[115th Congress Public Law 189]
[From the U.S. Government Publishing Office]
[[Page 1491]]
SMALL BUSINESS 7(a) LENDING OVERSIGHT REFORM ACT OF 2018
[[Page 132 STAT. 1492]]
Public Law 115-189
115th Congress
An Act
To amend the Small Business Act to strengthen the Office of Credit Risk
Management within the Small Business Administration, and for other
purposes. <<NOTE: June 21, 2018 - [H.R. 4743]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, <<NOTE: Small Business
7(a) Lending Oversight Reform Act of 2018. 15 USC 631 note.>>
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business 7(a) Lending Oversight
Reform Act of 2018''.
SEC. 2. <<NOTE: 15 USC 657t note.>> DEFINITIONS.
In this Act, the terms ``Administration'' and ``Administrator'' mean
the Small Business Administration and the Administrator thereof,
respectively.
SEC. 3. CODIFICATION OF THE OFFICE OF CREDIT RISK MANAGEMENT AND
THE LENDER OVERSIGHT COMMITTEE.
(a) In General.--The Small Business Act (15 U.S.C. 631 et seq.)
is <<NOTE: 15 USC 631 note.>> amended--
(1) by redesignating section 47 as section 49; and
(2) by inserting after section 46 the following new
sections:
``SEC. 47. <<NOTE: 15 USC 657t.>> OFFICE OF CREDIT RISK
MANAGEMENT.
``(a) Establishment.--There is established within the Administration
the Office of Credit Risk Management (in this section referred to as the
`Office').
``(b) Duties.--The Office shall be responsible for supervising--
``(1) any lender making loans under section 7(a) (in this
section referred to as a `7(a) lender');
``(2) any Lending Partner or Intermediary participant of the
Administration in a lending program of the Office of Capital
Access of the Administration; and
``(3) any small business lending company or a non-Federally
regulated lender without regard to the requirements of section
23.
``(c) Director.--
``(1) In general.--The Office shall be headed by the
Director of the Office of Credit Risk Management (in this
section referred to as the `Director'), who shall be a career
appointee in the Senior Executive Service (as defined in section
3132 of title 5, United States Code).
``(2) Duties.--The Director shall be responsible for
oversight of the lenders and participants described in
subsection (b), including by conducting periodic reviews of the
compliance and performance of such lenders and participants.
[[Page 132 STAT. 1493]]
``(d) Supervision Duties for 7(a) Lenders.--With respect to 7(a)
lenders, an employee of the Office shall--
``(1) be present for and supervise any such review that is
conducted by a contractor of the Office on the premise of the
7(a) lender; and
``(2) supervise any such review that is not conducted on the
premise of the 7(a) lender.
``(e) Enforcement Authority Against 7(a) Lenders.--
``(1) Informal enforcement authority.--The Director may take
an informal enforcement action against a 7(a) lender if the
Director finds that the 7(a) lender has violated a statutory or
regulatory requirement under section 7(a) or any requirement in
a Standard Operating Procedures Manual or Policy Notice related
to a program or function of the Office of Capital Access.
``(2) Formal enforcement authority.--
``(A) In general.--With the approval of the Lender
Oversight Committee established under section 48, the
Director may take a formal enforcement action against
any 7(a) lender if the Director finds that the 7(a)
lender has violated--
``(i) a statutory or regulatory requirement
under section 7(a), including a requirement
relating to credit elsewhere; or
``(ii) any requirement described in a Standard
Operating Procedures Manual or Policy Notice,
related to a program or function of the Office of
Capital Access.
``(B) Enforcement actions.--An enforcement action
imposed on a 7(a) lender by the Director under
subparagraph (A) shall be based on the severity or
frequency of the violation and may include assessing a
civil monetary penalty against the 7(a) lender in an
amount that is not greater than $250,000.
``(3) Appeal by lender.--A 7(a) lender may appeal an
enforcement action imposed by the Director described in this
subsection to the Office of Hearings and Appeals established
under section 5(i) or to an appropriate district court of the
United States.
``(f) <<NOTE: Deadline.>> Regulations.--Not later than 1 year after
the date of the enactment of this section, the Administrator shall issue
regulations, after opportunity for notice and comment, to carry out
subsection (e).
``(g) Servicing and Liquidation Responsibilities.--During any period
during which a 7(a) lender is suspended or otherwise prohibited from
making loans under section 7(a), the 7(a) lender shall remain obligated
to maintain all servicing and liquidation activities delegated to the
lender by the Administrator, unless otherwise specified by the Director.
``(h) Portfolio Risk Analysis of 7(a) Loans.--
``(1) In general.--The Director shall annually conduct a
risk analysis of the portfolio of the Administration with
respect to all loans guaranteed under section 7(a).
``(2) <<NOTE: Analyses.>> Report to congress.--On December
1, 2018, and every December 1 thereafter, the Director shall
submit to Congress a report containing the results of each
portfolio risk analysis conducted under paragraph (1) during the
fiscal year preceding the submission of the report, which shall
include--
[[Page 132 STAT. 1494]]
``(A) an analysis of the overall program risk of
loans guaranteed under section 7(a);
``(B) an analysis of the program risk, set forth
separately by industry concentration;
``(C) without identifying individual 7(a) lenders by
name, a consolidated analysis of the risk created by the
individual 7(a) lenders responsible for not less than 1
percent of the gross loan approvals set forth separately
for the year covered by the report by--
``(i) the dollar value of the loans made by
such 7(a) lenders; and
``(ii) the number of loans made by such 7(a)
lenders;
``(D) steps taken by the Administrator to mitigate
the risks identified in subparagraphs (A), (B), and (C);
``(E) the number of 7(a) lenders, the number of
loans made, and the gross and net dollar amount of loans
made;
``(F) the number and dollar amount of total losses,
the number and dollar amount of total purchases, and the
percentage and dollar amount of recoveries at the
Administration;
``(G) the number and type of enforcement actions
recommended by the Director;
``(H) the number and type of enforcement actions
approved by the Lender Oversight Committee established
under section 48;
``(I) the number and type of enforcement actions
disapproved by the Lender Oversight Committee; and
``(J) the number and dollar amount of civil monetary
penalties assessed.
``(i) Budget Submission and Justification.--The Director shall
annually provide, in writing, a fiscal year budget submission for the
Office and a justification for such submission to the Administrator.
Such submission and justification shall--
``(1) include salaries and expenses of the Office and the
charge for the lender oversight fees;
``(2) be submitted at or about the time of the budget
submission by the President under section 1105(a) of title 31;
and
``(3) <<NOTE: Public information. Time period.>> be
maintained in an indexed form and made available for public
review for a period of not less than 5 years beginning on the
date of submission and justification.
``SEC. 48. <<NOTE: 15 USC 657u.>> LENDER OVERSIGHT COMMITTEE.
``(a) Establishment.--There is established within the Administration
the Lender Oversight Committee (in this section referred to as the
`Committee').
``(b) Membership.--The Committee shall consist of at least 8 members
selected by the Administrator, of which--
``(1) 3 members shall be voting members, 2 of whom shall be
career appointees in the Senior Executive Service (as defined in
section 3132 of title 5, United States Code); and
``(2) the remaining members shall be nonvoting members who
shall serve in an advisory capacity on the Committee.
``(c) Duties.--The Committee shall--
``(1) review reports on lender oversight activities;
``(2) review formal enforcement action recommendations of
the Director of the Office of Credit Risk Management with
respect to any lender making loans under section 7(a) and
[[Page 132 STAT. 1495]]
any Lending Partner or Intermediary participant of the
Administration in a lending program of the Office of Capital
Access of the Administration;
``(3) <<NOTE: Recommenda- tions.>> in carrying out
paragraph (2) with respect to formal enforcement actions taken
under subsection (d) or (e) of section 23, vote to recommend or
not recommend action to the Administrator or a designee of the
Administrator;
``(4) in carrying out paragraph (2) with respect to any
formal enforcement action not specified under subsection (d) or
(e) of section 23, vote to approve, disapprove, or modify the
action;
``(5) review, in an advisory capacity, any lender oversight,
portfolio risk management, or program integrity matters brought
by the Director; and
``(6) take such other actions and perform such other
functions as may be delegated to the Committee by the
Administrator.
``(d) Meetings.--
``(1) In general.--The Committee shall meet as necessary,
but not less frequently than on a quarterly basis.
``(2) Reports.--The Committee shall submit to the
Administrator a report detailing each meeting of the Committee,
including if the Committee does or does not vote to approve a
formal enforcement action of the Director of the Office of
Credit Risk Management with respect to a lender.''.
(b) Supervision Duties for 7(a) Lenders.--Effective January 1, 2019,
subsection (d) of section 47 (as added by subsection (a)) is
amended <<NOTE: 15 USC 657t note.>> to read as follows:
``(d) Supervision Duties for 7(a) Lenders.--
``(1) Reviews.--With respect to 7(a) lenders, an employee of
the Office shall--
``(A) be present for and supervise any such review
that is conducted by a contractor of the Office on the
premise of the 7(a) lender; and
``(B) supervise any such review that is not
conducted on the premise of the 7(a) lender.
``(2) Review report timeline.--
``(A) In general.--Notwithstanding any other
requirements of the Office or the Administrator, the
Administrator shall develop and implement a review
report timeline which shall--
``(i) require the Administrator to--
``(I) deliver a written report of
the review to the 7(a) lender not later
than 60 business days after the date on
which the review is concluded; or
``(II) <<NOTE: Notification.>> if
the Administrator expects to submit the
report after the end of the 60-day
period described in clause (i), notify
the 7(a) lender of the expected date of
submission of the report and the reason
for the delay; and
``(ii) if a response by the 7(a) lender is
requested in a report submitted under subparagraph
(A), require the 7(a) lender to submit responses
to the Administrator not later than 45 business
days after the date on which the 7(a) lender
receives the report.
[[Page 132 STAT. 1496]]
``(B) Extension.--The Administrator may extend the
time frame described in subparagraph (A)(i)(II) with
respect to a 7(a) lender as the Administrator determines
necessary.''.
(c) Transfer of Functions.--
(1) <<NOTE: 15 USC 657t note.>> Office of credit risk
management.--All functions of the Office of Credit Risk
Management of the Small Business Administration, including the
personnel, assets, and obligation of the Office of Credit Risk
Management, as in existence on the day before the date of the
enactment of this Act, shall be transferred to the Office of
Credit Risk Management established under section 47 of the Small
Business Act, as added by subsection (a).
(2) <<NOTE: 15 USC 657u note.>> Lender oversight
committee.--All functions of the Lender Oversight Committee of
the Small Business Administration, including the personnel,
assets, and obligations of the Lender Oversight Committee, as in
existence on the day before the date of the enactment of this
Act, shall be transferred to the Lender Oversight Committee
established under section 48 of the Small Business Act, as added
by subsection (a).
(d) Deeming of Name.--
(1) <<NOTE: 15 USC 657t note.>> Office of credit risk
management.--Any reference in a law, regulation, guidance,
document, paper, or other record of the United States to the
Office of Credit Risk Management of the Small Business
Administration shall be deemed a reference to the Office of
Credit Risk Management, established under section 47 of the
Small Business Act, as added by subsection (a).
(2) <<NOTE: 15 USC 657u note.>> Lender oversight
committee.--Any reference in a law, regulation, guidance,
document, paper, or other record of the United States to the
Lender Oversight Committee of the Small Business Administration
shall be deemed a reference to the Lender Oversight Committee,
established under section 48 of the Small Business Act, as added
by subsection (a).
(e) Technical Amendment.--Section 3(r)(2) of the Small Business Act
(15 U.S.C. 632(r)(2)) is amended by striking ``regulated SBA lender''
each place it appears in heading and text and inserting ``regulated
lender''.
SEC. 4. DEFINITION OF CREDIT ELSEWHERE.
(a) In General.--The Small Business Act (15 U.S.C. 631 et seq.) is
amended--
(1) by striking section 3(h) (15 U.S.C. 632(h)) and
inserting the following:
``(h) The term `credit elsewhere' means--
``(1) for the purposes of this Act (except as used in
section 7(b)), the availability of credit on reasonable terms
and conditions to the individual loan applicant from non-
Federal, non-State, or non-local government sources, considering
factors associated with conventional lending practices,
including--
``(A) the business industry in which the loan
applicant operates;
``(B) whether the loan applicant is an enterprise
that has been in operation for a period of not more than
2 years;
``(C) the adequacy of the collateral available to
secure the requested loan;
[[Page 132 STAT. 1497]]
``(D) the loan term necessary to reasonably assure
the ability of the loan applicant to repay the debt from
the actual or projected cash flow of the business; and
``(E) any other factor relating to the particular
credit application, as documented in detail by the
lender, that cannot be overcome except through obtaining
a Federal loan guarantee under prudent lending
standards; and
``(2) for the purposes of section 7(b), the availability of
credit on reasonable terms and conditions from non-Federal
sources taking into consideration the prevailing rates and terms
in the community in or near where the applicant business concern
transacts business, or the applicant homeowner resides, for
similar purposes and periods of time.''; and
(2) in section 7(a)(1)(A)(i) (15 U.S.C. 636(a)(1)(A)(i)), by
inserting ``The Administrator has the authority to direct, and
conduct oversight for, the methods by which lenders determine
whether a borrower is able to obtain credit elsewhere.'' before
``No financial assistance''.
(b) Technical Amendment.--Section 18(b) of the Small Business Act
(15 U.S.C. 647(b)) is amended to read as follows:
``(b) <<NOTE: Definition.>> As used in this Act, the term
`agricultural enterprises' means those small business concerns engaged
in the production of food and fiber, ranching, and raising of livestock,
aquaculture, and all other farming and agricultural-related
industries.''.
SEC. 5. AUTHORITY FOR ADMINISTRATOR TO INCREASE AMOUNT FOR GENERAL
BUSINESS LOANS.
Section 20 of the Small Business Act (15 U.S.C. 631 note) is
amended--
(1) by redesignating subsection (j) as subsection (f); and
(2) by adding at the end the following new subsection:
``(g) Authority To Increase Amount of General Business Loans.--
``(1) <<NOTE: Determination.>> In general.--Subject to
paragraphs (2) and (3) and with respect to fiscal year 2019 and
each fiscal year thereafter, if the Administrator determines
that the amount of commitments by the Administrator for general
business loans authorized under section 7(a) for a fiscal year
could exceed the limit on the total amount of commitments the
Administrator may make for those loans under this Act, an
appropriations Act, or any other provision of law, the
Administrator may make commitments for those loans for that
fiscal year in an aggregate amount equal to not more than 115
percent of that limit.
``(2) Notice required before exercising authority.--Not
later <<NOTE: Deadline.>> than 30 days before the date on which
the Administrator intends to exercise the authority under
paragraph (1), the Administrator shall submit notice of intent
to exercise the authority to--
``(A) the Committee on Small Business and
Entrepreneurship and the Subcommittee on Financial
Services and General Government of the Committee on
Appropriations of the Senate; and
``(B) the Committee on Small Business and the
Subcommittee on Financial Services and General
Government of the Committee on Appropriations of the
House of Representatives.
[[Page 132 STAT. 1498]]
``(3) Limitation.--The Administrator shall not exercise the
authority under paragraph (1) more than once during any fiscal
year.''.
SEC. 6. <<NOTE: 15 USC 657t note.>> ESTABLISHING A PROCESS FOR
WAIVERS.
(a) In General.--If the Administrator exercises statutory or
regulatory authority to waive a regulation or a requirement in the
Standard Operating Procedures Manual or Policy Notice related to a
program or function of the Office of Capital Access of the
Administration, the waiver shall be in writing and be maintained in an
indexed form.
(b) No New Waiver Authority.--Nothing in subsection (a) shall be
construed as creating new authority for the Administrator to waive
regulations of the Administration.
SEC. 7. REPEAL OF SMALL BUSINESS LOAN LOSS REPORT.
Subsection (b) of section 10 of the Small Business Act (15 U.S.C.
639(b)) is repealed.
Approved June 21, 2018.
LEGISLATIVE HISTORY--H.R. 4743 (S. 2283):
---------------------------------------------------------------------------
HOUSE REPORTS: No. 115-655 (Comm. on Small Business).
SENATE REPORTS: No. 115-265 (Comm. on Small Business and
Entrepreneurship) accompanying S. 2283.
CONGRESSIONAL RECORD, Vol. 164 (2018):
May 8, considered and passed House.
June 5, considered and passed Senate.
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