLCs equal to unencumbered paid-in capital and paid-in surplus of at least $5 million, or ten percent of the aggregate of its share of all outstanding loans, whichever is greater. Most of the existing SBLCs have capital in amounts well in excess of the minimum amount required by current § 120.471(a). The proposed change would again ensure that no SBLC has minimum capital in an amount less than the size of a single 7(a) loan permitted in the program. See 15 U.S.C. 636(a)(3)(A). An existing SBLC that has capital in an amount less than the proposed minimum would have three years after the effective date of a final rulemaking to reach the new minimum capital amount, after which it would be permitted to remain in the program but would not be permitted to make or acquire 7(a) loans until such time as the minimum capital requirement was satisfied. The new minimum capital requirement would apply immediately, however, in the event of a change of ownership or control of an SBLC.

SBA is proposing to amend § 120.471(b) to expand the definition of capital to include “unrestricted net assets” for non-profit corporations. In recent years, SBA has seen an increase in the interest of non-profit corporations seeking to become an SBLC; however, the definition of capital has not been updated to reflect that an SBLC may be organized as either a for-profit or non-profit corporation. This proposed change would address that issue.

Finally, SBA is considering whether it should make any additional changes to the definition of capital under § 120.471(b). Capital currently consists only of the following: Common stock, preferred stock (non-cumulative and with no maturity date), additional paid-in capital (representing amounts paid for stock in excess of par value), retained earnings, and capital contributions to limited liability companies and limited partnerships that are not subject to repayment or withdrawal and have no cumulative priority return. In recent years, SBA has become concerned that retained earnings can include amounts, such as the estimated value of loan servicing rights, that may not be as reliable as paid-in capital. Specifically, SBA is concerned that the valuation of servicing rights assets is based on assumptions such as prepayment speeds and loan default rates that are subject to change. SBA is seeking to determine whether, and in what amount, servicing rights should contribute to an SBA Supervised Lender's required minimum capital, and to ensure that there is a consistent understanding of the appropriate treatment of servicing rights by SBA Supervised Lenders. SBA is soliciting comments from the public on the current definition of capital (as defined in § 120.471(b)) and whether it should be modified to limit any contribution that servicing rights may have towards an SBA Supervised Lender's minimum capital requirement. Alternative options could include, for purposes of the minimum capital calculation: (1) Limiting the percentage of retained earnings that are permitted to be comprised of the value of servicing rights, or (2) limiting the percentage of servicing rights that are permitted to be included in retained earnings.

1. Section 120.410 Requirements for all participating Lenders.

SBA proposes a conforming technical change to § 120.410(a)(1) to reflect the new minimum capital requirements for SBA Supervised Lenders.

2. Section 120.470 What are SBA's additional requirements for SBLCs ?

SBA proposes a conforming technical change to remove § 120.470(g) “Management” and redesignate paragraph (h) as paragraph (g). A new regulatory definition of qualified full-time professional management for SBA Supervised Lenders will be incorporated into proposed new § 120.460(c) as described above in Section III.A.1.

3. Section 120.475 Change of ownership or control.

SBA proposes a conforming technical change to remove and reserve § 120.475. The current text of § 120.475 will be incorporated with modifications into proposed new § 120.468 as described above in Section III.A.5.

The Office of Management and Budget (OMB) has determined that this proposed rule is not a “significant” regulatory action for the purposes of Executive Order 12866, and therefore, SBA has not prepared a Regulatory Impact Analysis. This is not a major rule under the Congressional Review Act, 5 U.S.C. 801 et seq.

This executive order supplements and reaffirms the principles and requirements in Executive Order 12866, including the requirement to provide the public with an opportunity to participate in the regulatory process. SBA Supervised Lenders have been involved in the 7(a) Loan Program for over 35 years. Over the years, the Agency has received feedback from many SBA Supervised Lender applicants and program participants including valuable insight and suggestions for improvements to the application and review process.

This proposed rule is not expected to be an Executive Order 13771 regulatory action because this proposed rule is not significant under Executive Order 12866.

This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

SBA has determined that this proposed rule would not have substantial, direct effects on the 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. Therefore, for the purposes of Executive Order 13132, SBA has determined that this proposed rule has no federalism implications warranting preparation of a federalism assessment.

SBA has determined that this proposed rule would impose a new reporting and/or recordkeeping requirement under the Paperwork Reduction Act (PRA). Specifically, the proposed rule would require SBA Supervised Lenders to submit a written Lender Assessment Plan (LAP) in order for SBA to conduct an initial review of the applicant. In addition, this rule also proposes to codify a requirement for applicants to submit a complete application in order for SBA to determine whether the applicant has the qualifications necessary to participate in the 7(a) Loan Program as an SBA Supervised Lender. As discussed above, this requirement is currently described in SBA's official policies and procedures.

The applicant will also use some of the same forms as other Lenders that apply to participate in the 7(a) Loan Program, including the SBA Form 1081, Statement of Personal History. SBA Form 1081 is an OMB-approved form under OMB Control number 3245-0080.

The title, summary of the new information collection, description of respondents, and an estimate of the reporting burden related to this collection are discussed below.

Title of Collection: SBA Supervised Lender Application and Review.

OMB Control Number: New Collection.

(a) Description: Lender Assessment Plan.

The proposed rule would require organizations seeking to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control) to submit a LAP to SBA. The LAP includes the legal name and contact information of the applicant, a written business plan, current and projected financial statements and other important information about the applicant and its management team (including key employees).

Need and Purpose: A LAP is necessary for SBA to conduct an initial review of an applicant seeking to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control). The LAP provides SBA with key elements of an application so that SBA can reach a preliminary assessment about the qualifications of an applicant more efficiently. This initial review phase will assist SBA in identifying incomplete applications and unqualified applicants much earlier in the application review process.

Description and Estimated Number of Respondents: Pursuant to proposed § 120.466(a), the information in the LAP will be collected from each organization seeking to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control). SBA estimates that it will likely receive no more than four LAPs each year.

Total Estimated Response Time: It is estimated that each applicant would need approximately 35 hours to prepare and submit the proposed LAP for an estimated total of 140 hours annually.

(b) Description: SBA Supervised Lender Application.

If an applicant seeking to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control) is authorized by SBA to proceed to the final review phase, the applicant will be required to submit a complete application in order for SBA to determine whether the applicant has the qualifications necessary to participate in the 7(a) Loan Program.

Need and Purpose: The information submitted with the collection is necessary for SBA to reach a final decision regarding an applicant seeking to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control). The complete application requires an SBA Supervised Lender applicant to provide more detail about the information previously disclosed to SBA in the LAP and will include additional information about the applicant's proposed operation and lending activities as a participant in the 7(a) Loan Program. As stated above, the application requirements are not new since they are currently set out in SBA's official policies and procedures. Under those policies and procedures, an organization applying to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control) is required to, among other things, submit documentation in support of its organizational structure, internal control policies, operational plan, proposed credit policies, loan risk rating system, proposed secondary market activities, capital adequacy plan, audited financial statements and other information ( e.g., certifications and legal opinions) necessary for SBA to evaluate the qualifications of the applicant. See SOP 50 10. Although the requirements currently apply to about four organizations each year, now that SBA is proposing to codify the application requirements in its regulations, under the PRA it is deemed to impact ten or more respondents; therefore, SBA must now obtain OMB approval in compliance with the PRA procedures.

Description and Estimated Number of Respondents: The information in the complete application will be collected from organizations that are seeking to become an SBA Supervised Lender and have successfully reached the final review phase. Based on current experience, SBA estimates that it will likely receive no more than four complete applications each year.

Total Estimated Response Time: It is estimated that each applicant would need approximately 50 hours to prepare and submit a complete application, for an estimated total of 200 hours annually.

SBA invites comments on: (1) Whether this collection of information is necessary for the proper performance of SBA's functions, including whether the information will have a practical utility; (2) the accuracy of SBA's estimate of the time for preparing and completing the collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

Under the Regulatory Flexibility Act (RFA), this proposed rule, if adopted, may have an impact on a substantial number of small entities that participate as SBA Supervised Lenders in the 7(a) Loan Program. Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) examining the impact of the proposed rule in accordance with section 603, Title 5, of the United States Code. The IRFA addresses (1) the reasons, objectives and legal basis for this proposed rule; (2) a description of the kind and number of small entities that may be affected; (3) the projected reporting, recordkeeping and other compliance requirements; (4) whether there are any Federal rules that may duplicate, overlap, or conflict with this proposed rule; and (5) whether there are any significant alternatives to this proposed rule.

1. What are the reasons, objectives and legal basis for the rule?

The proposed rule is designed to improve efficiencies and enhance the application and review process for organizations seeking to participate in the 7(a) Loan Program as SBA Supervised Lenders by conducting an initial review (LAP) and, if warranted, a final review (complete application). The objective is to provide a process for a more efficient and effective evaluation of the qualifications of applicants seeking to become SBA Supervised Lenders. The new application and review process would provide greater clarity and transparency to applicants and would expedite SBA's review, which will potentially reduce costs on applicants and on SBA's limited administrative resources.

The proposed rule also seeks to raise the minimum capital requirement that SBA Supervised Lenders must maintain in order to assure their continued financial viability and to provide for any necessary growth. The minimum capital requirement for SBA Supervised Lenders has not been updated by SBA for more than twenty-three years. The Agency has determined that the regulations addressing minimum capital must be amended to correspond with the 500% increase in the maximum 7(a) loan amount ($1 million to $5 million) that Congress has authorized by statute over the last twenty-three years.

The proposed rule also limits the 7(a) lending area for NFRLs to the state in which their primary regulator is located, except that an NFRL may request SBA's prior written approval to make 7(a) loans in a local trade area that is contiguous to such state ( e.g., a city or metropolitan statistical area that is bisected by a state line). Most NFRLs participating in the 7(a) Loan Program already limit their lending activities to the state in which their primary state regulator is located. In recent years, some state regulators have permitted NFRLs to make loans outside of their state or even nationwide. The expansion of an NFRL's 7(a) lending area increases risk to SBA and the Agency is concerned that some state regulators do not have the resources and the capacity to adequately supervise, regulate and examine non-depository lenders that operate outside of their state. In addition, state laws that apply to state-regulated lenders do not address the different conditions associated with lending in other states or nationwide. This part of the proposed rule is also consistent with the general understanding that state-regulated lenders (such as BIDCOs) are licensed under specific state laws to focus primarily on economic development in their respective state and local communities.

SBA is authorized to supervise the safety and soundness of SBA Supervised Lenders and may regulate their 7(a) lending activities pursuant to section 23(a) of the Small Business Act. 15 U.S.C. 650(a), see also 15 U.S.C. 634(b)(7). SBA has the authority to promulgate rules, regulations and requirements for the 7(a) Loan Program. 15 U.S.C. 634(b)(6).

2. What are SBA's description and estimate of the number of small entities to which the rule will apply?

SBA Supervised Lenders comprise a unique class of 35 non-depository lenders that may only participate in the 7(a) Loan Program and make 7(a) loans if authorized by SBA. If the proposed rule is adopted in its current form, the rule would be applicable to all SBA Supervised Lenders (other than lenders participating as CA Lenders in the CA Pilot Program). SBA estimates that approximately 88 percent of SBA Supervised Lenders are considered small entities based on NAICS sector code 52 (finance and insurance) and industry code 52298 (All Other Non-depository Credit Intermediation) and have annual receipts of less than $38.5 million. This estimate of 31 small SBA Supervised Lenders is based on information contained in the quarterly condition reports and the annual reports that are required to be submitted to SBA by such lenders.

3. What are the projected reporting, recordkeeping, and other compliance requirements of the rule and an estimate of the classes of small entities which will be subject to the requirements?

The proposed rule would impose a new reporting and/or recordkeeping requirement for organizations seeking to become an SBA Supervised Lender (or seeking SBA approval of a change of ownership or control). The proposed rule seeks to codify an existing requirement that applicants submit a complete application in order for SBA to determine whether an organization has the qualifications necessary to participate in the 7(a) Loan Program as an SBA Supervised Lender.

The LAP includes key information about an organization that would allow SBA to reach a preliminary assessment about the qualifications of an applicant more efficiently. SBA estimates it would receive approximately four LAPs each year. SBA estimates that it would take approximately 35 hours for an organization to prepare a LAP at a cost of $2,870 per LAP. Based on SBA's experience with similar data collections, we expect an organization that submits a LAP would need to employ the services of a financial manager and an administrative assistant when preparing a LAP for submission to SBA. 7 SBA specifically requests comments on whether the number of hours estimated to prepare a LAP is appropriate.

If an organization is authorized by SBA to proceed to the final review phase, a complete application must be submitted to SBA. As mentioned above, the application requirements for SBA Supervised Lenders are not new and are currently set forth in SBA's official policies and procedures. See SOP 50 10 5(K), Subpart A, Chapter 1, Paragraph II.C.2 for NFRLs and Subpart A, Chapter 2, Paragraph II for SBLCs. SBA estimates that it will receive approximately four complete applications each year. SBA estimates that it would take approximately 50 hours for an organization to prepare a complete application at a cost of $3,813 per application. Based on SBA's experience with similar data collections, an organization applying to become an SBA Supervised Lender would typically employ the services of a financial manager, an accountant, an attorney and an administrative assistant when preparing a complete application for submission to SBA. 8 SBA specifically requests comments on whether the number of hours estimated to prepare a complete application is appropriate.

SBA anticipates that there would be some costs related to the new minimum capital requirement under the proposed rule for SBA Supervised Lenders. This proposed rule establishes a new minimum capital requirement for SBLCs and NFRLs of at least $5 million and $2.5 million, respectively. Based on information provided to SBA by SBA Supervised Lenders in quarterly condition reports, 11 of the 14 SBLCs ( i.e., 79%) have at least $4.75 million in capital (and of those 11 SBLCs, nine have more than $5 million in capital). In addition, 18 of the 21 NFRLs ( i.e., 86%) have more than $2.5 million in capital.

SBA has determined that there are eight small entities that would be impacted by the new capital requirements in the proposed rule. In other words, eight of the 35 SBA Supervised Lenders that are considered small entities would need to increase their capital to reach the new minimum capital requirement of either $2.5 million or $5 million (as applicable). The estimated amount of capital that would need to be raised by these small entities ranges between $240,000 and $3,580,000. SBA estimates that this proposed rule may have a significant economic impact on six of the 35 SBA Supervised Lenders ( i.e., 17%), each of which is considered a small entity. As noted above, all existing SBA Supervised Lenders would have three years from the effective date of a final rulemaking to comply with this part of the proposed rule (other than for transactions involving a change of ownership or control of an SBA Supervised Lender).

SBA estimates that the cost of raising capital for SBA Supervised Lenders is approximately 9.8% of the amount of equity capital raised based on the Capital Asset Pricing Model (CAPM). The CAPM is one of the most widely used pricing models by financial professionals and considered the preferred method to estimate the cost of equity capital. See Duff & Phelps 2019 Valuation Handbook—U.S. Industry Cost of Capital (data through June 30, 2019). 9 SBA estimates that the total cost of raising new equity capital for the eight SBA Supervised Lenders based on the requirements of the proposed rule would range in amount from approximately $23,000 to $350,000. 10 However, the cost is mitigated by the fact that under the proposed rule SBA Supervised Lenders would have three years to increase their capital. Thus, the maximum amount that it would cost an existing SBA Supervised Lender to reach the new minimum capital requirement would be approximately $117,000 per year for three consecutive years. 11

SBA determined that a three year time frame was a sufficient amount of time for SBA Supervised Lenders to increase their capital. The three year time period is also consistent with SBA's existing requirements that SBA Supervised Lender applicants must have a detailed business and operations plan that includes three years of projected loan activity, secondary market activity and financial statements. See SOP 50 10. SBA specifically requests comments on whether SBA Supervised Lenders should have three years to comply with the new minimum capital requirements under this proposed rule or should be required to comply sooner.

The proposed rule also seeks to limit the 7(a) lending area for NFRLs to the state in which their primary state regulator is located, except that it may include a local trade area that is contiguous to such state (such as a city or metropolitan statistical area bisected by a state line). There are currently 21 NFRLs participating in the 7(a) Loan Program. During the last three fiscal years, two NFRLs (each of which is considered a small entity) requested loan authorizations to make the majority of their 7(a) loans outside of the state in which their primary state regulator is located. With the exception of these two NFRLs, approximately 90% of the lending within the 7(a) Loan Program during the last three fiscal years was done in the state where the NFRL's primary state regulator is located. Approximately 79% of all 7(a) loan approvals obtained by NFRLs during the last three fiscal years were for loans to be made to small businesses located within their own state. This part of the proposed rule would not impact a substantial number of small entities. It is important to note that this proposed rule will not impose any restrictions regarding an NFRL's non-7(a) lending activities. Therefore, the proposed rule would not have any impact on an NFRL's ability to generate business by making other types of loans ( e.g., conventional loans) outside of their own state.

In summary, SBA estimates that the total cost to a particular SBA Supervised Lender associated with this proposed rule (including the costs related to data collection) will range from zero to $356,683, substantially all of which relates to the cost of raising capital and may be spread over a three year time period.

4. What are the relevant Federal rules which may duplicate, overlap or conflict with the rule?

We are not aware of any Federal rules that duplicate, overlap or conflict with this rule. SBA's SOP 50 10 will have to be amended to conform to portions of this rule, which will be done separately.

5. What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small entities?

The Agency originally considered imposing the new minimum capital requirements for SBA Supervised Lenders immediately due to the risk associated with their lending operations. SBA recognized, however, that providing a three year period of time for SBA Supervised Lenders to increase their capital would be less burdensome on lenders and their operational plans. SBA took into consideration that some lenders may need time to plan their capital raising efforts and negotiate favorable terms and conditions for increasing their capital. The proposed three year time period will provide SBA Supervised Lenders with a sufficient amount of time to raise new equity capital and an opportunity to increase capital by retaining earnings (which will reduce the estimated overall cost of raising such capital).

SBA believes many of the proposed changes in this rule would benefit small entities interested in becoming an SBA Supervised Lender by clarifying areas in the application process where there was confusion and to make the process more transparent. This rule would also allow SBA to evaluate the qualifications of new applicants more efficiently and make well-informed decisions on SBA Supervised Lender applications. SBA believes this proposed rule encompasses best practice guidance that aligns with the Agency's mission to increase access to capital for small businesses and facilitate American job preservation and creation.

For the reasons stated in the preamble, SBA proposes to amend 13 CFR part 120 as follows:

The addition to read as follows:

The revision and addition to read as follows:

Electronic Access and Filing

You may submit or access all comments received by DOT online through: http://www.regulations.gov. Electronic submission and retrieval help and guidelines are available on the website. It is available 24 hours each day, 365 days each year. Please follow the instructions. An electronic copy of this document may also be downloaded from the Federal Register 's home page at: http://www.federalregister.gov.

On November 12, 2019, at 84 FR 61494, FHWA published in the Federal Register an NPRM proposing to update the National Bridge Inspection Standards (NBIS). Through this NPRM, FHWA proposes to update the NBIS to address the Moving Ahead for Progress in the 21st Century Act requirements, incorporate technological advancements including the use of unmanned aerial systems, and address ambiguities identified since the last update to the regulation in 2009. The FHWA also proposes to repeal two outdated regulations: The Highway Bridge Replacement and Rehabilitation Program and the Discretionary Bridge Candidate Rating Factor.

The original comment period for the NPRM closes on January 13, 2020. The FHWA believes that this closing date may not provide sufficient time to review and provide comprehensive comments. The extension is in the public interest based on FHWA's desire to allow interested parties sufficient time to review and provide comprehensive comments on this NPRM. To allow the public to submit comprehensive comments, the closing date is changed from January 13, 2020, to March 13, 2020.

On December 21, 2018, the Coast Guard published a notice of study and request for comments for the Port Access Route Study: Alaskan Artic Coast (83 FR 65701). The comment period in that document closed September 1, 2019. On September 4, 2019, the Coast Guard published a notice to extend the public comment period until January 30, 2020. In this action, the Coast Guard is providing notice that the public comment period is extended until June 30, 2020. Documents mentioned in this notice, and all public comments, are in our online docket at https://www.regulations.gov and can be viewed by searching the docket number “USCG-2018-1058”.

This notice is issued under authority of 33 U.S.C. 1223(c) and 5 U.S.C. 552.

Throughout this document “we,” “us,” and “our” refer to the EPA.

Submit your comments, identified by Docket ID No. EPA-R07-OAR-2019-0707, at https://www.regulations.gov . Once submitted, comments cannot be edited or removed from Regulations.gov . The EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. The EPA will generally not consider comments or comment contents located outside of the primary submission ( i.e., on the web, cloud, or other file sharing system). For additional submission methods, the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets .

The EPA is proposing to approve revisions to 10 Code of State Regulation (CSR) 10-6.045, Open Burning, in the Missouri SIP. Missouri made several revisions to the rule. These revisions are described in detail in the technical support document (TSD) included in the docket for this action.

Missouri received seventeen comments from five sources during the comment period. EPA provided five comments on the rule. Missouri responded to all seventeen comments, as noted in the state submission included in the docket for this action. Missouri responded to EPA's comments and, as described in the TSD for this action, amended the rule, in response to some of EPA's comments.

Therefore, EPA is proposing to approve the revisions to this rule because it will not have a negative impact on air quality.

The State submission has met the public notice requirements for SIP submissions in accordance with 40 CFR 51.102. The submission also satisfied the completeness criteria of 40 CFR part 51, appendix V. The State provided public notice on this SIP revision from August 1, 2018 to September 30, 2018 and received seventeen comments. As stated above, MDNR responded to all comments. In addition, as explained above, the revision meets the substantive SIP requirements of the CAA, including section 110 and implementing regulations.

The EPA is proposing to approve Missouri's request to revise 10 CSR 10-6.045. We are processing this as a proposed action because we are soliciting comments on this proposed action. Final rulemaking will occur after consideration of any comments.

In this document, the EPA is proposing to include regulatory text in an EPA final rule that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference the Missouri Regulations described in the proposed amendments to 40 CFR part 52 set forth below. The EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region 7 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866.

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of the National Technology Transfer and Advancement Act (NTTA) because this rulemaking does not involve technical standards; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

For the reasons stated in the preamble, the EPA proposes to amend 40 CFR part 52 as set forth below:

I. EPA's Action A. Background

The action being proposed revises the reasonably available control technology (RACT) standard for VOC emissions at aerospace manufacturing and rework facilities in the State of Georgia. Additionally, other administrative changes are being proposed in this action.

Section 182(b)(2) of the CAA requires states to adopt RACT rules for all areas designated nonattainment for ozone and classified as moderate or above. Under Section 182(b)(2), these RACT requirements apply to: (1) Sources covered by an existing Control Technique Guideline (CTG) ( i.e., a CTG issued prior to enactment of the 1990 amendments to the CAA); (2) sources covered by a post-enactment CTG; and (3) all major sources not covered by a CTG ( i.e., non-CTG sources). Pursuant to 40 CFR 51.165, a major source for a moderate ozone area is a source that emits 100 tons per year (tpy) or more of VOC or nitrogen oxides (NO X ).

EPA defines RACT as “the lowest emission limit that a particular source is capable of meeting by the application of control technology that is reasonably available considering technological and economic feasibility.” See 44 FR 53761, 53762 (September 17, 1979). EPA has issued CTGs that present feasible RACT control measures for VOC source categories. The CTGs recommend a “presumptive norm” or “presumptive RACT” that EPA believes satisfies the definition of RACT.

The CTGs established by EPA are guidance to the states and only provide recommendations. A state can develop its own strategy for what constitutes RACT for the various CTG categories. EPA will review that strategy in the context of the SIP process and determine whether it meets the RACT requirements of the CAA and its implementing regulations.

EPA promulgated a National Emission Standard for Hazardous Air Pollutants (NESHAP) applicable to aerospace manufacturing and rework facilities on September 1, 1995. See 60 FR 45948. The NESHAP is codified at 40 CFR part 63, subpart GG. Subsequently, in December 1997, EPA published a CTG titled “Control of Volatile Organic Compound Emissions from Coating Operations at Aerospace Manufacturing and Rework Operations.”  1 EPA subsequently amended the NESHAP on December 7, 2015 (80 FR 76152) to incorporate revisions to the emission standards for specialty coatings, allow for annual purchase records of certain coatings, exempt two additional application methods, and update definitions.

EPA initially approved GA EPD's RACT for aerospace manufacturing and rework facilities—codified at Rule 391-3-1-.02(2)(kkk)—on July 10, 2001 (66 FR 35906). EPA approved subsequent amendments to that rule on September 28, 2012 (77 FR 55994) and March 19, 2013 (78 FR 16783) (correcting amendments), including Georgia's expansion of the rule's applicability to include all the counties in the Atlanta nonattainment area. The purpose of this rule is to limit VOC emissions from aerospace manufacturing and rework facilities that are located within or contribute to ozone levels in ozone nonattainment areas. The rules also limit VOC emissions from major sources (emitting greater than 100 tpy of VOC emissions) located outside the ozone nonattainment area.

Georgia's June 6, 2019, submission amends RACT requirements applicable to VOC emissions from aerospace manufacturing and rework facilities at Georgia Rule 391-3-1-.02(2)(kkk). The rule changes incorporate EPA's December 7, 2015 (80 FR 76152) revisions to the NESHAP. As discussed below, EPA is proposing to conclude that the revisions are consistent with the CAA and the CTG.

The changes in the June 6, 2019, submittal replicate updates made to 40 CFR part 63, subpart GG, and are compliant with the State's RACT requirements. The amendments begin at Table (kkk)-1 Specialty Coating VOC Limitations and make changes to include the metric equivalent of the VOC Content Limit. The addition of the VOC Content Limit (g/L) column replicates Table 4-1. Specialty Coatings VOC Content Limit (g/L) in the CTG guidance document. This specific revision provides no substantive change and better serves the regulated community.

Georgia also revises the allowable application techniques for primers, topcoats, and specialty coatings under subparagraph 3 of the Rule. First, GA EPD adds language clarifying that the limits on application techniques apply only to “spray applied” methods. GA EPD also removes from the list all non-spray application methods, such as brush, roll, and dip coating. As EPA explained in its final rule amending the NESHAP applicable to aerospace facilities, non-spray application techniques are properly exempted from the scope of the rule because they do not cause VOC emissions. See 80 FR at 76155.

GA EPD also adds to subparagraph 9 several activities that would be exempted from Rule 391-3-1-.02(2)(kkk). First, GA EPD exempts chemical milling, as well as specific primers, topcoats, specialty coatings, chemical milling maskants, strippers, and cleaning solvents that meet the definition of non-VOC materials. EPA notes that these types of coatings are not regulated by the CTG or the NESHAP. 2 Moreover, GA EPD retains requirements applicable to chemical milling maskants (defined as coatings that are applied directly to aluminum components to protect surface areas when chemical milling the component with a Type I or Type II etchant), as well as maskants that must be used with a combination of Type I or II etchants and any of the above types of maskants ( i.e., bonding, critical use and line sealer, and seal coat). 3 EPA has preliminarily concluded that these changes are consistent with the CTG.

In Subparagraph 9(xiv), parts and assemblies not critical to the structural integrity of the vehicle or flight performance would be exempted from Rule 391-3-1-.02(2)(kkk). This provision would exempt from the RACT requirements the manufacture or rework of certain non-critical airplane components, such as tray tables and seat panels. EPA notes that the manufacture or rework of these non-critical components are already subject to separate RACT requirements under Georgia's SIP-approved Rule 391-3-1-.02(2)(vvv)—VOC Emissions from Surface Coating of Miscellaneous Plastic Parts and Products. 4 Thus, EPA believes that the exemption of these activities from Georgia's aerospace RACT rule will not negatively impact VOC emissions. Accordingly, EPA is preliminarily concluding that the exemption of these activities from the aerospace-specific Rule 391-3-1-.02(2)(kkk) is consistent with the CTG and with RACT.

Additionally, the revised Rule 391-3-1-.02(2)(kkk) would provide an exemption for primers, topcoats, and specialty coatings that meet the definition of “classified national security information” in Subparagraph 17(xvii). This exemption is consistent with RACT, as well as Executive Order 13526, “Classified National Security Information,” December 29, 2009, which outlines the different components and restrictions applicable to certain classified materials.

Finally, GA EPD adds an exemption for the rework of aircraft or aircraft components if the holder of the Federal Aviation Administration design approval, or the holder's licensee, is not actively manufacturing the aircraft or aircraft components. As EPA noted in its September 1, 1998 rulemaking amending 40 CFR part 63, subpart GG, this exemption would apply to facilities that rework aircraft or aircraft components whose original manufacturer has gone out of business. See 63 FR 46526, 46528 (Sept. 1, 1998). EPA also noted that this exemption only affects small numbers of aircraft, and that compliance with VOC limits in these circumstances would involve considerable expense. Id. For these reasons, EPA is preliminarily concluding that this exemption is consistent with RACT.

At subparagraph 10, GA EPD removes an exemption from specialty coating requirements for low volume specialty coatings used under a specified twelve-month average quantity. EPA believes the removal of this exemption will be SIP strengthening and is, thus, proposing to approve it.

At Subparagraph 11, GA EPD removes the exemption for specialty coatings and exempts spray applications of no more than 3.0 fluid ounces of coating in a single application from a hand-held device with a paint cup capacity that is equal to or less than 3.0 fluid ounces. EPA believes that application of this quantity of coating will cause minimal, if any, emissions.

The revision would also exempt adhesives, sealants, maskants, caulking materials, and inks under Subparagraph 11, as well as the application of coatings that contain less than 0.17 pounds of VOC per gallon of coating. EPA notes that adhesives, sealants, maskants, caulking materials, and inks are not atomized in the same way as other coatings during application and, therefore, are not high emitters of VOCs during the application process. In addition, coatings that contain less than 0.17 pounds of VOC per gallon (20 grams/liter) are low category emitters. 5 EPA also notes that activities qualifying for the exemption must comply with the emission limits at subparagraphs 1 and 2—and are only exempted from certain operational limits in Subparagraphs 3 and 4 ( i.e., limits on application techniques, requirement to comply with applicable operational procedures). In these circumstances, EPA has preliminarily concluded that GA EPD's revisions to the exemption at Subparagraph 11 are consistent with RACT.

In subparagraph 15, GA EPD adds additional recordkeeping requirements, as determined by the specific compliance option chosen at Subparagraph 2. EPA believes the addition of these recordkeeping requirements will be SIP strengthening it requires affected facilities to retain certain records that are directly related to their chosen method of compliance. Thus, EPA has preliminarily concluded that these requirements are consistent with the CTG's monitoring, recordkeeping, and reporting requirements.

GA EPD also makes minor administrative changes throughout the rule, such as revising definitions at Subparagraph 17 and renumbering certain sections and subparagraphs. In conclusion, EPA has preliminarily determined the standard in the Georgia SIP that regulates aerospace and rework facilities aligns with the applicable CTG and meets the RACT requirements. Furthermore, EPA does not foresee any emissions increase from this SIP revision. EPA is thus proposing to approve changes to Rule 391-3-1-.02(2)(kkk), as included in Georgia's June 6, 2019 submittal.

In this document, EPA is proposing to include in a proposed EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference the Georgia Regulation subparagraph 391-3-1-.02(2)(kkk) entitled “VOC Emissions from Aerospace Manufacturing and Rework Facilities,” effective February 17, 2019, which incorporates revisions to the emission standards for specialty coatings, allows for annual purchase records of certain coatings, exempts two additional application methods, and updates definitions.

EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region 4 office (please contact the person identified in the “For Further Information Contact” section of this preamble for more information).

EPA is proposing to approve the Georgia SIP revision to Rule 391-3-1-.02(2)(kkk), “VOC Emissions from Aerospace Manufacturing and Rework Facilities,” submitted on June 6, 2019. EPA has evaluated Georgia's submittal and preliminarily determined that they meet the applicable requirements of the CAA and EPA regulations.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. See 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. This action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866;

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

This is a summary of the Commission's Public Notice, in CC Docket No. 98-170, WC Docket No. 04-36; DA 19-1271, released on December 13, 2019. The full text of document DA 19-1271 will be available for public inspection and copying via the Electronic Comment Filing System (ECFS), and during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street SW, Room CY-A257, Washington, DC 20554. To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an email to fcc504@fcc.gov or call the Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), or (202) 418-0432 (TTY).

This matter shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. 47 CFR 1.1200 et seq. Persons making oral ex parte presentations are reminded that memorandum summarizing the presentations must contain summaries of the substance of the presentations and not merely a listing of the subjects discussed. More than a one or two sentence description of the views and arguments presented is generally required. See 47 CFR 1.1206(b). Other rules pertaining to oral and written ex parte presentations in permit-but-disclose proceedings are set forth in § 1.1206(b) of the Commission's rules, 47 CFR 1.1206(b).

1. In the Public Notice, the Bureau seeks comment on several issues related to the Commission's truth-in-billing rules. Specifically, the Bureau seeks additional comment on proposals to extend the truth-in-billing rules to providers of interconnected VoIP services and to require carriers to separate government-mandated charges from other charges on consumers' telephone bills.

2. First, the Bureau seeks comment on extending the Commission's existing truth-in-billing rules, which currently apply only to wireline and wireless common carriers, to interconnected VoIP service providers. The Commission previously sought comment on this issue. See IP-Enabled Services, WC Docket No. 04-36, Notice of Proposed Rulemaking, published at 69 FR 16193, March 29, 2004. The Bureau seeks to refresh the record in light of the increasing numbers of consumers who have replaced their traditional circuit-switched phone service with interconnected VoIP service. Would consumers of interconnected VoIP service benefit from the truth-in-billing rules? Would such rules aid consumers both in determining whether to subscribe to an interconnected VoIP service in the first place and, thereafter, in assessing a provider's ongoing fees and conditions vis-à-vis those of other providers? Would rules requiring that charges be clear and conspicuous enhance interconnected VoIP consumers' ability to detect erroneous charges and unauthorized changes in their service arrangements?

3. If the Commission were to extend the truth-in-billing rules to interconnected VoIP services, what rules should it extend, i.e., those that currently are designed to apply to legacy wireline carriers or the more recent rules that apply to wireless carriers? In other words, what rules are appropriate for interconnected VoIP and how should they apply? And should the Commission take the opportunity to revisit the need for any possibly outdated rules? If so, the Bureau seeks comment on why any such rules no longer benefit consumers.

4. Second, the Bureau seeks to refresh the record on whether the Commission should require all voice service providers to separate on consumer bills those line-item fees that are government-mandated from those that are not to the extent they include separate line items on a consumer's bill. See Truth-in-Billing and Billing Format, CC Docket No. 98-170, CG Docket No. 04-208, Second Report and Order, Declaratory Ruling, and Second Further Notice of Proposed Rulemaking, published at 70 FR 30044, May 25, 2005. Would such an approach serve the Commission's historical truth-in-billing goal “to aid customers in understanding their telecommunications bills, and to provide them with the tools they need to make informed choices in the market for telecommunications services”? If the Commission were to require such separation, what would be the most consumer-beneficial way to do so while minimizing regulatory burdens on voice service providers? Should the Commission consider steps beyond simple separation and require that different charges appear in a distinct section of the consumer's bill, one clearly labeled to show that it contains government-mandated charges? Some service providers promote all-inclusive prices, with no added line-item charges, for certain offerings. How should the Commission address government-mandated charges in this context?

5. The Bureau seeks additional comment on how to define “government-mandated charge” for these purposes. In the Truth-in-Billing FNPRM, the Commission noted that mandated charges could be defined as those that providers are required by law to collect from consumers and remit directly to federal, state, or local governments, or could also include charges that providers are not required to collect from consumers but choose to do so through separate line items, to reimburse themselves for their own payments toward government programs. Under this definition, charges for universal service, state and local taxes, 911/E911, and other line-item fees should be considered government-mandated. The Bureau seeks further comment on how to define government-mandated charges.

6. In contrast, most other line-item charges would not be considered government-mandated. For example, charges historically associated with network access, such as the Subscriber Line Charge and Access Recovery Charge; charges designed to recover the administrative or other costs for complying with federal and state law, such as a “Regulatory Fee” or “Regulatory Cost Recovery Charge;” and charges to reimburse providers for more general operating costs, such as permit fees, application fees, or licensing fees, are not charges remitted to the government but are line items collected by carriers of their own volition. The Bureau seeks comment on whether such fees should be separated from government-mandated charges.

7. The Commission's authority to adopt truth-in-billing rules for common carriers derives in large part from section 201(b) of the Communications Act to deter carriers from engaging in unjust and unreasonable practices.

The Bureau seeks to refresh the record on the Commission's authority to extend the truth-in-billing rules to interconnected VoIP service providers, including both two-way and one-way interconnected VoIP services.