[Federal Register Volume 72, Number 86 (Friday, May 4, 2007)]
[Rules and Regulations]
[Pages 25189-25194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-8516]
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Rules and Regulations
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Federal Register / Vol. 72, No. 86 / Friday, May 4, 2007 / Rules and
Regulations
[[Page 25189]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
RIN Number 3245 AF49
Business Loan Program; Lender Examination and Review Fees
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: This final rule implements a recent amendment to the Small
Business Act authorizing the Small Business Administration (SBA) to
assess fees to Lenders participating in SBA's 7(a) loan guarantee
program (Lenders) to cover the costs of examinations, reviews, and
other Lender oversight activities. The rule describes the methodology
for fee assessment. Lenders will pay the actual costs to SBA of the on-
site examinations and reviews, and will be allocated off-site review/
monitoring costs based on each Lender's proportionate share of loan
dollars that SBA has guaranteed in the SBA portfolio. The rule also
describes the billing and payment processes.
DATES: This rule is effective June 4, 2007.
FOR FURTHER INFORMATION CONTACT: Bryan Hooper, Director, Office of
Lender Oversight, U.S. Small Business Administration, 409 Third Street,
SW., Washington, DC 20416, (202) 205-3049.
SUPPLEMENTARY INFORMATION:
I. Background Information
Section 7(a) of the Small Business Act, 15 U.S.C. 636(a),
authorizes SBA to guarantee loans made by Lenders to eligible small
businesses. Currently, there are nearly 5,000 Lenders authorized to
make such SBA guaranteed loans that have outstanding 7(a) loans. SBA
conducts off-site reviews/monitoring and on-site exams/reviews of these
Lenders to ensure they are processing loans in accordance with
prescribed standards and to minimize losses. Section 5(b)(14) of the
Small Business Act (15 U.S.C. 634(b)(14)), authorizes SBA to require
these Lenders to pay fees to cover ``the costs of [the] examinations,
reviews, and other Lender oversight activities.'' Congress granted SBA
this new fee authority under section 131 of Division K of Public Law
108-447, enacted December 8, 2004. Examination and review costs
primarily consist of contractor charges for assistance with (i) on-site
examinations; (ii) on-site reviews; and (iii) off-site reviews/
monitoring activities.
On September 5, 2006, SBA published a proposed rule seeking
comments by October 5, 2006 on its proposal implementing SBA's
statutory exam/review fee authority. 71 FR 52296. SBA published a
subsequent notice extending the comment period for the proposed Lender
review fee to November 9, 2006. 71 FR 59411. The primary purpose of the
fee is to cover the costs that SBA currently absorbs for on-site Lender
examinations and reviews and off-site review and monitoring activities.
On-site and off-site review and monitoring activities are performed to
ensure that Lenders are processing, servicing, and liquidating loans in
accordance with prescribed SBA standards. By ensuring that Lenders are
performing their SBA-required responsibilities in accordance with
prescribed standards, SBA reduces the costs of the 7(a) program and its
risk of losses from the program.
Under this rule, Lenders will be charged fees for two distinct
oversight activities performed by SBA with the assistance of
contractors. First, Lenders receiving an on-site review or examination
by SBA's review and examination contractors will be charged for the
contractors' actual review or examination cost. This cost will be
charged to the Lender by SBA after completion of the review or
examination for payment according to the terms of the invoice. SBA
plans to review only those Lenders with a total outstanding 7(a)
portfolio of more than $10 million in SBA guaranteed dollars, although
it reserves the right to review Lenders with smaller portfolios if SBA
determines in its discretion that circumstances warrant. Second, all
Lenders will be charged a fee for contractor costs associated with
SBA's off-site review/monitoring activities. The fee will be based upon
each Lender's pro-rata share of the total outstanding 7(a) portfolio,
measured by SBA guaranteed dollars. Each Lender's off-site review fee
will be determined using that Lender's outstanding guaranteed dollars,
relative to that of SBA's outstanding guaranteed portfolio, as of
September 30 of each year. Guaranteed dollars outstanding includes
guarantees of both loans held by the Lender and loans sold into the
secondary market, securitized, or for which a Lender has sold a
participating interest. It also includes loans that have been purchased
by SBA but have not yet been charged-off. SBA may waive the off-site
review/monitoring fee when SBA determines that it is not cost effective
to collect the fee. Currently, SBA expects to waive the off-site
review/monitoring fee for Lenders with a fee of less than $200.
The rule also authorizes SBA to charge a fee to cover the costs of
the additional expenses that SBA incurs in carrying out Lender
oversight activities (for example, the salaries and travel expenses of
SBA employees and equipment expenses that are directly related to
carrying out Lender oversight activities). However, SBA does not plan
at this time to charge Lenders for these costs. A discussion of the
comments received and considered and a section by section analysis
follows.
II. Comments Received and Considered
With approximately 5,000 individual Lenders, SBA received only 56
comments on the proposed Lender review fee. Forty-nine of the comments
were from 7(a) Lenders other than Small Business Lending Companies
(SBLCs), and three comments were from SBLCs. Three comments were from
trade organizations, and one comment came from a regulatory
organization. Comments generally covered the following areas: (i) The
fee levels were excessive; (ii) there was no incentive to control
costs; (iii) the fee could drive small Lenders out of the program; (iv)
use of other regulators or SBA staff to perform the reviews; (v) the
manner and methodology used for the reviews and review fees (generally
concerning the off-site review fee); and (vi) other comments.
[[Page 25190]]
Fee Levels
Some commenters asserted that the overall fees described in the
proposed notice were generally excessive. A few commenters stated that
the off-site fees were excessive and other commenters expressed that
the on-site review or examination fees were too high.
SBA awards the contracts for the reviews and examinations in
accordance with Federal procurement statutes and regulations, and makes
the awards to those contractors that can best meet the program's needs
while at the same time obtaining the best value for the Government.
Further, SBA and its contractors work together to minimize costs
whenever possible. For example, SBA may direct the on-site review or
examination contractor to reduce its loan review sample sizes for SBA
Supervised Lenders with small portfolios or no current lending
activity. With respect to the cost of the on-site examinations, as we
noted in the proposed rule, SBA's costs compare favorably to the
assessments performed by other Federal regulators, which are similar in
size and scope to SBA's examinations. For example, the Comptroller of
the Currency's current annual assessment on a bank with $1 billion in
assets is approximately $232,000, and the Office of Thrift Supervision
assesses the same size institution approximately $215,682, whereas the
annualized cost for an SBA Supervised Lender on a 24 month exam cycle
with $1 billion in outstanding loan balances (with 71% of that
portfolio guaranteed by SBA) would average $132,830. With respect to
the off-site review fee, we note that the average size of an
outstanding 7(a) loan is approximately $110,000 in SBA guaranteed
dollars. The current off-site review fee is estimated to be $73 per
million in outstanding guarantee dollars. Therefore, for the off-site
review, the average outstanding 7(a) loan would cost the Lender an
additional $8 per year, which SBA does not believe to be an
unreasonable burden for Lenders.
Consequently, SBA believes that both the off-site and on-site cost-
based fees are reflective of the market for such services and are fair
and reasonable.
Cost Control
Many of the commenters raised concerns as to future efforts to
control the costs of SBA's oversight activities. These commenters
contended that SBA has little incentive to control costs if oversight
costs are passed along to Lenders, and that SBA should consult with
Lenders before increasing any of the review fees. In addition, several
commenters were concerned that SBA would pass along to the Lenders the
Agency's costs associated with Lender oversight.
SBA does not believe that the Lender fee structure will result in
reduced efforts by SBA to minimize costs. For each of the contracts
under which the examinations and reviews are conducted, SBA ensures
that the contract cost is fair and reasonable in accordance with
applicable law. In addition, SBA currently controls costs in general
through fixed price contracts, contract monitoring and, as noted above,
through coordinating the work with the contractors to minimize costs.
For example, SBA works to control the costs of the on-site review
primarily through a fixed-price contract, which currently ranges from
$21,000 to $26,000 per review. The only variable rate component is for
travel to and from the Lender's site, and these expenses are carefully
evaluated for reasonableness by Office of Lender Oversight staff as
part of the invoicing process. SBA also works closely with the Farm
Credit Administration, its current contractor for on-site examinations,
to control examination costs for SBLCs. For example, SBA and Farm
Credit Administration have worked to ensure that the sample size of
loans reviewed during the examination process is reflective of the
SBLC's portfolio size. Finally, most of SBA's costs associated with the
off-site reviews/monitoring are also fixed. These fixed costs minimize
the potential for increased costs, and help ensure that costs will
remain controlled during the life of the contracts (on-site reviews and
off-site reviews/monitoring). As the contracts or agreements are re-
competed or renewed, as appropriate, SBA will continue to consider cost
as one of several important considerations in determining which offers
or proposed agreements provide the best value to the government.
SBA also believes that Lender concerns with respect to SBA charging
a fee to cover its own internal costs are misplaced. As noted in the
proposed rule, the statute upon which the rule is based authorizes the
Agency to charge a fee to cover the Agency's internal Lender oversight
costs. However, it is not the Agency's intention to charge a fee to
cover such costs at the present time. Should SBA later decide to
include charges for other Lender oversight activities, SBA will provide
Lenders a notice describing the costs to be included in the fee.
Many commenters suggested that SBA should establish a maximum
charge for oversight activity fees and consult with Lenders before
increasing the fees. As noted above, SBA minimizes the fees through
competitive bidding processes, and by working with its contractors to
reduce costs where possible (while still maintaining strong risk
management capabilities). Therefore, SBA believes there is no need to
establish a maximum fee threshold and, with respect to the comment on
consultation, SBA will continue its practice of consulting with its
Lenders through informal discussions and contacts.
Impact on Small Lenders
Many commenters asserted that the fee might force smaller Lenders
out of SBA lending due to increased costs, damaging SBA's lending
program. SBA believes that the fee will not have such an impact. First,
we believe that the financial impact of the review fees themselves will
be relatively minimal on most 7(a) Lenders, especially small Lenders.
Since on-site reviews will generally only be performed on Lenders with
SBA portfolios of at least $10 million in SBA guaranteed dollars, the
overwhelming majority of Lenders will not be subject to on-site
reviews, and will thus not be impacted by the on-site review cost. Of
the approximately 5,000 SBA 7(a) Lenders, only about 350, or about 7
percent of all Lenders, have portfolios of greater than $10 million,
and these Lenders hold about 84% of the outstanding SBA guaranteed
dollars. In addition, it is SBA's expectation that on-site reviews
would be normally performed approximately every two years and, thus,
Lenders will not be bearing an annual on-site review cost. Off-site
reviews will be performed on all 7(a) Lenders; however, the fee is
relatively small for Lenders with lesser portfolios. The proposed rule
stated that the cost for off-site reviews was expected to be
approximately $82 for every $1 million SBA guaranteed dollars held by a
Lender. SBA has revised its fee estimate and, due to several factors,
we now estimate the cost of off-site reviews/monitoring to be
approximately $73 for every $1 million in SBA guaranteed dollars. Thus,
for a Lender with $10 million in SBA guaranteed loan dollars, the off-
site review fee at this time would be $730. We do not believe this to
be an unduly burdensome fee upon Lenders.
Second, we note that many Lenders in the 7(a) program are local
community banks. A major role of these banks is to be a source of funds
within the community, and to lend those funds to small business
borrowers in need of those funds to pursue their dreams and
opportunities. Since SBA is a ``credit
[[Page 25191]]
elsewhere'' program--i.e., recipients of 7(a) loans have not been able
to obtain credit on reasonable terms from any other source--the banks
are not willing to serve these customers without the SBA Guarantee. We
believe that Banks--particularly local banks that must serve their
community--will continue to offer SBA guaranteed loans to borrowers
unable to obtain financing on such reasonable terms elsewhere.
Finally, SBA believes that the off-site reviews and monitoring and
additional on-site reviews that the fee will sustain will dramatically
improve the Agency's risk management of the 7(a) program. Off-site
reviews/monitoring will enable SBA to quickly and continually spot
Lenders with poorly performing portfolios and work with those Lenders
to turn around their performance. Regular on-site reviews will allow
SBA to ensure that its highest risk 7(a) Lenders are meeting their
program obligations and complying with Agency origination,
underwriting, servicing, and liquidation requirements. Expanding the
number of on-site reviews will enable SBA to educate more Lenders on
the correct origination, servicing and liquidation procedures for
Agency loans. By doing so, it is SBA's expectation that more Lenders
will comply with Agency guidelines, cutting the Agency's processing
times and possibly reducing program losses. These benefits would reduce
SBA's costs, which may be passed along to its lending partners and
borrowers through reductions in other fees and ultimately improve the
7(a) program.
In the proposed rule, SBA indicated that it might establish a
minimum fee threshold (below which it would waive the off-site fee) if
it believed that collection costs would be high relative to the fee
collected. SBA has determined that, currently, it will be cost
effective to the Agency to waive the off-site review fee for Lenders
with a total fee of less than $200 in lieu of incurring the cost
associated with collecting these smaller fees. By setting this
threshold, SBA estimates it will eliminate the fee for approximately
4,050 Lenders, while still collecting approximately 93 percent of the
off-site review costs. SBA reserves the right to adjust this threshold
from time to time in its sole discretion, and will periodically review
the cost of collecting the off-site fee to determine if the threshold
should be adjusted or eliminated. For example, if technological
improvements reduce the cost of collections, SBA may reduce or
eliminate the threshold at which it waives the fee. Such changes would
be made through an SBA Notice. All Lenders owing more than the
threshold amount will be required to pay the entire fee. It is
important to note that the paying Lenders will not be paying more
because the smaller fees are being waived for some Lenders; rather, SBA
will absorb those costs.
As a result, SBA believes the review fees will not have a
detrimental effect upon the 7(a) program. Furthermore, the Agency
believes that the size of the fee is not an undue burden on smaller
Lenders, and that the establishment of a fee waiver threshold will
further reduce the impact on smaller Lenders. Therefore, we do not
believe that the imposition of the fee will cause smaller Lenders to
leave the 7(a) program.
Reviews by Other Regulators or SBA Staff
Several commenters suggested that it might be more efficient for
SBA to have others perform on-site reviews. Most recommended using
staff from financial regulators, while one proposed using local SBA
staff to perform the reviews, and another expressed concern with SBA
finalizing the rule before attempting to coordinate the reviews with
state and federal regulators who have primary supervisory authority
over the Lenders.
SBA believes that financial regulators generally do not have
significant knowledge of SBA's 7(a) loan program; we would be concerned
about a lack of consistency in the reviews performed. Thus, it could be
difficult to rely on review results as a component of our Lender
monitoring process, particularly when comparing review results between
peers. In addition, by controlling reviews through dedicated
contractors, we have maximum flexibility to move resources where
immediately needed to timely address most pressing risk issues to SBA.
It is also not feasible for local SBA staff to perform the on-site
reviews. Local SBA staff is dedicated to program development and
outreach which, by being separate from the Lender oversight functions,
avoids the appearance of any conflict between the two. In addition, the
Agency does not currently have staff with the training and experience
necessary to perform risk-based reviews or safety and soundness
examinations.
Review Fee Methodology
SBA received a number of comments on the manner and methodology
that SBA proposed for assessing the review fees. These comments
concerned: (i) The frequency of the off-site review process, (ii) using
a different approach to determine the off-site review fee, and (iii)
applying the fee to loans already in Lenders' portfolios.
Many commenters raised concerns about the frequency of the off-site
reviews. Some expressed that reviewing and updating Lender risk ratings
on a quarterly basis was too frequent, while others suggested that the
frequency of the risk ratings be tied to each Lender's relative risk--
less risky Lenders being subject to updated risk ratings less often
than riskier Lenders.
All lenders Risk Rating are updated on a quarterly base. Quarterly
updating allows SBA to better monitor both individual Lender and
portfolio-wide performance trends. Portfolio performance may change
dramatically from quarter to quarter. Therefore, quarterly reviews may
detect changes that threaten the 7(a) program sooner than reviews
performed less frequently. The quarterly comparison enables SBA to
regularly identify those Lenders with the greatest risk and to review
them timely and more closely.
Because the risk rating system was designed to compare each
Lender's risk to SBA relative to its peers, it is essential to perform
a risk rating on all Lenders each review cycle. If the Agency did not
compare the performance of all Lenders in a peer group, Lenders would
not be accurately rated for relative risk. For example, if SBA only
risk rated the worst performing Lenders in each peer group (removing
the best performing Lenders from the analysis), the relatively better
performing Lenders in this higher risk subset would appear to be
performing better than they are because they would only be compared to
even higher risk Lenders rather than both higher and lower risk
Lenders. In addition, under the risk rating system, individual Lender
ratings may rise or fall every quarter, as each Lender's performance
becomes relatively more or less risky. Unless all Lenders are risk
rated each quarter, SBA will be unable to detect positive or negative
performance trends.
Several commenters requested that SBA consider adding a minimum fee
component to the cost allocation methodology for the off-site review
fee. These commenters suggested that SBA should charge each Lender a
minimum fee, and then allocate the remainder of the cost to Lenders
based upon the size of their 7(a) loan portfolios. The commenters
reasoned that since at least a minimal level of contractual off-site
review work is performed on each Lender, all Lenders should pay at
least a minimal fee. However, some commenters supported SBA's proposal
to provide a waiver or exemption of the fee for small volume lenders.
[[Page 25192]]
SBA has decided against charging a minimum fee. Charging a minimum
fee for lower volume Lenders would run counter to SBA's determination
to absorb those costs that are not cost effective to collect and
equitably assess the remaining cost to higher volume lenders. This
comment also appears to be based on the erroneous assumption that the
Lenders who pay the fee will be subsidizing the Lenders who will have
the fees waived. The paying Lenders will not be subsidizing the non-
paying Lenders because SBA currently plans to absorb the costs of the
waived fees. In addition, a minimum fee allocation methodology may
result in a disproportionate distribution of the review costs relative
to each Lender's participation level.
Several commenters suggested that SBA consider revising the formula
upon which to base the off-site review fee. Rather than base the fee on
portfolio size in SBA guaranteed dollars outstanding, commenters
proposed that the fee be based upon such factors as the number of loans
outstanding, average size of the loans in each Lenders' portfolio,
historical portfolio performance, annual origination volume, and Lender
risk ratings. The Agency believes that SBA guaranteed dollars
outstanding is the factor most directly related to risk because it is a
direct measure of the Agency's maximum risk exposure should SBA be
forced to honor its loan guarantees.
A few commenters objected to SBA applying the off-site review fee
to loans originated before the fee rule effective date. The commenters
suggested that SBA should only apply the off-site fee to loans
originated after this rule's effective date, to enable Lenders to price
the cost of the fee into their loan. This suggestion, however, does not
consider that SBA's off-site monitoring approach takes into account a
Lender's entire 7(a) portfolio when risk rating a Lender's portfolio.
All of the loans in each Lender's portfolio are monitored as part of
SBA's risk management process, and all of the loans are included in the
portfolio analysis that SBA uses to determine which Lenders may present
an unreasonable level of risk to SBA. To exclude earlier originated
loans and their dollar risk from the analysis would present an
incomplete picture of the portfolio's risk to SBA. Further, such a
measure would have an unfair effect between Lenders: One Lender with a
portfolio of $10 million in SBA guaranteed dollars originated prior to
the effective date would not be subject to the off-site review fee for
the entire life of that portfolio, while another Lender with the same
size portfolio of loans all originating after the effective date would
be subject to the fee. In sum, this suggestion fails to consider that
all loans, including currently outstanding loans, represent some level
of risk to SBA and must be monitored.
Other Miscellaneous Comments
One commenter requested that SBA exclude loans purchased by SBA,
but not yet charged-off by SBA, from the off-site review fee
calculation. SBA includes purchased loans in its off-site monitoring
efforts to help assist its purchase centers in tracking charge-off and
recovery data. SBA believes the cost associated with purchased loans
will be minimal since the Agency has made a concentrated effort to
reduce charge-off time.
One commenter suggested that SBA limit the number of on-site
reviews performed on individual Lenders to a maximum of one review
every two years. SBA intends to perform an on-site review approximately
every other year on SBA's larger 7(a) Lenders. However, SBA must
reserve the right to review or examine these Lenders more frequently
(and review smaller Lenders) if it determines that particular Lenders
present an unacceptably high level of risk to SBA. It is possible that
Lenders may be subject to multiple on-site reviews within a two-year
cycle when there are significant weaknesses uncovered during an earlier
review that must be corrected in order to reduce SBA's risk. However,
SBA may also determine that Lenders with poor portfolio performance, as
measured by their off-site Lender risk rating and performance factors,
should be subject to a follow up review. Such decisions will be made in
SBA's sole discretion.
Finally, two commenters asserted that it was unreasonable to expect
Lenders to pay the review fee within the 30 day time period. SBA
believes that the response time is sufficient for payments to be made.
We note that some federal financial institution regulators allow even
less time for payment of assessment fees. However, if a Lender has an
extraordinary situation and cannot timely make payment, it should
contact the Office of Lender Oversight in writing to request additional
time. The final rule provides that SBA may waive or abate the
collection of interest, charges and/or penalties for delinquent
payments if circumstances warrant.
SBA has carefully reviewed the comments received and adopts the
rule as proposed with three minor changes. Specifically, SBA has
deleted a cite reference to a current enforcement regulation as SBA may
in the future propose the relocation and revision of SBA's enforcement
regulations, has added specific authority for SBA to waive the off-site
review fee when it determines that it is not cost effective to collect
the fee, and has clarified that Lenders will be required to pay a fee
to cover other lender oversight activities only if SBA assesses such a
fee.
III. Compliance With Executive Orders 12866, 12988, and 13132, the
Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork
Reduction Act (44 U.S.C., Ch. 35)
Executive Order 12866
The Office of Management and Budget has determined that this final
rule constitutes a significant regulatory action under Executive Order
12866 thus requiring a Regulatory Impact Analysis. We provided such an
analysis in the proposed rule published on September 5, 2006. In that
analysis, SBA stated that, as it delegates more authority to its
Lenders, there is a need for better and more comprehensive Lender
oversight, which SBA has developed through the off-site (L/LMS) and on-
site reviews and examinations. The rule implements the recent amendment
to the Small Business Act authorizing SBA to assess Lenders fees to
cover the costs of those examinations or reviews. The costs of these
oversight activities primarily consist of contractor charges for
assistance in carrying out the reviews and examinations. In its
analysis, SBA noted that the benefits of the proposed fees for Lenders
include that the costs of on-site examinations or reviews are allocated
directly to those Lenders for whom the costs are incurred, and that the
costs of L/LMS would be allocated according to each Lender's
participation level as measured by SBA guaranteed dollars. Besides
allocating its review and monitoring costs to its Lenders, SBA will
benefit through the relative ease of administering the assessment
process. The analysis indicates that SBA considered alternatives to the
L/LMS cost allocation plan, but that an allocation based on dollars at
risk, rather than for example the number of loans, is better related to
risk and, therefore, the most equitable.
SBA received several comments on costs and alternatives. SBA
addressed these comments in the comments section of the preamble. For
example, some commenters suggested that the proposed fee was excessive.
SBA's examination and review costs primarily consist of contractor
charges and contracts are awarded in accordance with Federal
procurement statutes and regulations, while providing best value
[[Page 25193]]
for the Government. Consequently, SBA believes that both the off-site
and on-site cost-based fees are reflective of the market for such
services and are fair and reasonable. Some commenters also suggested
that the fees would be prohibitive for small Lenders. As stated in the
comments section, these fees will be waived for Lenders with small
portfolios. The reviews may ultimately lead to greater compliance with
Agency guidelines and less program losses, which may be passed along to
Lenders through reductions in other fees. Therefore, SBA does not
believe that the fees will force small Lenders out of SBA lending.
SBA received several comments recommending alternatives. For
example, SBA received suggestions that the Agency consider setting
minimum and maximum fee levels; tie review fees to risk ratings; and
utilize other bank regulators for SBA program on-site reviews. The
comment on minimum fees appears to be based on the erroneous assumption
that the Lenders who pay the fees will be subsidizing the Lenders who
will have the fees waived. Also, charging a minimum fee for lower
volume Lenders would run counter to SBA's determination to absorb those
costs that are not cost effective to collect. As to setting a maximum
fee, SBA minimizes the fees through competitive bidding processes,
through fixed price contracts and by working with its contractors to
reduce costs where possible. Therefore, SBA believes there is no need
to establish a minimum or a maximum fee threshold. Some commenters
suggested that SBA should tie review fees to risk ratings. Risk Rating
trends are indirectly incorporated into the fee methodology to the
extent that better ratings could translate into less frequent on-site
examinations and reviews. Another alternative suggested was that SBA
utilize the other bank regulators for SBA program on-site reviews. SBA
believes that utilizing the other bank regulators to perform SBA's
reviews would cause concern about a lack of consistency in the reviews
performed. Thus, it could be difficult to rely on review results as a
component of our Lender monitoring process, particularly when comparing
review results between peers. Therefore, SBA did not accept this
alternative. For a more detailed discussion on the costs and
alternatives, see the main text of the preamble.
Executive Order 12988
This final rule meets applicable standards set forth in Sec. Sec.
3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to
minimize litigation, eliminate ambiguity, and reduce burden. This final
rule will not have retroactive or pre-emptive effect.
Executive Order 13132
This final rule will not have substantial direct effects on the
States, on the relationship between the Federal 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.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, requires
the Agency to ``publish a final regulatory flexibility analysis'' which
will ``describe the impact of the final rule on small entities.'' 5
U.S.C. 604(a). 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. Although this rulemaking may affect a substantial
number of small entities, for the reasons stated below, SBA does not
believe that this rule will have a significant economic impact on a
substantial number of small entities.
This rule implements Small Business Act Sec. 5(b)(14), which
authorizes SBA to require 7(a) Lenders to pay examination and review
fees. These fees are to be available to fund the costs of examinations,
reviews, and other Lender oversight activities.
The review fees will apply to all 7(a) Lenders with outstanding SBA
guaranteed loan balances. Nearly 5,000 Lenders are currently
participating in the 7(a) program, of which 11 are active SBLC Lenders.
SBA has determined that SBLCs are classified under the size standard
for NAICS 522298. Three of the 11 active SBLCs are below the $6.5
million in average annual receipts and are deemed small business
concerns. Nearly all of the remaining 7(a) Lenders are covered under
NAICS 522110 for commercial banks and other depository financial
institutions. About 3,000 of the Lenders in this classification have
less than $165 million in assets and are deemed small business
concerns. (Note: with the waiver to any Lender with less than $200 in
fees, SBA calculates that only approximately 300 Lenders that are
classified as small will be affected.)
The final rule will not have a significant economic impact on a
substantial number of the 3,000 Lenders covered under NAICS 522110.
Most of these Lenders have very small SBA portfolios and will only be
subject to fees for the off-site reviews/monitoring. The annual fee, if
assessed for all 3,000 small Lenders, for 98 percent of these Lenders
will be less than $945, the cost of a one year subscription to the
``American Banker'' magazine. SBA plans to waive the fees when it is
not cost-effective to bill and collect. At this time, SBA has
determined to waive the off-site fee for all Lenders with a fee of less
than $200. That determination may be revised periodically to reflect
changes in SBA's costs. SBA estimates that the annual fee will be
waived for approximately 2700 small Lenders. For approximately 250
small Lenders, the annual fee will be between $200 and $1,000. The
largest of the approximately 50 remaining Lenders classified as small
business concerns has over $100 million in outstanding SBA guarantees.
The largest annualized fee for a Lender classified as small, which will
cover the cost of the bi-annual on-site review plus annual off-site
monitoring cost, is estimated at $21,288. The estimated annualized fee
of the on-site exam plus the annual off-site monitoring cost fee for
the three SBLCs classified as small business concerns would range from
$28,160 to $42,000.
Moreover, since SBA will calculate and bill for the fee, there will
be virtually no recordkeeping or other compliance requirements of the
rule. There are also no relevant Federal rules governing fees for the
7(a) program which may duplicate, overlap or conflict with the final
rule. SBA certified this rulemaking at the proposed rule stage. SBA did
not receive any comments on SBA's certification. However, SBA received
comments from small lenders about the fee. In reviewing the comments
SBA has determined that those lenders will not be affected by the fee
implementation. Since, the SBA has decided to waive the off-site review
fee for lenders with a total fee of less than $200, in lieu of
incurring the cost associated with collecting these smaller fees.
Accordingly, the Administrator of SBA hereby certifies to the Chief
Counsel of Advocacy that this final rule will not have a significant
economic impact on a substantial number of small entities.
Paperwork Reduction Act
SBA has determined that this final rule does not impose additional
reporting or recordkeeping requirements under the Paperwork Reduction
Act, 44 U.S.C. Chapter 35.
[[Page 25194]]
List of Subjects in 13 CFR Part 120
Loan programs--business, Small businesses.
0
For the reasons discussed in the preamble, SBA amends 13 CFR part 120
to read as follows:
PART 120--BUSINESS LOANS
0
1. The authority citation for part 120 is revised to read as follows:
Authority: 15 U.S.C. 634(b)(6), 634(b)(7), 634(b)(14),
633(b)(3), 636(a) and (h), 650, and 696(3) and 697(a)(2).
0
2. Revise Sec. 120.454 to read as follows:
Sec. 120.454 PLP Performance Review.
SBA may review the performance of a PLP Lender.
0
3. Add a new Subpart I to read as follows:
Subpart I--Lender Oversight
Sec. 120.1070 Lender oversight fees.
Lenders are required to pay to SBA fees to cover costs of
examinations and reviews and, if assessed by SBA, other Lender
oversight activities.
(a) Fee components: The fees may cover the following:
(1) On-Site Examinations. The costs of conducting on-site safety
and soundness examinations of an SBA-Supervised Lender, including any
expenses that are incurred in relation to the examination. For the
purposes of this paragraph, the term ``SBA-Supervised Lender'' means a
Small Business Lending Company or a Non-Federally Regulated Lender.
(2) On-Site Reviews. The costs of conducting an on-site review of a
Lender, including any expenses that are incurred in relation to the
review.
(3) Off-Site Reviews/Monitoring. The costs of conducting off-site
reviews/monitoring of a Lender, including any expenses that are
incurred in relation to the review/monitoring activities. SBA will
assess this charge based on each Lender's portion of the total dollar
amount of SBA guarantees in SBA's portfolio. SBA may waive the
assessment of this fee for all Lenders owing less than a threshold
amount below which SBA determines that it is not cost effective to
collect the fee.
(4) Other Lender Oversight Activities. The costs of additional
expenses that SBA incurs in carrying out Lender oversight activities
(for example, the salaries and travel expenses of SBA employees and
equipment expenses that are directly related to carrying out Lender
oversight activities). This charge will be based on each Lender's
portion of the total dollar amount of SBA guarantees in SBA's
portfolio.
(b) Billing Process. For the on-site examinations or reviews
conducted under (a)(1) and (a)(2) above, SBA will bill each Lender for
the amount owed following completion of the examination or review. For
the off-site reviews/monitoring conducted under (a)(3) above and the
other Lender oversight expenses incurred under (a)(4) above, SBA will
bill each Lender for the amount owed on an annual basis. SBA will state
in the bill the date by which payment is due SBA and the approved
payment method(s). The payment due date will be no less than 30
calendar days from the bill date.
(c) Delinquent Payment and Late-Payment Charges. Payments that are
not received by the due date specified in the bill shall be considered
delinquent. SBA will charge interest, and other applicable charges and
penalties, on delinquent payments, as authorized by 31 U.S.C. 3717. SBA
may waive or abate the collection of interest, charges and/or penalties
if circumstances warrant. In addition, a Lender's failure to pay any of
the fee components described in this section, or to pay interest,
charges and penalties that have been charged, may result in a decision
to suspend or revoke a participant's eligibility or to limit a
participant's delegated authority.
Dated: March 23, 2007.
Steven C. Preston,
Administrator.
[FR Doc. E7-8516 Filed 5-3-07; 8:45 am]
BILLING CODE 8025-01-P