This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

25189 

Vol. 72, No. 86 

Friday, May 4, 2007 

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. 

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 offsite 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 SBArequired 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. 


cprice-sewell on DSK89S0YB1PROD with RULES
25190 Federal Register / Vol. 72, No. 86 / Friday, May 4, 2007 / Rules and Regulations 

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 


cprice-sewell on DSK89S0YB1PROD with RULES
Federal Register / Vol. 72, No. 86 / Friday, May 4, 2007 / Rules and Regulations 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. 


cprice-sewell on DSK89S0YB1PROD with RULES
25192 Federal Register / Vol. 72, No. 86 / Friday, May 4, 2007 / Rules and Regulations 

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 offsite 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 


cprice-sewell on DSK89S0YB1PROD with RULES
Federal Register / Vol. 72, No. 86 / Friday, May 4, 2007 / Rules and Regulations 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 §§ 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 § 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. 


cprice-sewell on DSK89S0YB1PROD with RULES
25194 Federal Register / Vol. 72, No. 86 / Friday, May 4, 2007 / Rules and Regulations 

List of Subjects in 13 CFR Part 120 

Loan programs—business, Small 

businesses. 

■ For the reasons discussed in the 

preamble, SBA amends 13 CFR part 120 

to read as follows: 

PART 120—BUSINESS LOANS 

■ 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). 

■ 2. Revise § 120.454 to read as follows: 

§ 120.454 PLP Performance Review. 

SBA may review the performance of 

a PLP Lender. 

■ 3. Add a new Subpart I to read as 

follows: 

Subpart I—Lender Oversight 

§ 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 LatePayment 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 

DEPARTMENT OF COMMERCE 

Bureau of Industry and Security 

15 CFR Parts 705, 730, 736, 744, 747, 

754, 756, 760, 766, 768, 770, and 772 

[Docket No. 070411085–7088–01] 

RIN 0694–AE01 

Updated Office Names, Office 

Addresses, Statements of Legal 

Authority and Statute Name and 

Citation 

AGENCY: Bureau of Industry and 

Security, Commerce. 

ACTION: Final rule. 

SUMMARY: This rule revises office names 

and addresses to reflect a recent Bureau 

of Industry and Security (BIS) 

reorganization, updates the statements 

of legal authority for ten parts of the 

Export Administration Regulations 

(EAR), and replaces an outdated statute 

name and citation with the current 

name of that statute in one section of the 

EAR. 

DATES: This rule is effective May 4, 

2007. 

ADDRESSES: Comments concerning this 

rule should be sent to 

publiccomments@bis.doc.gov, fax (202) 

482–3355, or to Regulatory Policy 

Division, Bureau of Industry and 

Security, Room H2705, U.S. Department 

of Commerce, Washington, DC 20230. 

Please refer to regulatory identification 

number (RIN) 0694–AE01 in all 

comments, and in the subject line of 

email comments. 

FOR FURTHER INFORMATION CONTACT: 

William Arvin, Regulatory Policy 

Division, Bureau of Industry and 

Security, Telephone: (202) 482–2440. 

SUPPLEMENTARY INFORMATION

Background 

This rule updates outdated office 

names, office addresses, legal authority 

citations and a reference to a statute as 

described below. 

Revision of Addresses in Accordance 

With Reassignment of Responsibilities 

Within BIS 

BIS recently created an Office of 

Technology Evaluation and assigned to 

it the responsibility for conducting 

investigations into the effect of imported 

articles on the national security 

pursuant to part 705 of the National 

Security Industrial Base Regulations (15 

CFR Part 705) and for conducting 

foreign availability assessments 

pursuant to part 768 of the EAR (15 CFR 

Part 768). Accordingly, this rule revises 

both of those parts to include the 

mailing address of that office. 

Updating Statements of Legal Authority 

The legal authorities for the EAR (15 

CFR 730–799) change from time to time. 

The expiration of the Export 

Administration Act on August 20, 2001, 

the issuance of Executive Order 13222 

of August 17, 2001, 3 CFR, 2001 Comp., 

p. 783 (2002) and the annual notices 

declaring the continuation of the 

international emergency noted in that 

Executive Order mean that the legal 

authority for each part of the EAR has, 

in recent years, changed at least 

annually. In addition, the authority 

citations for some parts change more 

often due to periodic updates and 

amendments to the relevant statutes. 

This rule revises the citations of 

authority for parts 730, 736, 747, 754, 

756, 760, 766, 768, 770, and 772 to 

reflect the legal authorities in currently 

in effect. 

Updating Statement of BIS Organization 

Section 730.9 of the EAR describes 

how the Bureau of Industry and 


cprice-sewell on DSK89S0YB1PROD with RULES