Small Business 7(a) Lending Oversight Reform Act of 2018

SECTION 1. SHORT TITLE.
    This Act may be cited as the ``Small Business 7(a) Lending 
Oversight Reform Act of 2018''.
SEC. 2. 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 
amended--
        (1) by redesignating section 47 as section 49; and
        (2) by inserting after section 46 the following new sections:
  ``SEC. 47. 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.
    ``(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) 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) 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--
            ``(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) 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. 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 any Lending Partner 
    or Intermediary participant of the Administration in a lending 
    program of the Office of Capital Access of the Administration;
        ``(3) 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 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) 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.
            ``(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) 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) 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) 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) 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;
            ``(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) 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) 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 
    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.
        ``(3) Limitation.--The Administrator shall not exercise the 
    authority under paragraph (1) more than once during any fiscal 
    year.''.
SEC. 6. 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.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.

Summary: Small Business 7(a) Lending Oversight Reform Act of 2018 This bill amends the Small Business Act to provide statutory authority for the Small Business Administration (SBA) Office of Credit Risk Management (OCRM) and the SBA Lender Oversight Committee. The bill modifies the OCRM's supervisory duties and the committee's review of OCRM formal enforcement action recommendations. The bill requires OCRM to supervise: lenders making loans under the SBA's guaranteed loan program, commonly known as 7(a) lenders. Lending partners or SBA intermediary participants in a lending program of the SBA's Office of Capital Access, small business lending companies. And nonfederally regulated lenders. The OCRM may assess a monetary penalty against lenders that violate requirements. Under current law, a borrower is ineligible for an SBA guaranteed loan if the applicant may obtain credit elsewhere. The term credit elsewhere is redefined to include the availability of credit on reasonable terms and conditions to the loan applicant from nongovernment sources, considering factors associated with conventional lending practices, including: the business industry in which the applicant operates. Whether the applicant is an enterprise that has been in operation for two years or less. The adequacy of the collateral available to secure the requested loan. The loan term necessary to reasonably assure the ability of the loan applicant to repay the debt from the business's actual or projected cash flow. And any other factors 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. Such term is inapplicable to certain SBA guaranteed loans to repair, rehabilitate, or replace property damaged or destroyed by or resulting from natural or other disasters. The SBA may, with congressional approval, increase the cap for general business loans if the cap will be reached within that fiscal year. An increase may only be implemented once each fiscal year. SBA waivers of regulations or requirements in the Standard Operating Procedures Manual or Policy Notice related to an Office of Capital Access's program or function must be in writing and maintained in an index. The bill repeals a requirement for the SBA to report certain information to the President and Congress, including the number and amount of loan defaults.