To amend the Small Business Investment Act of 1958 to allow certain premier certified lenders to elect to maintain an alternative loss reserve.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Premier Certified Lenders Program 
Improvement Act of 2004''.

SEC. 2. LOSS RESERVES OF PREMIER CERTIFIED LENDERS TEMPORARILY 
              DETERMINED ON THE BASIS OF OUTSTANDING BALANCE OF 
              DEBENTURES.

    Paragraph (6) of section 508(c) of the Small Business Investment 
Act of 1958 (15 U.S.C. 697e(c)) is amended--
        (1) by striking ``The Administration'' and inserting the 
    following:
            ``(A) In general.--The Administration''; and
        (2) by adding at the end the following new subparagraph:
            ``(B) Temporary reduction based on outstanding balance.--
        Notwithstanding subparagraph (A), during the 2-year period 
        beginning on the date that is 90 days after the date of the 
        enactment of this subparagraph, the Administration shall allow 
        the certified development company to withdraw from the loss 
        reserve such amounts as are in excess of 1 percent of the 
        aggregate outstanding balances of debentures to which such loss 
        reserve relates. The preceding sentence shall not apply with 
        respect to any debenture before 100 percent of the contribution 
        described in paragraph (4) with respect to such debenture has 
        been made.''.

SEC. 3. ALTERNATIVE LOSS RESERVE PILOT PROGRAM FOR CERTAIN PREMIER 
              CERTIFIED LENDERS.

    (a) In General.--Subsection (c) of section 508 of the Small 
Business Investment Act of 1958 (15 U.S.C. 697e) is amended by adding 
at the end the following new paragraphs:
        ``(7) Alternative loss reserve.--
            ``(A) Election.--With respect to any eligible calendar 
        quarter, any qualified high loss reserve PCL may elect to have 
        the requirements of this paragraph apply in lieu of the 
        requirements of paragraphs (2) and (4) for such quarter.
            ``(B) Contributions.--
                ``(i) Ordinary rules inapplicable.--Except as provided 
            under clause (ii) and paragraph (5), a qualified high loss 
            reserve PCL that makes the election described in 
            subparagraph (A) with respect to a calendar quarter shall 
            not be required to make contributions to its loss reserve 
            during such quarter.
                ``(ii) Based on loss.--A qualified high loss reserve 
            PCL that makes the election described in subparagraph (A) 
            with respect to any calendar quarter shall, before the last 
            day of such quarter, make such contributions to its loss 
            reserve as are necessary to ensure that the amount of the 
            loss reserve of the PCL is--

                    ``(I) not less than $100,000; and
                    ``(II) sufficient, as determined by a qualified 
                independent auditor, for the PCL to meet its 
                obligations to protect the Federal Government from risk 
                of loss.

                ``(iii) Certification.--Before the end of any calendar 
            quarter for which an election is in effect under 
            subparagraph (A), the head of the PCL shall submit to the 
            Administrator a certification that the loss reserve of the 
            PCL is sufficient to meet such PCL's obligation to protect 
            the Federal Government from risk of loss. Such 
            certification shall be in such form and submitted in such 
            manner as the Administrator may require and shall be signed 
            by the head of such PCL and the auditor making the 
            determination under clause (ii)(II).
            ``(C) Disbursements.--
                ``(i) Ordinary rule inapplicable.--Paragraph (6) shall 
            not apply with respect to any qualified high loss reserve 
            PCL for any calendar quarter for which an election is in 
            effect under subparagraph (A).
                ``(ii) Excess funds.--At the end of each calendar 
            quarter for which an election is in effect under 
            subparagraph (A), the Administration shall allow the 
            qualified high loss reserve PCL to withdraw from its loss 
            reserve the excess of--

                    ``(I) the amount of the loss reserve, over
                    ``(II) the greater of $100,000 or the amount which 
                is determined under subparagraph (B)(ii) to be 
                sufficient to meet the PCL's obligation to protect the 
                Federal Government from risk of loss.

            ``(D) Recontribution.--If the requirements of this 
        paragraph apply to a qualified high loss reserve PCL for any 
        calendar quarter and cease to apply to such PCL for any 
        subsequent calendar quarter, such PCL shall make a contribution 
        to its loss reserve in such amount as the Administrator may 
        determine provided that such amount does not exceed the amount 
        which would result in the total amount in the loss reserve 
        being equal to the amount which would have been in such loss 
        reserve had this paragraph never applied to such PCL. The 
        Administrator may require that such payment be made as a single 
        payment or as a series of payments.
            ``(E) Risk management.--If a qualified high loss reserve 
        PCL fails to meet the requirement of subparagraph (F)(iii) 
        during any period for which an election is in effect under 
        subparagraph (A) and such failure continues for 180 days, the 
        requirements of paragraphs (2), (4), and (6) shall apply to 
        such PCL as of the end of such 180-day period and such PCL 
        shall make the contribution to its loss reserve described in 
        subparagraph (D). The Administrator may waive the requirements 
        of this subparagraph.
            ``(F) Qualified high loss reserve pcl.--The term `qualified 
        high loss reserve PCL' means, with respect to any calendar 
        year, any premier certified lender designated by the 
        Administrator as a qualified high loss reserve PCL for such 
        year. The Administrator shall not designate a company under the 
        preceding sentence unless the Administrator determines that--
                ``(i) the amount of the loss reserve of the company is 
            not less than $100,000;
                ``(ii) the company has established and is utilizing an 
            appropriate and effective process for analyzing the risk of 
            loss associated with its portfolio of PCLP loans and for 
            grading each PCLP loan made by the company on the basis of 
            the risk of loss associated with such loan; and
                ``(iii) the company meets or exceeds 4 or more of the 
            specified risk management benchmarks as of the most recent 
            assessment by the Administration or the Administration has 
            issued a waiver with respect to the requirement of this 
            clause.
            ``(G) Specified risk management benchmarks.--For purposes 
        of this paragraph, the term `specified risk management 
        benchmarks' means the following rates, as determined by the 
        Administrator:
                ``(i) Currency rate.
                ``(ii) Delinquency rate.
                ``(iii) Default rate.
                ``(iv) Liquidation rate.
                ``(v) Loss rate.
            ``(H) Qualified independent auditor.--For purposes of this 
        paragraph, the term `qualified independent auditor' means any 
        auditor who--
                ``(i) is compensated by the qualified high loss reserve 
            PCL;
                ``(ii) is independent of such PCL; and
                ``(iii) has been approved by the Administrator during 
            the preceding year.
            ``(I) PCLP loan.--For purposes of this paragraph, the term 
        `PCLP loan' means any loan guaranteed under this section.
            ``(J) Eligible calendar quarter.--For purposes of this 
        paragraph, the term `eligible calendar quarter' means--
                ``(i) the first calendar quarter that begins after the 
            end of the 90-day period beginning with the date of the 
            enactment of this paragraph; and
                ``(ii) the 7 succeeding calendar quarters.
            ``(K) Calendar quarter.--For purposes of this paragraph, 
        the term `calendar quarter' means--
                ``(i) the period which begins on January 1 and ends on 
            March 31 of each year;
                ``(ii) the period which begins on April 1 and ends on 
            June 30 of each year;
                ``(iii) the period which begins on July 1 and ends on 
            September 30 of each year; and
                ``(iv) the period which begins on October 1 and ends on 
            December 31 of each year.
            ``(L) Regulations.--Not later than 45 days after the date 
        of the enactment of this paragraph, the Administrator shall 
        publish in the Federal Register and transmit to the Congress 
        regulations to carry out this paragraph. Such regulations shall 
        include provisions relating to--
                ``(i) the approval of auditors under subparagraph (H); 
            and
                ``(ii) the designation of qualified high loss reserve 
            PCLs under subparagraph (F), including the determination of 
            whether a process for analyzing risk of loss is appropriate 
            and effective for purposes of subparagraph (F)(ii).
        ``(8) Bureau of pclp oversight.--
            ``(A) Establishment.--There is hereby established in the 
        Small Business Administration a bureau to be known as the 
        Bureau of PCLP Oversight.
            ``(B) Purpose.--The Bureau of PCLP Oversight shall carry 
        out such functions of the Administration under this subsection 
        as the Administrator may designate.
            ``(C) Deadline.--Not later than 90 days after the date of 
        the enactment of this Act--
                ``(i) the Administrator shall ensure that the Bureau of 
            PCLP Oversight is prepared to carry out any functions 
            designated under subparagraph (B), and
                ``(ii) the Office of the Inspector General of the 
            Administration shall report to the Congress on the 
            preparedness of the Bureau of PCLP Oversight to carry out 
            such functions.''.
    (b) Increased Reimbursement for Losses Related to Debentures Issued 
During Election Period.--Subparagraph (C) of section 508(b)(2) of the 
Small Business Investment Act of 1958 (15 U.S.C. 697e(b)(2)) is amended 
by inserting ``(15 percent in the case of any such loss attributable to 
a debenture issued by the company during any period for which an 
election is in effect under subsection (c)(7) for such company)'' 
before ``; and''.
    (c) Conforming Amendments.--
        (1) Subparagraph (D) of section 508(b)(2) of the Small Business 
    Investment Act of 1958 (15 U.S.C. 697e(b)(2)) is amended by 
    striking ``subsection (c)(2)'' and inserting ``subsection (c)''.
        (2) Paragraph (5) of section 508(c) of the Small Business 
    Investment Act of 1958 (15 U.S.C. 697e(c)) is amended by striking 
    ``10 percent''.
    (d) Study and Report.--
        (1) In general.--The Administrator shall enter into a contract 
    with a Federal agency experienced in community development lending 
    and financial regulation or with a member of the Federal Financial 
    Institutions Examinations Council to study and prepare a report 
    regarding--
            (A) the extent to which statutory requirements have caused 
        overcapitalization in the loss reserves maintained by certified 
        development companies participating in the Premier Certified 
        Lenders Program established under section 508 of the Small 
        Business Investment Act of 1958 (15 U.S.C. 697e); and
            (B) alternatives for establishing and maintaining loss 
        reserves that are sufficient to protect the Federal Government 
        from the risk of loss associated with loans guaranteed under 
        such Program.
        (2) Transmission of report.--The report described in paragraph 
    (1) shall be transmitted to the Committee on Small Business of the 
    House of Representatives and the Committee on Small Business and 
    Entrepreneurship of the Senate not later than 90 days after the 
    date of the enactment of this Act.
        (3) Limitation.--The amount of the contract described in 
    paragraph (1) shall not exceed $75,000.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
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Summary: Premier Certified Lenders Program Improvement Act of 2003 - Amends the Small Business Investment Act of 1958 to direct the Administrator of the Small Business Administration (SBA) to allow a certified development company to withdraw from its loss reserve amounts in excess of one percent of the aggregate outstanding balances of debentures to which such loss reserve relates . Makes loss reserve requirements of lenders under the premier certified lenders (PCL) program inapplicable to PCLs that ensure that the amount of their loss reserve is: (1) not less than $100,000. And (2) sufficient, as determined by an independent auditor, for the PCL to meet its obligations to protect the Federal Government from risk of loss. Designates such PCLs as qualified high loss reserve PCLs. Requires such PCLs to certify quarterly to the SBA Administrator as to the sufficiency of such reserves. Requires: (1) the Administrator to allow the qualified high loss reserve PCL to withdraw funds in excess of the required reserve. (2) PCL recontribution when the reserve does not meet such minimum requirements. And (3) the PCL to meet specified SBA risk management benchmarks when not qualified as a high loss reserve PCL. Establishes in the SBA the Bureau of PCLP Oversight to carry out PCL Program functions designated by the Administrator. Increases the reimbursement required from a PCL to the Administrator for losses sustained by the SBA as a result of PCL default on debentures issued by the PCL and guaranteed by the SBA during any period in which the PCL elects to operate under the alternative loss reserve requirements of this Act to 15 percent of the total principal and interest on such debentures. Directs the Administrator to contract with either a Federal agency experienced in community development lending and financial regulation or a member of the Federal Financial Institutions Examination Council to study and prepare a report regarding: (1) the extent to which statutory requirements have caused overcapitalization in the loss reserves maintained by certified PCLs participating in the PCL Program. And (2) alternatives for establishing and maintaining loss reserves sufficient to protect the Federal Government from the risk of loss associated with loans guaranteed under the Program. Requires the report to be transmitted to the congressional small business committees.