Pursuant to the requirements of the Small Business 7(a) Lending Reform Act of 2018, Pub. L. 115-189 (“SBA Reform Act”) that amended the Small Business Act, 15 U.S.C. §651 et seq., the SBA published in the Federal Register proposed rules designed to implement the provisions of the SBA Reform Act. 84 Fed. Reg. 29092 (proposed June 21, 2019) (to be codified at 13 C.F.R. pt. 120 and 134). The SBA Reform Act, inter alia, codifies the SBA’s authority to take informal enforcement actions against lenders in the 7(a) loan program, extends the SBA’s authority to take formal enforcement actions, further strengthens the SBA’s ability to supervise the lenders in its 7(a) loan program, and restates the criteria that must be met before it can be determined that a borrower cannot obtain “credit elsewhere.”* Lender comments are due on or before August 20, 2019.
As required by the United States Administrative Procedures Act, these proposed rules are published to provide the public the opportunity to comment on them before they become part of the actual rules that are enforced by the SBA. The SBA is obligated to evaluate each comment that is made, and publish its response which may include modifications to the proposed rules in consideration of the comments.
Most of the readers of Best Practices are deeply involved in the government guaranteed lending industry, particularly the programs that are available through the SBA. This is a one time opportunity for those persons who participate in the government guaranteed lending industry to comment on these new proposed rules that, if enacted, will have an impact on their businesses.
The proposed rules are for the purpose implementing the statutory requirements of the SBA Reform Act. The primary purpose of the SBA Reform Act is to minimize program risk, increase program integrity, strengthen the SBA’s authority to supervise lenders in its 7(a) loan program, to provide the Office of Credit Risk Management with oversight authority independent of the SBA Administrator, and to restate the “credit elsewhere” test.
We thought that it would be beneficial to our readers to highlight what some of the proposed rules are supposed to accomplish in the hope that you will then take the time to review all the proposed rules and consider for yourselves whether the proposed rules are reasonable in light of the provisions of the SBA Reform Act, and are the most sensible way to implement those provisions. The proposed rules include the following:
- The refocus of the “credit elsewhere” test to a borrower’s ability to obtain credit rather than a lender’s ability to offer credit.
- The incorporation into the SBA’s regulations those specific informal enforcement actions that are available to the SBA, and the circumstances under which the SBA would consider taking informal action instead of formal enforcement action.
- Grounds for enforcement actions against a lender, including the activities of the lender’s third-party service providers.
- Increased use of and amounts of Civil Monetary Penalties for lender reporting failures or delays, as a deterrent against non-compliance with financial related obligations, and as a formal enforcement tool.
- The procedures by which enforcement actions can be taken, and the procedures by which a lender can appeal an enforcement decision.
- The increased jurisdiction of the SBA’s Office of Hearings and Appeals to include determining appeals of enforcement actions.
This is an opportunity for all stakeholders to enhance the 7a loan program. For assistance, please contact the National Association of Government Guaranteed Lenders (“NAGGL”) and keep an eye out for any NAGGL suggestions and proposed response. Comments to the proposed rules can be submitted through the Federal Government eRulemaking Portal, www.regulations.gov, using the identifier RIN: 3245-AH05.