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The Small Business 7(a) Lending Oversight Reform Act of 2018 was enacted on June 21, 2018. The purpose of the legislation is to strengthen the Office of Credit Risk Management within the Small Business Administration.  The statute requires the SBA Administrator to promulgate new regulations not later than one year after enactment of the statute. This rule will propose to implement this statute and add clarity to informal and formal enforcement actions and appeal provisions. Examples of informal enforcement actions may include supervisory letters and voluntary actions/agreements. Examples of formal enforcement actions include suspension or revocation of delegated authority, suspension or revocation of 7(a) lending authority, and assessment of civil monetary penalties.  The statute also provides lenders with the ability to appeal enforcement actions to the Office of Hearings and Appeals. The rule will propose conditions for accessing this appeal process.

Overall Description of Deadline: 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.

Statement of Need:

This action is necessary to implement the Small Business 7(a) Lending Oversight Reform Act of 2018 (Public Law 115-189) (the Act), which was enacted on June 21, 2018.  In the legislation, Congress strengthened the SBA’s Office of Credit Risk Management (OCRM).  This rule will provide additional regulatory guidance for informal and formal enforcement actions against SBA Lenders, including the new statutory authority to impose Civil Monetary Penalties up to $250,000.  The rule will also conform the enforcement action appeals process to the statutory requirements.  Congress has specifically required SBA to promulgate regulations implementing the legislation within one year of enactment.  This rule will increase SBA’s lender oversight capabilities, mitigate risk, and ensure the integrity of SBA’s small business loan programs.        

Summary of the Legal Basis:

15 USC 657t(f) requires SBA to issue regulations, after opportunity for notice and comment, no later than one year after enactment.  SBA is also authorized to supervise and oversee SBA Lenders under 15 USC 633(b)(3); 15 USC 634 note; 15 USC 634(b)(6), (7) and (14); and 15 USC 650.    

Alternatives:

The Act requires SBA to issue regulations within one year after enactment.  During the notice and comment process, SBA will consider various alternatives as it implements the statutory requirements while strengthening SBA lender oversight, ensuring the integrity of the SBA loan programs, and protecting taxpayer dollars.   

Anticipated Costs and Benefits:

SBA is not yet certain of the anticipated costs and benefits.  SBA will be assessing the costs and benefits as it develops the rule during the notice and comment process.    

Risks:

Implementation of the Act through this rulemaking will encourage SBA Lenders to correct deficiencies, return SBA loan portfolios to safe and sound condition, and limit risk in the SBA loan programs.  Codification of SBA’s new authority to impose Civil Monetary Penalties up to $250,000 will provide a significant financial disincentive to imprudent and risky lending.