[Federal Register Volume 85, Number 51 (Monday, March 16, 2020)]
[Rules and Regulations]
[Pages 14772-14784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04663]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 120 and 134

RIN 3245-AH05


Implementation of the Small Business 7(a) Lending Oversight 
Reform Act of 2018

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (``SBA'' or ``Agency'') is 
amending its business loan program regulations to implement the Small 
Business 7(a) Lending Oversight Reform Act of 2018 (``Act'') and make 
other amendments that will strengthen SBA's lender oversight and ensure 
the integrity of the business loan programs. The key amendments in this 
rule codify SBA's informal enforcement actions, new civil monetary 
penalties and certain appeal rights for 7(a) Lenders, clarify certain 
enforcement actions for Microloan Intermediaries, and adopt statutory 
changes to the credit elsewhere test. The rule also makes other 
technical amendments, updates, and conforming changes including 
clarifying oversight and enforcement related definitions.

DATES: This rule is effective April 15, 2020.

FOR FURTHER INFORMATION CONTACT: Bethany Shana, Office of Credit Risk 
Management, Office of Capital Access, Small Business Administration, 
409 3rd Street SW, Washington, DC 20416; telephone: (202) 205-6402; 
email: [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    SBA is authorized under sections 7(a) and 7(m) of the Small 
Business Act and title V of the Small Business Investment Act of 1958 
(the ``SBI Act'') to conduct small business loan programs. 15 U.S.C. 
636(a) and (m) and 695 et seq. For purposes of this rule, SBA's 
business loan programs consist of the 7(a) Loan Program, the Microloan 
Program, and the Development Company Loan Program (``504 Loan 
Program''). These programs provide critical access to credit for 
America's small businesses, bridging the lending gap that exists in the 
market for our nation's smallest companies. Along with the authority to 
offer government guarantees, Congress provided SBA the authority to 
supervise lenders participating in these programs. 15 U.S.C. 634, 636, 
650, and 697.
    Growth in lending in the 7(a) Loan Program prompted Congress to 
undertake a thorough examination of

[[Page 14773]]

the tools available at SBA to ensure that comprehensive oversight is 
accomplished. Following that review, Congress enacted the Small 
Business 7(a) Lending Oversight Reform Act of 2018, Public Law 115-189 
(June 21, 2018) (the ``Act''). The Act strengthened SBA's 7(a) Lender, 
Certified Development Company (``CDC''), and Microloan Intermediary 
(``Intermediary'') supervision authorities and the office charged with 
that responsibility, SBA's Office of Credit Risk Management (``OCRM'').
    The Act required SBA to promulgate regulations to implement certain 
of its provisions. Accordingly, on June 21, 2019, SBA published a 
notice of proposed rulemaking to implement the legislation by proposing 
updates to its lender oversight and related regulations, as codified in 
parts 120 and 134 of title 13 of the Code of Federal Regulations 
(``CFR''). 84 FR 29092. The proposed updates also included technical 
corrections and clarifications to better inform lenders and to 
strengthen enforcement. Because some provisions in the legislation 
covered ``any Lending Partner or Intermediary participant . . . in a 
lending program of . . . [SBA's] Office of Capital Access'' and because 
SBA's 7(a) oversight framework is generally interwoven with that of the 
504 Loan Program and the Microloan Program, SBA proposed to extend 
certain specific updates to CDCs and Intermediaries. The comment period 
for the proposed rule closed on August 20, 2019.

II. Summary of Comments

    The Agency received 43 comments. Sixteen comments were submitted by 
or on behalf of 7(a) Lenders. Twenty-one comments were submitted by or 
on behalf of CDCs (this group includes 4 CDCs that are also 
Intermediaries and/or Community Advantage (``CA'') Lenders). In 
addition, SBA received comments from two trade associations, one law 
firm, and three anonymous commenters.
    Many comments were supportive of the proposed rule and SBA's 
efforts to preserve the integrity of the business loan programs. These 
comments also expressed appreciation of the Agency's efforts to improve 
oversight. The comments included some suggestions for the rule, 
including amendments to proposed provisions that commenters contended 
were not or did not appear to be consistent with the language of the 
statute or its intent. Some commenters, primarily CDCs, generally 
opposed the rule but made few specific comments or suggestions. SBA 
appreciates all comments received and has incorporated many of the 
suggestions into the final rule. The following is a section-by-section 
analysis \1\ of the final rule including section-specific comments 
received and changes made.
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    \1\ For additional details on each proposed rule section, see 84 
FR 29092 (June 21, 2019).
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III. Section-by-Section Analysis With Discussion of Comments Received

    A. Section 120.10--Definitions. SBA proposed to update three 
definitions in Sec.  120.10. First, SBA proposed to update the 
definition of ``Federal Financial Institution Regulator'' by deleting 
the reference to the Office of Thrift Supervision (``OTS'') as OTS has 
been abolished and merged into the Office of the Comptroller of the 
Currency (``OCC'') and other banking agencies. SBA received no comments 
on this update and is adopting the change to the definition as 
proposed.
    Second, SBA proposed to revise the definition of ``Lender Oversight 
Committee'' (``LOC'') to state that LOC membership and duties are 
derived from the Small Business Act; that the LOC meets quarterly; and 
that it votes on formal enforcement action recommendations.
    Eighteen commenters \2\ stated that the proposed definition 
``provides only an abridgement of the LOC definition as provided in the 
statute.'' The commenters suggested that SBA provide a more complete 
enumeration of LOC duties in this definitional section of part 120. SBA 
notes that the LOC's duties can be found in section 48 of the Small 
Business Act and in SBA's Delegations of Authority 12-G for lender 
oversight and enforcement activities at 79 FR 56842, 56844 (September 
23, 2014), as updated by 83 FR 48681, 48682 (September 26, 2018). 
Nevertheless, SBA has considered this request and has expanded the 
final rule definition to specifically include the significant LOC 
duties as well as a reference to the specific statutory provision 
enumerating the LOC duties. A complete listing of the LOC's statutory 
duties and its membership, however, can be found in the Lender 
Oversight Delegations of Authority as referenced above.
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    \2\ The 18 commenters consisted mostly of a trade association 
and 7(a) Lenders that ``fully agree[d] with and support[ed]'' the 
trade association's comments. References to 18 commenters later in 
this Section-by-Section Analysis refer to the same group of 18 
commenters.
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    In Sec.  120.10, SBA also proposed to clarify the term ``Loan 
Program Requirements.'' Specifically, the proposed rule provided that 
this term may also be referred to as ``SBA Loan Program Requirements'' 
and that it includes Federal Register notices and applicable 
government-wide regulations. In addition, SBA proposed to make the 
definition applicable to Intermediaries.
    In response to the proposal, eighteen commenters requested that SBA 
exclude ``official SBA notices,'' ``forms,'' and ``agreements'' from 
the definition of Loan Program Requirements. Commenters stated it was 
their understanding that the intent of Congress was to assure that 
performance requirements being imposed on lenders would be only those 
imposed by statute or those formally and publicly announced by SBA in 
regulations, SOPs or Policy Notices. SBA notes that official SBA 
notices, forms, and agreements have long been a part of SBA's 
regulatory definition of Loan Program Requirements and are an integral 
part of SBA supervision. SBA did not propose any changes to that 
portion of the definition. Official SBA notices (i.e., SBA Policy, 
Procedural, and Information Notices) and SBA business loan forms are 
available to the public on SBA's website. In addition, the Small 
Business Act, SBI Act, and SBA regulations formally and specifically 
provide for the use of agreements in SBA's loan programs (see 15 U.S.C. 
636, 650(d), and 696 and 13 CFR 120.400, 120.440, 120.434, 120.474, 
120.613). Accordingly, SBA is finalizing the definition of ``Loan 
Program Requirements'' as proposed.
    B. Section 120.101--Credit not Available Elsewhere. One of the 
primary goals of the Act was to ensure that the ``Credit Elsewhere 
Test'' is being applied correctly and consistently by lenders and that 
it is being appropriately verified by SBA. Proposed Sec.  120.101 
codified the new definition for credit elsewhere as contained in the 
legislation. Under Sec.  120.101 as proposed, credit elsewhere means 
that credit is unavailable to the small business applicant on 
reasonable terms and conditions from non-Federal, non-State, and non-
local government sources without SBA assistance, taking into 
consideration the factors associated with conventional lending 
practices enumerated in the statute.
    7(a) Lender commenters generally concurred with proposed Sec.  
120.101, with some slight amendments. Specifically, commenters 
requested that the regulation state that the credit elsewhere 
requirement is statutorily mandated to make clear that the requirement 
is imposed by statute. The credit elsewhere requirement is found in 15 
U.S.C. 636(a)(1)(A) and 697(b)(2); however, SBA does not believe it is 
necessary to revise the regulation to include the specific statutory 
cites.

[[Page 14774]]

    The proposed rule listed the five statutory factors for determining 
credit elsewhere. SBA received no comments specific to factors 1-3. The 
fourth factor provided for consideration of the loan term necessary to 
reasonably assure repayment from business cash flow. Eighteen 
commenters requested that the section specifically allow either 
``actual'' or ``projected'' cashflow of the business, as referenced in 
the statute. SBA agrees with this comment and is adding the clarifying 
language to the final regulation.
    The fifth factor is a catch-all provision to cover ``other 
factors'' relating to a particular credit application. The preamble to 
the proposed rule provided examples of the ``other factors'' that SBA 
Lenders should consider for the credit elsewhere determination. The 
examples included management experience, leverage ratio, global 
cashflow, loan size relative to the age of the business, or personal 
resources of the owners of the business. The preamble stated that the 
other factors must be specifically explained and documented with 
relevant supporting documentation in the lender's credit memorandum.\3\ 
Eighteen commenters requested that SBA include the ``other factors'' 
identified in the preamble to the proposed rule, as well as other 
examples, in future versions of SBA's Standard Operating Procedures 
(``SOPs'') to provide guidance to lenders on the interpretation of the 
regulatory provision.\4\ SBA agrees with this comment. SBA will 
incorporate a list of ``other factors'' and other relevant examples for 
credit elsewhere in the relevant SOPs.
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    \3\ SOP 50 10 provides that the SBA Lender's credit memorandum 
includes substantiation that credit is not available elsewhere by 
discussing acceptable factors that demonstrate an identifiable 
weakness in the credit. The specific reasons why the Applicant does 
not meet the lender's conventional loan policy requirements are to 
be included in the credit memorandum.
    \4\ The commenters' request to include the other factors in 
future SOPs was made ``subject to'' comments on the personal 
resources test made on the proposed rule for the Express Loan 
Programs; Affiliations Standards (Express rule). SBA has addressed 
comments on the personal resources test in the interim final rule 
published on February 10, 2020 at 85 FR 7622.
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    Approximately twenty-four commenters requested that SBA not apply 
the credit elsewhere provision (or any of the other provisions in the 
proposed rule) to CDCs. These commenters claimed that ``extending 
provisions of [the Act] to the 504 program [including the credit 
elsewhere provision] has no basis in law . . . .'' SBA does not agree, 
and believes that there is ample support for applying the credit 
elsewhere provision to the 504 Loan Program. The Sec.  120.101 credit 
elsewhere provision has been a longstanding feature of the 504 Loan 
Program in SBA regulations for many years and dates back to at least 
1986. See 13 CFR 108.8(a) ``Borrower Requirements and Prohibitions'' 
(1987). There is also statutory support for applying this provision to 
the 504 Loan Program. Section 503(b)(2) of the SBI Act provides that 
``[n]o guaranty may be made with respect to any debenture under 
subsection (a) unless . . . . Necessary funds for making such loans are 
not available to such company from private sources on reasonable 
terms.'' In addition, section 503(a) of the SBI Act authorizes SBA to 
guarantee 504 program debentures ``on such terms and conditions as the 
Administration may by regulation determine to be appropriate.'' 
Further, section 308(f) of the SBI Act states that ``[i]n the 
performance of, and with respect to the functions, powers, and duties 
vested by this Act,\5\ the Administrator and the Administration shall 
(in addition to any authority otherwise vested by this Act) have the 
functions, powers, and duties set forth in the Small Business Act . . . 
.'' Finally, SBA's Congressional oversight committee is well aware of 
and has acknowledged the credit elsewhere requirement as an eligibility 
standard for small businesses in the 504 Loan Program. For example, in 
her hearing memo, dated December 10, 2019, to Members of the House 
Small Business Committee Subcommittee on Investigations, Oversight, and 
Regulations, Chairwoman Judy Chu stated that, ``In order to qualify for 
a 504 loan, a business must: . . . demonstrate the need for the desired 
credit and that the funds are not available from alternative sources, 
including personal resources of the principals; and be certified by a 
lender that the desired credit is unavailable to the applicant on 
reasonable terms and conditions from nonfederal sources without SBA 
assistance.'' \6\ Consequently, it is well-established that the credit 
elsewhere requirement applies to the 504 Loan Program.
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    \5\ The functions, powers, and duties include the authority to 
make such rules and regulations as the agency deems necessary to 
carry out the authority vested in the agency. 15 U.S.C. 634(b)(6).
    \6\ https://smallbusiness.house.gov/uploadedfiles/12-10-19_hearing_memo.pdf.
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    In addition, the commenters argued that economic development and 
job requirements, not credit elsewhere, properly govern when a business 
or project is eligible for the 504 Loan Program. SBA agrees that the 
program has important economic development and job creation objectives; 
however, it is also important that SBA not use taxpayer dollars to 
finance those loans that can be financed by the private sector on 
reasonable terms and conditions.
    These commenters also opposed the application of other provisions 
of the Act to CDCs, arguing that the process, title, and content of the 
Act make it clear that the statute is for the 7(a) program only.\7\ 
Contrary to that statement, SBA notes that the opening provision of the 
legislation, which statutorily established the Office of Credit Risk 
Management, granted the office the authority to supervise ``any Lending 
Partner or Intermediary participant . . . in a lending program of the 
Office of Capital Access . . . .'' As CDCs are a Lending Partner in a 
lending program of the Office of Capital Access, SBA is not persuaded 
by this argument.
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    \7\ The commenters also noted that the legislation made no 
change to the Small Business Investment Act of 1958, the primary 
governing statute for the 504 Loan Program.
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    Two 7(a) Lenders commented that the credit elsewhere requirement 
will be difficult to comply with because lenders cannot know what terms 
and conditions competitors offer. As stated above, credit elsewhere is 
a statutory requirement that requires the consideration of several 
factors. Based on these factors, an institution can make a reasonable 
determination as to whether an Applicant has credit available without a 
government guaranty. The key here, for purposes of compliance, is that 
each lender documents in its credit memorandum its reasonable 
consideration of the factors relevant to the particular application and 
that the lender makes that documentation available for SBA review.
    In light of the statutory and regulatory authorities cited above 
and the well-established history of the credit elsewhere regulation as 
applicable to both programs, SBA believes it is reasonable to apply the 
amendments to the credit elsewhere regulations, and certain other 
sections as noted within the final rule, to the 504 Loan Program. 
Accordingly, SBA is finalizing the section as proposed with the change 
to the fourth factor discussed above.
    C. Section 120.180--Compliance with Loan Program Requirements. 
Sections 3 and 4 of the Act provide that SBA is to oversee lender 
compliance with SBA Loan Program Requirements, including credit 
elsewhere. SBA proposed changes to Sec.  120.180 to facilitate that 
oversight. The rule proposed to codify SBA's current requirement that 
SBA Lenders maintain documentation to support that

[[Page 14775]]

Loan Program Requirements, including those regarding credit elsewhere, 
have been met. SBA examines these documents during reviews and exams. 
This documentation facilitates prudent lending, and maintaining records 
is a practice that all prudent lenders already undertake. The proposed 
amendments to Sec.  120.180 also clarified that Intermediaries, in 
addition to 7(a) Lenders and CDCs, are expected to comply with Loan 
Program Requirements.
    SBA received no comments on proposed Sec.  120.180 and is adopting 
the section as proposed.
    D. Section 120.1000--Risk-Based Lender Oversight; Sec.  120.1010--
SBA Access to SBA Lender and Intermediary Files; Sec.  120.1015--Risk 
Rating System; Sec.  120.1025--Monitoring; Sec.  120.1050--Reviews and 
Examinations; and Sec.  120.1051--Frequency of Reviews and 
Examinations. SBA proposed updating these sections to remove references 
to Non-lending Technical Assistance Providers (``NTAPs''), as SBA has 
not issued technical assistance grants to NTAPs in many years. 
Technical assistance in the Microloan Program is being administered 
directly by Intermediaries. SBA received no comments on the proposed 
changes to these sections. SBA is, therefore, adopting the changes to 
these sections as proposed.
    E. Section 120.1055--Review and Examination Results. Section 
120.1055 covers SBA review and examination reports, corrective actions 
and plans, lender required responses, and lender implementation of 
corrective actions. SBA proposed to extend the timeframe for a lender 
or Intermediary to respond to a review/examination report from 30 to 45 
calendar days. Eighteen commenters requested that SBA modify the 
general timeframe for a lender or Intermediary to respond from 45 
calendar days to 45 business days. Commenters stated that ``business'' 
days was more in-line with the statute and requested that the 
additional time be provided to better enable lenders to respond to 
reports. SBA agrees with the requested modification of the general 
timeframe and is revising the section accordingly.
    The commenters also noted that though the proposed rule allows SBA 
to establish a different time period for a lender to respond, the rule 
did not specify whether the time period could be shorter or longer. 
This is true. SBA did not so specify because the statute gives SBA 
needed flexibility to either extend or shorten the response timeframe 
on a case-by-case basis.\8\ SBA has decided to retain this flexibility 
but is clarifying in the final rule that SBA may extend or shorten the 
timeframe.
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    \8\ The statute states that if a response to a review report is 
requested, SBA is to require the lender to submit responses to the 
Administrator ``not later than'' 45 business days after the date the 
lender receives the report (i.e., 45 business days is the outside 
limit); however, the Administrator ``may extend the time frame'' as 
he/she determines necessary. 15 U.S.C. 657t(d)(2).
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    For example, SBA may extend the timeframe when a lender's 
management is in transition or until after a lender attends a required 
Headquarters meeting on its significant findings and corrective 
actions. Alternatively, SBA may shorten the timeframe if, for example, 
the deficiencies are few in number but so significant that delay could 
cause losses to SBA or the lender. This might occur if a lender, using 
delegated authority, is making ineligible loans.
    In Sec.  120.1055 SBA also proposed to clarify when a lender is 
considered to have received a report for purposes of the regulation 
(i.e., the report is considered received on the date it is emailed to 
the last known email address for the lender or Intermediary, unless the 
lender or Intermediary can provide compelling evidence that it was 
received on a different date). Eighteen commenters had no objection to 
SBA's proposal that lender's date of receipt be the date it was emailed 
to the last known email address. These commenters, however, recommended 
that the regulation be amended to also require that reports be sent by 
mail or other delivery service to the head of the lender institution 
(or other party deemed appropriate by SBA) at its last known business 
address. They made this suggestion as they believe that the gravity of 
the oversight report requires a more formal transmission of the report 
to the lender. SBA has considered the comment and has determined not to 
include the commenters' suggested change. While in some cases it may be 
helpful to also send the report by mail or other delivery service, such 
duplicative effort may not be justified in all cases. For example, 
where a review report conveys an assessment of ``Acceptable'', it may 
not be necessary or appropriate to incur additional costs to duplicate 
delivery by mail. SBA will use judgment and discretion in making the 
determination on a case-by-case basis.
    The eighteen commenters also requested that SBA amend the 
regulation to include the statutory timeframe for SBA to issue a 
review/examination report. The statute provides, in general, that SBA 
will deliver a written review report not later than 60 business days 
after the date a review is concluded or, if SBA expects to submit the 
report after the end of the 60-day period, the Agency will notify the 
7(a) Lender of the expected date of submission and the reason for the 
delay. The commenters requested this addition citing a historical lack 
of timeliness on behalf of the Agency in issuing review reports and 
because, without timely information regarding perceived violations, 
lenders questioned whether they would be able to correct their 
performance and begin to take steps necessary to mitigate potential 
risk to the Agency. While the commenters stated that OCRM is committed 
to, and has made good progress in, getting reports out more timely, 
they believe it is imperative to amend the rule to include this 
provision. SBA agrees to make this addition and is incorporating the 
general timeframe into the final regulation.
    Finally, SBA proposed to revise Sec.  120.1055 to clarify that a 
response must address recommendations in addition to findings and 
corrective actions; to delete reference to NTAPs; and to codify SBA's 
90-day timeframe for lenders and Intermediaries to implement corrective 
actions. The proposed 90-day timeframe included flexibility for a 
shorter or longer period, as warranted. SBA received no comments 
specific to these proposed changes. SBA is adopting these amendments to 
Sec.  120.1055 as proposed.
    F. Section 120.1060--Confidentiality of Reports, Risk Ratings and 
Related Confidential Information. SBA proposed to update Sec.  120.1060 
to remove references to NTAPs for the reasons explained in paragraph 
III.D. above. SBA received no comments on this proposed change. SBA is 
adopting Sec.  120.1060 as proposed.
    G. Section 120.1300--Informal Enforcement Actions. The Act required 
SBA to codify its informal enforcement actions for 7(a) Lenders into 
regulations. Accordingly, SBA proposed a new Sec.  120.1300 on informal 
enforcement actions for 7(a) Lenders. Under the proposed regulation, 
informal actions would consist of, for example, a commitment letter, 
mandatory training, and an agreement between SBA and the 7(a) Lender. 
In addition to listing the types and descriptions of informal 
enforcement actions, the proposed rule discussed the circumstances that 
may lead SBA to take such actions (e.g., when problems are narrow in 
scope and are correctible, and SBA is confident of the 7(a) Lender's 
Board and management commitment and ability to correct such problems; 
where violations

[[Page 14776]]

are less frequent or less severe but still warrant enforcement; or 
while SBA more fully assesses risk). The circumstances that SBA 
proposed are, for the most part, set forth in SBA's current SOPs.
    The Act also provided that 7(a) Lenders could appeal informal 
enforcement actions to Federal district court or to SBA's Office of 
Hearings and Appeals (``OHA''). Under proposed Sec.  120.1300, a 7(a) 
Lender would have 20 calendar days to appeal. The proposed rule further 
provided that an informal enforcement action would remain in effect 
pending resolution of the appeal, if any, and that SBA would not be 
precluded from taking other action, including but not limited to, a 
formal enforcement action under Sec.  120.1500, or as otherwise 
authorized by law, while the appeal was pending.
    Eighteen commenters recommended that Sec.  120.1300 specifically 
state that the Director of the Office of Credit Risk Management (the 
``D/OCRM'') (as opposed to ``SBA'') takes informal enforcement actions. 
The commenters requesting this change cited statutory language that 
authorizes the D/OCRM to take these actions. SBA has considered the 
request and has adopted it in the final rule. The Act provides that the 
D/OCRM is authorized to take informal enforcement actions and does not 
restrict the D/OCRM's authority to delegate this authority. The final 
regulation, therefore, states that the D/OCRM may undertake informal 
enforcement actions but does not restrict delegation.
    The eighteen commenters also opposed the 20-day appeal time 
proposed for informal enforcement actions. The commenters requested 45 
business days instead, ``to allow sufficient time for the lender to 
assess its situation, hire counsel, and decide on an appropriate 
strategy.'' The commenters also suggested that the SBA's ability to 
address risks identified during a review would not be adversely 
impacted by the extended timeframe to request an appeal because the 
enforcement action would remain in effect pending resolution of the 
appeal and SBA could pursue formal enforcement action. SBA has 
considered the request and will retain the 20-day appeal timeframe 
contained in the proposed rule because these are informal enforcement 
actions consisting mostly of voluntary agreements and required training 
designed to bring lenders into compliance and reduce lender and SBA 
risk of losses. In addition, informal enforcement actions (e.g., 
supervisory letters and required training) are generally informative 
and corrective in nature, non-public, and less likely to impose a 
significant burden or have a negative effect on a 7(a) Lender. SBA also 
notes that the 20-day timeframe is the same timeframe that Congress 
afforded SBA Supervised Lenders for appeals of enforcement actions 
under section 23(f) of the Small Business Act. Moreover, it provides a 
longer appeal time than the 14-day appeal timeframe that the banking 
agencies provide to financial institutions for appeals relating to the 
immediate issuance of certain final directives and orders under 12 CFR 
6.21(a)(2) and 30.5(a)(2) (OCC); 12 CFR 308.201(a)(2) and 308.304(a)(2) 
(Federal Deposit Insurance Corporation); and 12 CFR 263.202(a)(2) and 
263.304(a)(2) (Federal Reserve Board).
    SBA received no other comments on proposed Sec.  120.1300. 
Accordingly, SBA is adopting the section as proposed with the change 
discussed above.
    H. Section 120.1400--Grounds for Enforcement Actions--SBA Lenders. 
Section 120.1400 sets forth the grounds for SBA's enforcement actions 
for SBA Lenders. SBA proposed amendments to 13 CFR 120.1400 to 
implement several provisions of the new legislation and to provide 
clarifications. First, the rule proposed to amend Sec.  120.1400(b) to 
explicitly state, and thereby formally recognize, that Sec.  120.1400 
grounds extend to both informal and formal enforcement actions. Second, 
in accordance with the new legislation, the proposed regulation stated 
that SBA would consider the severity or frequency of a violation in 
determining the type of enforcement action to take. Third, Sec.  
120.1400(c)(6), as proposed, clarified that an action ``detrimental to 
an SBA program'' means an action detrimental to ``the integrity or 
reputation of'' an SBA program. Fourth, SBA proposed clarifying 
paragraph (c)(9) to further inform the public that SBA considers an SBA 
Lender's failure to properly oversee Agent activity to be an example of 
SBA Lender action/inaction that increases SBA's financial risk. While 
Agents can be helpful in assisting SBA Lenders in making, servicing, 
liquidating, and litigating SBA loans, an SBA Lender must exercise due 
diligence and prudently oversee third-party activity. SBA's policy of 
holding lenders responsible for third-party activity is neither new to 
the program nor unusual for regulated lenders. In fact, the Federal 
Financial Institution Regulators generally expect a financial 
institution to conduct robust, comprehensive, and appropriately 
documented due diligence and ongoing risk management of each of the 
institution's third-party service providers that support critical 
activities. A financial institution's risk management process may 
include, for example, assessing the quantity of risk posed to the 
institution by use of the third-party service provider and the ability 
of the institution to monitor and control risk; contract structuring 
and review; ongoing benchmarking of service provider performance; and 
monitoring the third party's actions on behalf of the bank for 
compliance with applicable laws and regulations.\9\ For purposes of 
this section, the term ``Agent'' means all parties included in the 
definition of ``Agent'' in 13 CFR part 103 that assist the 7(a) Lender 
or CDC with making, servicing, liquidating, or litigating their SBA 
business loans (e.g., lender service providers, consultants, brokers/
referral agents).
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    \9\ OCC Bulletin 2017-21 (June 2017), Third-Party Relationships: 
Frequently Asked Questions to Supplement OCC Bulletin 2013-29. See 
also, FDIC Financial Institution Letter, FIL-19-2019, Technology 
Service Provider Contracts (April 2, 2019) and FIL-44-2008, Third-
Party Risk Guidance for Managing Third-Party Risk (June 6, 2008).
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    SBA also proposed clarifying paragraphs (c)(11) and (12) of this 
section, which cover grounds for immediate suspension of delegated 
authority and program authority, respectively. SBA proposed revising 
these paragraphs to better define the circumstances in which SBA would 
seek an immediate suspension. The proposed paragraphs stated that SBA 
may take such immediate action upon a determination that: (i) One of 
the grounds in paragraph (c) or (f) of that section, as applicable, 
exists; and (ii) immediate action is needed to protect the interests of 
the Federal Government (such as where there is risk of immediate harm 
or loss, a significant program integrity concern, or clear evidence of 
conduct indicating a lack of business integrity). Situations that may 
warrant immediate suspension may include, but are not limited to, where 
there are significant findings relating to the SBA Lender's 
determination of eligibility (e.g., credit elsewhere, etc.) or on the 
credit review, or the underwriting, approval, loan servicing and/or 
liquidation processes; evidence of fraud; significant concerns as to 
the SBA Lender's financial condition, capital levels, or solvency; or 
where an SBA Lender is no longer licensed or lacks staff capable of 
making, servicing, or liquidating loans, as determined by SBA in its 
discretion. In addition, SBA proposed revisions to paragraphs 
(d)(1)(iii) and (d)(3)(i) and (ii) to clarify that an SBA Supervised 
Lender's violation of ``the Small Business Act'' or ``SBA regulations'' 
is a violation of

[[Page 14777]]

``Loan Program Requirements'' \10\ consistent with SBA's use of this 
term in Sec.  120.1400(c)(2). In conjunction with this conforming 
change, SBA proposed deleting the word ``agreement'' from paragraph 
(d)(1)(iv) as it is redundant with paragraph (d)(1)(iii) as revised.
---------------------------------------------------------------------------

    \10\ Also known as ``SBA Loan Program Requirements''.
---------------------------------------------------------------------------

    SBA received no comments on Sec.  120.1400 and is adopting the 
amendments as proposed.
    I. Section 120.1425--Grounds for Formal Enforcement Actions--
Intermediaries Participating in the Microloan Program. SBA proposed 
that Sec.  120.1425 be updated to remove references to NTAPs. SBA also 
proposed that paragraphs (c)(1) and (c)(2)(vii) on violations of law 
and Loan Program Requirements be clarified and harmonized with the 
corresponding provision for SBA Lenders. In addition, the rule proposed 
to reorder and establish a more logical grouping of the grounds for 
enforcement. SBA also proposed an additional performance-related ground 
for enforcement action: A failure to ``[m]aintain the financial ability 
to sustain the Intermediary's operations (including, but not limited 
to, adequate capital), as determined by SBA.'' Consistent with 
equivalent provisions for SBA Lenders, the proposal added three general 
grounds to the Microloan Program regulations: (i) Failure to take 
corrective actions; (ii) engaging in uncooperative or detrimental 
behavior; and (iii) action or inaction that SBA determines may increase 
SBA's financial or program risk, as well as a specific ground for 
immediate suspension of Intermediaries. Finally, SBA proposed a catch-
all provision, paragraph (c)(7), for other grounds otherwise authorized 
by law.
    SBA received one comment on Sec.  120.1425. The commenter objected 
to SBA's proposal to include an Intermediary's failure to maintain the 
financial ability to sustain its operations (e.g., maintain adequate 
capital) as a ground for enforcement action. The commenter contended 
that the provision can have a broad interpretation. The commenter also 
stated that Intermediaries operate under vastly different business 
models than traditional 7(a) Lenders and that most have a business 
model requiring them to raise 10% to 40% of operational funds on a 
yearly basis. The commenter requested that SBA recognize these 
differences in the regulatory language.
    SBA recognizes that Intermediaries, as non-profit community 
lenders, may operate very differently than traditional 7(a) Lenders and 
that some Intermediaries may plan to raise 10% to 40% of their 
operational funds yearly. However, all Intermediaries must maintain 
finances sufficient to sustain operations and repay the SBA Promissory 
Note(s). SBA must evaluate the financial health of Intermediaries as 
part of its oversight responsibilities. SBA evaluates whether an 
Intermediary has sufficient financial strength to sustain its Microloan 
operations by examining an Intermediary's financial information and 
related metrics, such as amount of unrestricted net assets and changes 
in net assets year over year. Through this evaluation, SBA may be able 
to identify any negative trends early so that it can work with the 
Intermediary to maintain the ability to successfully operate its 
Microloan program. This provision is necessary to protect the integrity 
of the Microloan program. Accordingly, SBA is adopting the regulation 
in the final rule as proposed.
    J. Section 120.1500--Types of Formal Enforcement Actions--SBA 
Lenders. SBA proposed in Sec.  120.1500 several technical amendments 
and other changes to implement the Act. Technical changes included the 
addition of the term ``formal'' before ``enforcement action'' to 
distinguish this section from the proposed new Sec.  120.1300 on 
informal enforcement actions. Proposed substantive revisions to 
implement the new legislation within Sec.  120.1500 centered on 
incorporation of civil monetary penalties (``CMPs'') as a 7(a) Lender 
enforcement tool.\11\ CMPs create a monetary incentive for 7(a) Lenders 
to comply with SBA Loan Program Requirements. This tool can be 
particularly effective as a deterrent against financial related non-
compliance (e.g., Lender nonpayment or late payment of amounts it owes 
to SBA for borrower payments, recoveries received, denials of 
liability, SBA loan purchase repairs, or fees owed). CMPs may also be 
warranted in certain critical circumstances (e.g., where there is a 
violation of an order, directive, or agreement, or where there is 
fraud). SBA might also use CMPs where there are reporting failures or 
delays (e.g., for failure to timely submit complete purchase packages 
following SBA Secondary Market purchase). These examples are not all 
inclusive. The proposed provision included a list of considerations for 
SBA in determining whether and in what amount to assess a CMP. The 
considerations are the same as those in 13 CFR 120.465(b) governing 
CMPs for reporting failures by SBA Supervised Lenders. Specifically, 
the considerations/factors include, but are not limited to, the 
following: The gravity (e.g., severity and frequency) of the violation; 
history of violations; financial resources and good faith of the 7(a) 
Lender; and such other matters as justice may require. The list of 
considerations is also very similar to those in the CMP structures of 
other Federal agencies (e.g., the OCC, the Federal Deposit Insurance 
Corporation, and the Department of Housing and Urban Development's 
Mortgagee Review Board). SBA assessment of CMPs, as with SBA's other 
enforcement tools, helps to protect the integrity of the 7(a) Loan 
Program. In addition to the incorporation of CMPs, proposed Sec.  
120.1500 referenced the LOC's role in formal enforcement actions, with 
its responsibilities set forth in Delegations of Authority and as 
authorized by the Act.
---------------------------------------------------------------------------

    \11\ Prior to the enactment of the Act, SBA's CMP authority was 
limited to certain reporting violations against SBA Supervised 
Lenders. 15 U.S.C. 650(j).
---------------------------------------------------------------------------

    Eighteen commenters recommended that Sec.  120.1500 state 
specifically that the D/OCRM (as opposed to ``SBA'') takes formal 
enforcement actions with the approval of the LOC. The commenters 
requested this change given statutory language that specifically 
authorizes the D/OCRM to take these actions. SBA has considered the 
request and agrees to specify that the D/OCRM will take these actions 
for the same reasons as set forth above in the discussion of Sec.  
120.1300.\12\ The final regulation, therefore, states that the D/OCRM 
may undertake formal enforcement action, but does not restrict 
delegation.
---------------------------------------------------------------------------

    \12\ It is noted that the final rule retains the language ``with 
the involvement of the LOC . . .'' rather than the requested 
language of ``with the approval of the LOC''. This is because the 
LOC does not approve all formal enforcement actions. Certain actions 
against SBA Supervised Lenders under section 23 of the Small 
Business Act are recommended by the LOC and approved by the 
Administrator.
---------------------------------------------------------------------------

    The eighteen commenters also recommended that the section be 
amended to reference the ``$250,000 penalty maximum'' provided for by 
Congress in the new legislation, with the further provision that this 
maximum may be amended from time to time by notice published in the 
Federal Register. SBA makes annual adjustments to its civil penalty 
amounts in accordance with section 701 of the Federal Civil Penalties 
Inflation Adjustment Act Improvements Act of 2015.\13\ SBA agrees with 
this recommendation to state the maximum starting point for the penalty 
under the statute and is incorporating this change.

[[Page 14778]]

SBA is finalizing the proposal with the two revisions described above.
---------------------------------------------------------------------------

    \13\ Public Law 114-74 (November 2, 2015).
---------------------------------------------------------------------------

    K. Section 120.1540--Types of Formal Enforcement Actions--
Intermediaries Participating in the Microloan Program. Proposed Sec.  
120.1540, like proposed Sec.  120.1500, included a technical amendment 
to include the term ``formal'' before ``enforcement action'' to 
distinguish the actions under this section from informal enforcement 
actions for Intermediaries, which are set forth in SOP 50 53, ``Lender 
Supervision and Enforcement.'' SBA also proposed to update Sec.  
120.1540 to delete references to NTAPs. In addition, SBA proposed 
revisions to the provision on suspension and pre-revocation sanctions 
to more closely conform the section to the suspension provision in 
Sec.  120.1500 for SBA Lenders. Specifically, proposed Sec.  120.1540 
provided that suspension may include, but is not limited to, suspension 
of the authority to make, service, liquidate, and/or litigate SBA 
microloans. It also provided that it may include a freeze on an 
Intermediary's Microloan Revolving Fund (``MRF'') and Loan Loss Reserve 
Fund (``LLRF'') accounts. Finally, proposed Sec.  120.1540 specified 
that SBA may undertake an ``immediate'' suspension action (i.e., a 
suspension that is effective immediately), and that revocation actions 
may include a portfolio surrender.
    One commenter recommended that Sec.  120.1540 state specifically 
that the D/OCRM (as opposed to ``SBA'') take formal enforcement 
actions. SBA has considered the request and has adopted it in the final 
rule (with a clarification that the D/OCRM takes that action with the 
involvement of the LOC, as appropriate) for the same reasons as set 
forth above in the discussion of Sec.  120.1300. The final regulation 
does not restrict delegation. SBA received no other comments on Sec.  
120.1540. SBA is adopting the remainder of the regulation as proposed.
    L. Section 120.1600--General procedures for formal enforcement 
actions against SBA Lenders, SBA Supervised Lenders, Other Regulated 
SBLCs, Management Officials, Other Persons, and Intermediaries. 
Proposed changes to Sec.  120.1600 included a technical amendment to 
add the term ``formal'' before enforcement action in this section. It 
also included a technical amendment that referenced alternate 
procedures under law, including but not limited to, those under current 
Sec.  120.465 governing procedures for assessing CMPs against SBA 
Supervised Lenders for reporting failures. SBA also proposed to update 
Sec.  120.1600 to remove NTAPs from the regulation. In addition, the 
section proposed provisions to implement the new legislation on 
enforcement action appeals. Specifically, 7(a) Lenders could appeal 
most formal enforcement actions to OHA or proceed directly to the 
appropriate Federal district court. (The proposed rule excluded those 
formal enforcement actions against SBA Supervised Lenders under 
Sec. Sec.  120.1500(c) and (d) and 120.465 because the statutory 
provisions at 15 U.S.C. 650 provide for separate procedures, which are 
covered in Sec. Sec.  120.1600(b) or (c) and 120.465.) Finally, SBA 
proposed that any 7(a) Lender appeal to OHA be submitted within 20 
calendar days of the final agency decision. As proposed, the 
enforcement action would remain in effect pending resolution of any 
appeal.
    Eighteen commenters requested a 45-business day timeframe for 
appeals. The commenters requested 45 business days ``to allow 
sufficient time for the lender to assess its situation, hire counsel, 
and decide on an appropriate strategy for its appeal.'' SBA proposed a 
20-day timeframe because it is the same appeals timeframe that Congress 
afforded SBA Supervised Lenders under section 23(f) of the Small 
Business Act. While SBA continues to believe that the 20 calendar days 
proposed is reasonable, SBA has decided to extend the timeframe to 30 
calendar days. Thirty calendar days provide for additional time for a 
party to appeal than what was proposed, yet appropriately limits risk 
and allows SBA to carry out its oversight responsibilities in a 
judicious manner. SBA also believes that 30 days is reasonable, because 
at the time a 7(a) Lender would be required to file an appeal, the 7(a) 
Lender would have gone through the process associated with a notice of 
proposed enforcement action or immediate suspension and should be 
knowledgeable of the issues and equipped with the information necessary 
to file an appeal. Accordingly, the final rule provides that 7(a) 
Lenders have 30 calendar days to appeal to OHA. As indicated above, the 
final rule also clarifies that it is the final agency decision on a 
formal enforcement action (as opposed to a notice of proposed 
enforcement action or immediate suspension \14\) that is appealable 
under SBA regulations. SBA received no other comments on this section. 
Therefore, SBA is adopting the remainder of this section as proposed.
---------------------------------------------------------------------------

    \14\ Under 13 CFR 120.1600(a)(2)(ii), an SBA Lender or 
Intermediary receiving a notice of proposed enforcement action or 
immediate suspension must first exhaust the administrative remedy of 
filing a written objection to preserve its objection for an appeal.
---------------------------------------------------------------------------

    M. Section 134.102--Jurisdiction of OHA. SBA proposed to amend 
Sec.  134.102(d), which is currently reserved, to provide OHA 
jurisdiction to hear appeals on enforcement actions against 7(a) 
Lenders, as contemplated by the Act. Such jurisdiction does not include 
appeals for certain actions against SBA Supervised Lenders under Sec.  
120.1500(c) and (d) or Sec.  120.465 (including, but not limited to, 
Cease and Desist Orders, Suspensions, and Revocations). Procedures for 
those actions are provided for separately in 15 U.S.C. 650 and 13 CFR 
120.1600(b) and (c) and 120.465 as discussed above. SBA received no 
comments specific to Sec.  134.102 jurisdiction. Therefore, SBA is 
adopting the regulation as proposed, with revisions to clarify that it 
is the final agency decision on a formal enforcement action (as opposed 
to a notice of proposed enforcement action or immediate suspension) 
that may be appealable.
    N. Section 134.205--The appeal file, confidential information, and 
protective orders. Section 134.205 governs the appeal file, 
confidential information, and protective orders when an action is 
appealed to OHA. Paragraph (c) lists types of information in the appeal 
file that are exempt from public access. The exempt information 
includes, but is not limited to, sensitive, confidential and other 
exempt information. SBA proposed to add to the list of exempt 
information, ``documents and information covered under Sec.  120.1060 
of this title''. SBA received no comments on this section. SBA is 
adopting the section as proposed.
    O. Part 134--Further Revisions. The proposed rule stated that any 
further revision to part 134, if needed, would be contained in a 
separate rulemaking. Eighteen commenters contended that in order to 
appropriately implement the statutory provision giving lenders the 
right to appeal enforcement actions to either the appropriate Federal 
district court or to SBA's OHA, it is recommended that SBA immediately 
begin the process to promulgate regulations to implement the statutory 
OHA appeal process. The commenters further claimed that additional 
regulations are necessary to provide guidance and to clarify the 
logistics of the OHA appeal process. SBA has considered the comments 
and determined that, at this time, the appeal provisions in Sec. Sec.  
120.1600 and 134.102, along with OHA's general rules of practice 
contained in 13 CFR 134.201 through 134.229, provide a sufficient 
framework for the appeal process for

[[Page 14779]]

7(a) Lenders. If SBA determines that there is a need for further 
amendment, SBA will promulgate regulations.

Compliance With Executive Orders 12866, 13563, 12988, 13132, 13771, the 
Paperwork Reduction Act (44 U.S.C. chapter 35) and the Regulatory 
Flexibility Act (5 U.S.C. 601-612).

Executive Order 12866
    This final rule implements a proposed rule that the Office of 
Management and Budget (OMB) determined was not a ``significant'' 
regulatory action for the purposes of Executive Order 12866. Although 
it was not required, in the interest of transparency SBA included a 
Regulatory Impact Analysis (``RIA'') in the proposed rule. See 84 FR 
29092, 29096 (June 21, 2019). The non-significant designation has not 
changed for this final rule; it is therefore unnecessary to reiterate 
the RIA. This is also not a major rule under the Congressional Review 
Act, 5 U.S.C. 801 et seq.
Executive Order 13563
    Executive Order 13563 supplements and reaffirms the principles and 
requirements of Executive Order 12866, including providing the public 
notice and an opportunity to comment on regulatory changes. During 
2019, the Agency participated in 16 public forums and meetings that 
included outreach to hundreds of its lending partners from which it 
gained valuable insight for the program. These forums included, but 
were not limited to, the National Association of Government Guaranteed 
Lenders Technical and Annual Conferences; the National Association for 
Development Companies Conference; the Southeast Regional Lenders' 
Conference; the America East Lenders Conference; the Florida 
Association of Government Guaranteed Lenders' Conference, the Great 
Lakes Lenders' Conference; and the Mid-America Lenders' Conference. 
Feedback received during these events, in addition to the comments in 
response to the proposed rule, helped to inform the final regulations.
Executive Order 12988
    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.
Executive Order 13132
    SBA has determined that this final rule will 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 
final rule has no federalism implications warranting preparation of a 
federalism assessment.
Executive Order 13771
    This final rule is not subject to Executive Order 13771 because the 
rule is not significant under Executive Order 12866.
Paperwork Reduction Act, 44 U.S.C., chapter 35
    SBA has determined that this final rule will not impose additional 
recordkeeping or reporting requirements under the Paperwork Reduction 
Act (``PRA''). The only provision relating to recordkeeping is the 
revision to Sec.  120.180, in which SBA clarifies that SBA Lenders and 
Intermediaries must maintain documentation to support compliance with 
SBA Loan Program Requirements. Recordkeeping requirements associated 
with this provision are covered by currently approved information 
collections for SBA's business loan programs, including but not limited 
to, collections under OMB Control Numbers 3245-0071, Application for 
Section 504 Loan (SBA Forms 1244 and 2450); 3245-0074, Certified 
Development Company (CDC) Annual Report Guide (SBA Form 1253); 3245-
0080 and 0178, Statement of Personal History (SBA Forms 1081 and 912); 
3245-0131, Transaction Report on Loans Serviced by Lender (SBA Form 
172); 3245-0132, Lender's Transcript of Account (SBA Form 1149); 3245-
0201, Compensation Agreement (SBA Form 159); 3245-0346, PCLP Quarterly 
Loan Loss Reserve Report and PCLP Guarantee Request (SBA Forms 2233 and 
2234 Parts A, B, and C); 3245-0348, Borrower Information Form (SBA Form 
1919), Lenders Application for Guaranty (SBA Form 1920), Religious 
Eligibility Worksheet (SBA Form 1971), 7(a) Loan Post Approval Action 
Checklist (SBA Form 2237); 3245-0352, Microloan Program Electronic 
Reporting System (MPERS) (MPERsystem); and 3245-0365, SBA Lender, 
Microloan Intermediary and NTAP Reporting Requirements. Prudent lenders 
should already be maintaining such documentation.
Regulatory Flexibility Act, 5 U.S.C. 601-612
    When an agency issues a proposed rulemaking, the Regulatory 
Flexibility Act (``RFA''), 5 U.S.C. 601-612, requires the agency to 
``prepare and make available for public comment an initial regulatory 
analysis'' which will ``describe the impact of the proposed rule on 
small entities.'' Section 605 of the RFA allows an agency to certify a 
rule, in lieu of preparing an analysis, if the rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities.
    In the proposed rule, SBA certified that the rulemaking would not 
have a significant economic impact on a substantial number of small 
entities. SBA invited comment from the public on that certification. 
SBA received one short comment specific to economic impact. That 
comment, however, primarily addressed 7(a) program requirements in 
general rather than those contained in the proposed rule. No other 
comments were received on that topic.
    The changes to current regulations in the final rule would 
generally fall into one of two categories: (i) Technical amendments/
clarifications, or (ii) codifications of the new legislation or 
existing practices. Examples of the technical amendments and 
clarifications include the change to: The definition for Federal 
Financial Institution Regulator in Sec.  120.10 to delete reference to 
the Office of Thrift Supervision, which was merged into other Federal 
banking agencies; the removal of references to NTAPs in Sec. Sec.  
120.1000, 120.1010, 120.1015, 120.1025, 120.1050, 120.1051, 120.1055, 
120.1060, 120.1425, 120.1540, and 120.1600 as SBA has not issued 
technical assistance grants to NTAPs in many years and such assistance 
is being administered directly by Microloan Intermediaries; and the 
incorporation into Sec.  120.180 of the current requirement that 
Intermediaries must comply with the Microloan Program requirements.
    Although the technical corrections/clarifications portion of the 
final rule might affect some of the approximately 3,500 7(a) Lenders 
(approximately 2000 of which are small); 209 CDCs (all of which are 
small); and 147 Microloan Intermediaries (all of which are small), SBA 
does not believe the technical corrections and clarifications in the 
final rule will have a significant economic impact on those small 
entities. Rather, the clarifications to some extent might reduce the 
burdens by better informing SBA Lenders and Intermediaries of how the 
Agency may apply a regulation or requirement. As such, SBA Lenders and 
Intermediaries may potentially avoid the need to spend extra time and 
resources interpreting the regulations.

[[Page 14780]]

    The second category consists of regulatory changes that codify or 
implement the new legislation or existing practices. Examples of the 
regulatory changes that codify or implement the new legislation 
include: The incorporation of the new statutory definition for credit 
elsewhere in Sec.  120.101; the revision to the timeframe from 30 
calendar days to 45 business days for an SBA Lender or Intermediary to 
respond to findings and corrective actions in Sec.  120.1055; the 
inclusion of an OHA appeal for a 7(a) Lender enforcement action in 
Sec. Sec.  120.1300, 120.1600, and 134.102; and the addition of CMPs 
for a 7(a) Lender in Sec.  120.1500(b). Examples of regulatory changes 
that codify current practices and procedures include: The addition of a 
timeframe (90 days) for implementation of corrective actions in Sec.  
120.1055; the inclusion of voluntary agreements and Board Resolutions 
as informal enforcement actions in Sec.  120.1300; and the adoption of 
the same grounds for informal as formal enforcement actions for an SBA 
Lender in Sec.  120.1400.
    While a few of the codifying provisions might have the potential of 
a significant economic impact, SBA does not expect them to impact a 
substantial number of small businesses. In particular, SBA does not 
consider the changes to the enforcement regulations, including the 
incorporation of a CMP for 7(a) Lenders in Sec.  120.1500(b), to be 
burdensome to a substantial number of small lenders. This is because 
SBA has historically taken only a small number of enforcement actions, 
in part because the Agency initially seeks to educate and work with SBA 
Lenders and Intermediaries using graduated processes for the entity to 
reduce risk and come into compliance before taking any enforcement 
action. Specifically, SBA educates SBA Lenders and Intermediaries on 
SBA Loan Program Requirements through notices, webinar and 
teleconference training venues, and at conferences. In addition, when 
SBA identifies risk or noncompliance through monitoring or reviews, SBA 
generally seeks to work with the SBA Lender or Intermediary through the 
corrective action process or increased supervision to address SBA 
concerns. As a result, most SBA Lenders and Intermediaries come into 
compliance and avoid facing enforcement actions. SBA generally takes 
enforcement action only when the entity cannot sufficiently reduce 
risk, cannot correct serious noncompliance, or does not have the 
willingness or ability to correct. In FY 2019, SBA took five 
enforcement or other related actions against SBA Lenders and 
Intermediaries, which is not a substantial number.
    One of the final rule changes to SBA's current enforcement 
regulations is the implementation of the statutory authority to charge 
a CMP. The CMP provisions are applicable only to 7(a) Lenders and by 
statute can be assessed in an enforcement action up to $250,000. The 
CMP provisions in the final rule provide flexibility to allow SBA to 
take into account factors, including the financial resources of a 7(a) 
Lender (especially for small lenders), in determining whether and in 
what amount to assess a CMP. SBA believes that the CMP provisions will 
not have a significant economic impact on a substantial number of small 
7(a) Lenders, as most 7(a) Lenders generally comply with SBA Loan 
Program Requirements and given that only five enforcement or other 
related actions were taken against 7(a) Lenders in FY2019. In FY 2020, 
SBA does not anticipate that it will need to assess CMPs with any 
frequency. Further, given the flexibility in determining the amount of 
the penalty, even if imposed, the proposed penalty could be assessed in 
an amount much less than $250,000.
    For the reasons stated above, SBA certifies that this final action 
will not have a significant economic impact on a substantial number of 
small entities.

List of Subjects

13 CFR Part 120

    Community development, Loan programs--business, Small businesses.

13 CFR Part 134

    Appeal procedures, Confidential business information.

    For the reasons stated in the preamble, SBA is amending 13 CFR 
parts 120 and 134 as follows:

PART 120--BUSINESS LOANS

0
1. The authority citation for part 120 continues to read as follows:

    Authority: 15 U.S.C. 634(b) (6), (b) (7), (b) (14), (h), and 
note, 636(a), (h) and (m), and note, 650, 657t, and note, 657u, and 
note, 687(f), 696(3) and (7), and note, and 697(a) and (e), and 
note.


0
2. Amend Sec.  120.10 by revising the definitions for ``Federal 
Financial Institution Regulator'', ``Lender Oversight Committee'', and 
``Loan Program Requirements'' to read as follows:


Sec.  120.10  Definitions.

* * * * *
    Federal Financial Institution Regulator is the Federal banking 
regulator of a 7(a) Lender and may include the Federal Deposit 
Insurance Corporation, the Federal Reserve Board, the Office of the 
Comptroller of the Currency, the National Credit Union Administration, 
and the Farm Credit Administration.
* * * * *
    Lender Oversight Committee (LOC) is a committee established within 
SBA by legislation, which meets at least quarterly, and which has the 
membership and duties set forth in section 48 of the Small Business Act 
as further outlined in Delegations of Authority published in the 
Federal Register. The LOC's duties include, but are not limited to, 
reviewing (in an advisory capacity) any lender oversight, portfolio 
risk management, or program integrity matters brought by the Director 
of the Office of Credit Risk Management (D/OCRM), and voting on formal 
enforcement action recommendations.
* * * * *
    Loan Program Requirements or SBA Loan Program Requirements are 
requirements imposed upon Lenders, CDCs, or Intermediaries by statute; 
SBA and applicable government-wide regulations; any agreement the 
Lender, CDC, or Intermediary has executed with SBA; SBA Standard 
Operating Procedures (SOPs); Federal Register notices; official SBA 
notices and forms applicable to the 7(a) Loan Program, 504 Loan Program 
or Microloan Program; and loan authorizations, as such requirements are 
issued and revised by SBA from time to time. For CDCs, this term also 
includes requirements imposed by Debentures, as that term is defined in 
Sec.  120.802. For Intermediaries, this term also includes requirements 
imposed by promissory notes, collateral documents, and grant 
agreements.
* * * * *

0
3. Amend Sec.  120.101 by revising the first and second sentences to 
read as follows:


Sec.  120.101   Credit not available elsewhere.

    SBA provides business loan assistance only to applicants for whom 
the desired credit is not otherwise available on reasonable terms from 
non-Federal, non-State, and non-local government sources. Accordingly, 
SBA requires the Lender or CDC to certify or otherwise show that the 
desired credit is unavailable to the applicant on reasonable terms and 
conditions from non-Federal, non-State, and non-local government 
sources without SBA assistance, taking into consideration factors 
associated with conventional lending practices, including: The business 
industry of the loan applicant;

[[Page 14781]]

whether the loan applicant has been in operation two years or less; the 
adequacy of collateral available to secure the loan; the loan term 
necessary to reasonably assure repayment of the loan from actual or 
projected business cash flow; and any other factor relating to the 
particular loan application that cannot be overcome except through 
obtaining a Federal loan guarantee under prudent lending standards. * * 
*

0
4. Revise Sec.  120.180 to read as follows:


Sec.  120.180  Compliance with Loan Program Requirements.

    SBA Lenders and Intermediaries must comply and maintain familiarity 
with Loan Program Requirements for the 7(a) Loan Program, 504 Loan 
Program, and the Microloan Program, as applicable, and as such 
requirements are revised from time to time. Loan Program Requirements 
in effect at the time that an SBA Lender or Intermediary takes an 
action in connection with a particular loan govern that specific 
action. For example, although loan closing requirements in effect when 
an SBA Lender closes a loan will govern the closing actions, an SBA 
Lender's liquidation actions on the same loan are subject to the 
liquidation requirements in effect at the time that a liquidation 
action is taken. An SBA Lender or Intermediary must maintain sufficient 
documentation to demonstrate that Loan Program Requirements have been 
satisfied.

0
5. Revise Sec.  120.1000 to read as follows:


Sec.  120.1000   Risk-Based Lender Oversight.

    (a) Risk-Based Lender Oversight. SBA monitors, supervises, 
examines, regulates, and enforces laws against SBA Supervised Lenders 
and the SBA operations of SBA Lenders and Intermediaries.
    (b) Scope. Most rules and standards set forth in this subpart apply 
to SBA Lenders as well as Intermediaries; however, SBA has separate 
regulations for enforcement grounds and formal enforcement actions for 
Intermediaries at Sec. Sec.  120.1425 and 120.1540.


Sec.  120.1010   [Amended]

0
6. Amend Sec.  120.1010 by removing the phrase ``SBA Lender, 
Intermediary, and NTAP'' wherever it appears and adding in its place 
the phrase ``SBA Lender and Intermediary''.


Sec.  120.1015   [Amended]

0
7. Amend Sec.  120.1015(a) by removing the phrase ``SBA Lenders, 
Intermediaries, and NTAPs'' and adding in its place the phrase ``SBA 
Lenders and Intermediaries''.

0
8. Revise Sec.  120.1025 to read as follows:


Sec.  120.1025  Monitoring.

    SBA may conduct monitoring of SBA Lenders and Intermediaries 
including, but not limited to, SBA Lenders' or Intermediaries' self-
assessments.


Sec.  120.1050   [Amended]

0
9. Amend Sec.  120.1050(c) by removing the phrase ``and NTAPs'' 
wherever it appears.

0
10. In Sec.  120.1051, revise the first sentence of the introductory 
text and paragraph (a) to read as follows:


Sec.  120.1051  Frequency of reviews and examinations.

    SBA may conduct reviews and examinations of SBA Lenders and 
Intermediaries on a periodic basis. * * *
    (a) Results of monitoring, including an SBA Lender's or 
Intermediary's Risk Rating;
* * * * *

0
11. Amend Sec.  120.1055 by:
0
a. Revising paragraphs (a) and (b); and
0
b. In paragraph (d):
0
i. Removing the phrase ``SBA Lender, Intermediary, or NTAP'' wherever 
it appears and adding in its place the phrase ``SBA Lender or 
Intermediary'';
0
ii. Removing ``Subpart I'' and adding in its place ``this subpart''; 
and
0
iii. Removing the reference ``Sec.  120.1500 through Sec.  120.1540'' 
wherever it appears and adding in its place the phrase ``this 
subpart''.
    The revisions to read as follows:


Sec.  120.1055  Review and examination results.

    (a) Written Reports. SBA will provide an SBA Lender and 
Intermediary a copy of SBA's written report prepared as a result of the 
SBA Lender or Intermediary review or examination (``Report''). SBA will 
provide the Report generally within 60 business days following SBA's 
conclusion of the review/examination unless SBA notifies the SBA Lender 
or Intermediary of a later date and the reason for the delay. The 
Report may contain findings, conclusions, corrective actions, and 
recommendations. Each director (or manager, in the absence of a Board 
of Directors) of the SBA Lender or Intermediary, in keeping with his or 
her responsibilities, must become fully informed regarding the contents 
of the Report.
    (b) Response to review and examination Reports. SBA Lenders and 
Intermediaries must respond to Report findings, recommendations, and 
corrective actions, if any, in writing to SBA and, if requested, submit 
proposed corrective actions and/or a capital restoration plan. An SBA 
Lender or Intermediary must respond within 45 business days from the 
date the Report is received unless SBA notifies the SBA Lender or 
Intermediary in writing that the response, proposed corrective actions 
or capital restoration plan is to be filed within a different time 
period (either shortened or extended in SBA's discretion). The SBA 
Lender or Intermediary response must address each finding, 
recommendation, and corrective action. In proposing a corrective action 
or capital restoration plan, the SBA Lender or Intermediary must detail 
the steps it will take to correct the finding(s); the time within which 
each step will be taken; the timeframe for accomplishing the entire 
corrective action plan; and the person(s) or department at the SBA 
Lender or Intermediary charged with carrying out the corrective action 
or capital restoration plan, as applicable. In addition, SBA Lenders 
and Intermediaries must implement corrective actions within 90 calendar 
days from the date the Report or SBA's letter requiring corrective 
action is received, unless SBA provides written notice of another 
timeframe. For purposes of this paragraph (b), a Report will be deemed 
to have been received on the date it was emailed to the last known 
email address of the SBA Lender or Intermediary unless the SBA Lender 
or Intermediary can provide compelling evidence to the contrary.
* * * * *


Sec.  120.1060   [Amended]

0
12. Amend Sec.  120.1060 by:
0
a. Removing the phrase ``SBA Lender, Intermediary, or NTAP'' wherever 
it appears and adding in its place the phrase ``SBA Lender or 
Intermediary'';
0
b. Removing the phrase ``SBA Lender, Intermediary, and NTAP'' wherever 
it appears and adding in its place the phrase ``SBA Lender and 
Intermediary'';
0
c. Removing the phrase ``SBA Lenders, Intermediaries, and NTAPs'' and 
adding in its place the phrase ``SBA Lenders and Intermediaries''; and
0
d. Removing the phrase ``SBA Lender's, Intermediary's, or NTAP's'' and 
adding in its place the phrase ``SBA Lender's or Intermediary's''.

0
13. Add Sec.  120.1300 immediately following the undesignated center 
heading ``Enforcement Actions'' to read as follows:


Sec.  120.1300  Informal enforcement actions--7(a) Lenders.

    (a) Upon a determination that the grounds in Sec.  120.1400 exist, 
the D/

[[Page 14782]]

OCRM may undertake, in his/her discretion, one or more of the informal 
enforcement actions listed in this section and is not restricted from 
delegating as appropriate. SBA will consider the severity or frequency 
of the violation or action triggering the ground and the circumstances 
in determining whether and what type of informal action to take. 
Circumstances that may lead to SBA taking informal enforcement action 
rather than formal enforcement action include, for example, when 
problems are narrow in scope and are correctible and SBA is confident 
of a 7(a) Lender's Board of Directors (``Board'') and management 
commitment and ability to correct; where violations are less frequent 
or less severe but warrant enforcement; or while more fully assessing 
risk.
    (b) Informal enforcement actions include, but are not limited to:
    (1) An SBA supervisory letter. The letter may discuss serious or 
persistent supervisory concerns, as determined by SBA, and expected 
corrective action by the 7(a) Lender. Supervisory letters include, for 
example, Notices of Material Non-Compliance;
    (2) Mandatory training. SBA may require a 7(a) Lender to complete 
training to address certain findings, weaknesses, and deficiencies;
    (3) A commitment letter or Board resolution. SBA may require a 7(a) 
Lender to submit a commitment letter or Board resolution, satisfactory 
to SBA, signed by the 7(a) Lender's Board on behalf of the entity that 
may:
    (i) Include specific written commitments to take corrective actions 
in response to the 7(a) Lender's acknowledged deficiencies;
    (ii) Identify the person(s) responsible for taking the corrective 
action; and
    (iii) Set forth the timeframe for taking the corrective action. The 
document may be drafted by SBA or the 7(a) Lender;
    (4) Agreements. SBA may request that a 7(a) Lender enter into a 
written agreement with, and drafted by, SBA to address and correct 
identified weaknesses and/or limit or mitigate risk. The agreement may 
provide, for example, that a 7(a) Lender take certain actions or 
refrain from certain actions; and
    (5) Other informal enforcement actions. Others as SBA determines 
appropriate on a case by case basis.
    (c) A 7(a) Lender may appeal informal enforcement actions to the 
appropriate Federal district court or SBA's Office of Hearings and 
Appeals (OHA) within 20 calendar days of the date of the decision, and 
in the event of an OHA appeal, OHA will issue its decision in 
accordance with part 134 of this title. The enforcement action will 
remain in effect pending resolution of the appeal, if any. SBA is not 
precluded from taking one or more formal enforcement actions under 
Sec.  120.1500, or as otherwise authorized by law, while an appeal of 
an informal enforcement action is pending.

0
14. Amend Sec.  120.1400 by:
0
a. Revising the first sentence and adding a sixth sentence in paragraph 
(b);
0
b. Revising the first sentence in paragraph (c)(6) and paragraph 
(c)(9);
0
c. Removing the word ``and'' at the end of paragraph (c)(10); and
0
d. Revising paragraphs (c)(11) and (12), (d)(1)(iii) and (iv), and 
(d)(3)(i) and (ii).
    The revisions read as follows:


Sec.  120.1400  Grounds for enforcement actions--SBA Lenders.

* * * * *
    (b) Scope. SBA may undertake one or more of the enforcement actions 
listed in Sec. Sec.  120.1300 and 120.1500, or as otherwise authorized 
by law, if SBA determines that the grounds applicable to the 
enforcement action exist. * * * SBA considers the severity or frequency 
of a violation in determining whether to take an enforcement action and 
the type of enforcement action to take.
    (c) * * *
    (6) Engaging in a pattern of uncooperative behavior or taking an 
action that SBA determines is detrimental to the integrity or 
reputation of an SBA program, that undermines management or 
administration of a program, or that is not consistent with standards 
of good conduct. * * *
    (9) Any other reason that SBA determines may increase SBA's 
financial risk (for example, repeated Less Than Acceptable Risk Ratings 
(generally in conjunction with other indicators of increased financial 
risk); failure to properly oversee Agent activity (``Agent'' as defined 
in part 103 of this title); or, indictment on felony or fraud charges 
of an officer, key employee, or loan agent involved with SBA loans for 
the SBA Lender);
* * * * *
    (11) For immediate suspension of all SBA Lenders from delegated 
authorities--upon a determination by SBA that:
    (i) One or more of the grounds in paragraph (c) or (f) of this 
section, as applicable, exists; and
    (ii) Immediate action is needed to protect the interests of the 
Federal Government (such as where there is risk of immediate harm or 
loss, a significant program integrity concern, or clear evidence of 
conduct indicating a lack of business integrity); and
    (12) For immediate suspension of all SBA Lenders (except SBA 
Supervised Lenders, which are covered under paragraph (d)(2) of this 
section) from the authority to participate in the SBA loan program, 
including the authority to make, service, liquidate, or litigate 7(a) 
or 504 loans--upon a determination by SBA that:
    (i) One or more of the grounds in paragraph (c) or (f) of this 
section, as applicable, exists; and
    (ii) Immediate action is needed to protect the interests of the 
Federal Government (such as where there is risk of immediate harm or 
loss, a significant program integrity concern, or clear evidence of 
conduct indicating a lack of business integrity).
    (d) * * *
    (1) * * *
    (iii) A willful or repeated violation of SBA Loan Program 
Requirements; or
    (iv) A willful or repeated violation of any condition imposed by 
SBA with respect to any application or request with SBA; or
* * * * *
    (3) * * *
    (i) A violation of SBA Loan Program Requirements; or
    (ii) Where an SBA Supervised Lender or Other Person engages in or 
is about to engage in any acts or practices that will violate SBA Loan 
Program Requirements.
* * * * *

0
15. Amend Sec.  120.1425 by:
0
a. Revising the section heading and paragraphs (a) and (b);
0
b. In paragraph (c) introductory text:
0
i. Removing the dash after the paragraph heading and adding a period in 
its place; and
0
ii. Removing the phrase ``Intermediary or NTAP'' wherever it appears 
and adding in its place the phrase ``Intermediary'';
0
c. Revising paragraph (c)(1);
0
d. Removing the phrase ``Intermediaries and NTAPs'' and adding in its 
place the phrase ``Intermediaries'' in paragraph (c)(2)(i);
0
e. Revising paragraphs (c)(2)(vii) and (viii);
0
f. Adding paragraphs (c)(2)(ix) and (x) and (c)(3) through (7);
0
g. Removing paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  120.1425  Grounds for formal enforcement actions--Intermediaries 
participating in the Microloan Program.

    (a) Agreement. By participating in the SBA Microloan Program, 
Intermediaries

[[Page 14783]]

automatically agree to the terms, conditions, and remedies in this part 
as if fully set forth in their participation agreement and all other 
agreements jointly executed by the Intermediary and SBA.
    (b) Scope. SBA may undertake one or more of the formal enforcement 
actions listed in Sec.  120.1540, or as otherwise authorized by law, if 
SBA determines that any of the grounds listed in paragraph (c) of this 
section exist.
    (c) * * *
    (1) Failure to comply materially with any requirement imposed by 
Loan Program Requirements;
    (2) * * *
    (vii) Maintain a staff trained in Microloan Program issues and Loan 
Program Requirements;
    (viii) Maintain the financial ability to sustain the Intermediary's 
operations (including, but not limited to, adequate capital), as 
determined by SBA;
    (ix) Satisfactorily provide in-house technical assistance to 
Microloan borrowers and prospective Microloan borrowers; or
    (x) Close and fund the required number of microloans per year under 
Sec.  120.716;
    (3) Failure within the time period specified to correct an 
underwriting, closing, disbursing, servicing, liquidation, litigation, 
or reporting deficiency, or failure in any material respect to take 
other corrective action, after receiving notice from SBA of a 
deficiency and the need to take corrective action;
    (4) Engaging in a pattern of uncooperative behavior or taking an 
action that SBA determines is detrimental to the integrity or 
reputation of the Microloan Program, that undermines management or 
administration of the program, or that is not consistent with standards 
of good conduct. Prior to issuing a notice of a proposed formal 
enforcement action or immediate suspension under Sec.  120.1540 based 
upon the grounds discussed in this paragraph (c)(4), SBA must send 
prior written notice to the Intermediary explaining why the 
Intermediary's actions were uncooperative, detrimental to the program, 
undermined SBA's management of the program, or were not consistent with 
standards of good conduct. The prior notice must also state that the 
Intermediary's actions could give rise to a specified formal 
enforcement action, and provide the Intermediary with a reasonable time 
to cure the deficiency before any further action is taken;
    (5) Any other reason that SBA determines may increase SBA's 
financial or program risk (for example, repeated Less Than Acceptable 
Risk Ratings (generally in conjunction with other indicators of 
increased risk) or indictment on felony or fraud charges of an officer, 
key employee, or loan agent involved with SBA programs for the 
Intermediary);
    (6) For immediate suspension of an Intermediary--upon a 
determination by SBA that:
    (i) One or more of the grounds in paragraph (c) of this section 
exists; and
    (ii) Immediate action is needed to protect the interests of the 
Federal Government (such as where there is risk of immediate harm or 
loss, a significant program integrity concern, or clear evidence of 
conduct indicating a lack of business integrity); and
    (7) As otherwise authorized by law.

0
16. Amend Sec.  120.1500 by revising the section heading, the 
introductory text, paragraph (a) heading, paragraph (b), paragraph (c) 
introductory text heading, paragraph (c)(4), paragraph (d) introductory 
text heading, and paragraph (e) introductory text heading to read as 
follows:


Sec.  120.1500  Types of formal enforcement actions--SBA Lenders.

    Upon a determination that the grounds set forth in Sec.  120.1400 
exist, the D/OCRM may undertake, in his/her discretion (and with the 
involvement of the LOC as appropriate and consistent with its assigned 
responsibilities), one or more of the following formal enforcement 
actions for each of the types of SBA Lender listed, and is not 
restricted from delegating as appropriate. SBA will consider the 
severity or frequency of the violation or action and the circumstances 
triggering the ground in determining whether and what type of 
enforcement action to take. SBA will take formal enforcement action in 
accordance with procedures set forth in Sec.  120.1600. If formal 
enforcement action is taken under this section and the SBA Lender fails 
to implement required corrective action in any material respect within 
the required timeframe in response to the formal enforcement action, 
the D/OCRM may take further enforcement action, as authorized by law. 
SBA's decision to take a formal enforcement action will not, by itself, 
invalidate a guaranty previously provided by SBA.
    (a) Formal enforcement actions for all SBA Lenders. * * *
    (b) Formal enforcement actions specific to 7(a) Lenders. In 
addition to those formal enforcement actions applicable to all SBA 
Lenders, SBA may take the following actions:
    (1) Secondary market suspension or revocation (other than temporary 
suspension and revocation under Sec.  120.660). SBA may suspend or 
revoke a 7(a) Lender's authority to sell or purchase loans or 
certificates in the Secondary Market; or
    (2) Civil monetary penalty (other than SBA Supervised Lender civil 
monetary penalty under Sec.  120.465). SBA may assess a civil monetary 
penalty against a 7(a) Lender. The civil monetary penalty will be in an 
amount not to exceed the maximum published in the Federal Register from 
time to time, which will be $250,000 plus any increases required under 
law. In determining whether to assess a civil monetary penalty and, if 
so, in what amount, SBA may consider, for example, the following: The 
gravity (e.g., severity and frequency) of the violation; the history of 
previous violations; the financial resources and good faith of the 7(a) 
Lender; and any other matters as justice may require.
    (c) Formal enforcement actions specific to SBA Supervised Lenders 
and Other Persons (except Other Regulated SBLCs). * * *
    (4) Civil monetary penalties for report filing failure under Sec.  
120.465. SBA may seek civil penalties, in accordance with Sec.  
120.465, against an SBA Supervised Lender that fails to file any 
regular or special report by its due date as specified by regulation or 
SBA written directive.
    (d) Formal enforcement actions specific to SBLCs. * * *
    (e) Formal enforcement actions specific to CDCs. * * *
    17. Revise Sec.  120.1540 to read as follows:


Sec.  120.1540  Types of formal enforcement actions--Intermediaries 
participating in the Microloan Program.

    Upon a determination that any ground set out in Sec.  120.1425 
exists, the D/OCRM may undertake, in his/her discretion (and with the 
involvement of the LOC as appropriate and consistent with its assigned 
responsibilities), one or more of the following formal enforcement 
actions against an Intermediary, and is not restricted from delegating 
as appropriate:
    (a) Suspension. SBA may suspend an Intermediary's authority to 
participate in the Microloan Program, which may include, but is not 
limited to, the authority to make, service, liquidate, and/or litigate 
SBA microloans, and the imposition of a freeze on the Intermediary's 
MRF and LLRF accounts.
    (b) Immediate suspension. SBA may suspend, effective immediately, 
an Intermediary's authority to participate in the Microloan Program, 
which may include, but is not limited to, the

[[Page 14784]]

authority to make, service, liquidate, and/or litigate SBA microloans, 
and the imposition of an immediate freeze on the Intermediary's MRF and 
LLRF accounts. Section 120.1425(c)(6) sets forth the grounds for SBA 
Microloan Program immediate suspension of an Intermediary.
    (c) Revocation. SBA may revoke an Intermediary's authority to 
participate in the Microloan Program which may include, but is not 
limited to:
    (1) Removal from the program;
    (2) Liquidation of the Intermediary's MRF and LLRF accounts by SBA, 
and application of the liquidated funds to any outstanding balance owed 
to SBA;
    (3) Payment of outstanding debt to SBA by the Intermediary;
    (4) Forfeiture or repayment of any unused grant funds by the 
Intermediary;
    (5) Debarment of the organization from receipt of Federal funds 
until loan and grant repayments are met; and
    (6) Surrender of possession of Intermediary's SBA microloan 
portfolio to SBA, with the microloan portfolio and all associated 
rights transferred on a permanent basis to SBA, in accordance with 
SBA's rights as a secured creditor.
    (d) Other actions. Such other actions available under law.

0
18. Amend Sec.  120.1600 by:
0
a. Revising the section heading;
0
b. Removing the phrase ``SBA Lender, Intermediary, or NTAP'' wherever 
it appears and adding in its place the phrase ``SBA Lender or 
Intermediary'';
0
c. Removing the phrase ``SBA Lender, Intermediary, or NTAP's'' wherever 
it appears and adding in its place the phrase ``SBA Lender's or 
Intermediary's'';
0
d. Revising the introductory text to paragraph (a);
0
e. Adding the word ``formal'' before the word ``enforcement'' wherever 
it appears in paragraphs (a)(1) through (4);
0
f. Removing the phrase ``SBA Lender, Intermediary, NTAP or SBA,'' and 
adding in its place the phrase ``SBA Lender, Intermediary, or SBA,'' in 
paragraph (a)(1)(ii);
0
g. Removing the phrase ``final decision'' wherever it appears and 
adding in its place the phrase ``final agency decision'' in paragraphs 
(a)(2) through (4);
0
h. Removing the phrase ``SBA Lender, Intermediary, NTAP or other 
parties'' and adding in its place the phrase ``SBA Lender, Intermediary 
or other parties'' in paragraph (a)(3)(iii);
0
i. Revising the headings for paragraphs (a)(3) and (4) and paragraph 
(a)(5); and
0
j. Adding the word ``formal'' before the word ``enforcement'' in the 
headings for paragraphs (b) and (c).
    The revisions read as follows:


Sec.  120.1600  General procedures for formal enforcement actions 
against SBA Lenders, SBA Supervised Lenders, Other Regulated SBLCs, 
Management Officials, Other Persons, and Intermediaries.

    (a) In general. Except as otherwise set forth for the formal 
enforcement actions listed in paragraphs (a)(6), (b), and (c) of this 
section and in Sec.  120.465, SBA will follow the procedures listed in 
this section.
* * * * *
    (3) SBA's notice of final agency decision on a formal enforcement 
action where an SBA Lender or Intermediary filed objection to the 
proposed action or immediate suspension. * * *
    (4) SBA's notice of final agency decision on a formal enforcement 
action where no filed objection or untimely objection not considered. * 
* *
    (5) Appeals. An SBA Lender or Intermediary may appeal the final 
agency decision to the appropriate Federal district court. 
Alternatively, 7(a) Lenders may appeal such decisions (except for 
decisions against SBA Supervised Lenders that are covered by procedures 
in Sec.  120.1600(b) or (c) or Sec.  120.465) to SBA's Office of 
Hearings and Appeals (``OHA'') within 30 calendar days of the date of 
the decision, and in the event of such an appeal, OHA will issue its 
decision in accordance with part 134 of this title. The enforcement 
action will remain in effect pending resolution of the appeal, if any.
* * * * *

PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF 
HEARINGS AND APPEALS

0
19. The authority citation for part 134 is revised to read as follows:

    Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 634(i), 
637(a), 648(l), 656(i), 657t, and 687(c); 38 U.S.C. 8127(f); E.O. 
12549, 51 FR 6370, 3 CFR, 1986 Comp., p. 189.

    Subpart J issued under 38 U.S.C. 8127(f)(8)(B).
    Subpart K issued under 38 U.S.C. 8127(f)(8)(A).


0
20. Amend Sec.  134.102 by adding paragraph (d) to read as follows:


Sec.  134.102   Jurisdiction of OHA.

* * * * *
    (d) 7(a) Lender appeals from informal enforcement actions and final 
agency decisions on 7(a) Lender formal enforcement actions, and any 
other appeal that is specifically authorized by part 120 of this title, 
but not including appeals of actions against SBA Supervised Lenders 
under Sec.  120.1600(b) or (c) or under Sec.  120.465;
* * * * *

0
21. Amend Sec.  134.205 by revising paragraph (c) to read as follows:


Sec.  134.205  The appeal file, confidential information, and 
protective orders.

* * * * *
    (c) Public access. Except for confidential business and financial 
information; source selection sensitive information; income tax 
returns; documents and information covered under Sec.  120.1060 of this 
title; and other exempt information, the appeal file is available to 
the public pursuant to the Freedom of Information Act (FOIA), 5 U.S.C. 
552.
* * * * *

Jovita Carranza,
Administrator.
[FR Doc. 2020-04663 Filed 3-13-20; 8:45 am]
 BILLING CODE P