IIB 

108TH CONGRESS 

1ST SESSION H. R. 923

IN THE SENATE OF THE UNITED STATES 

JUNE 25, 2003

Received; read twice and referred to the Committee on Small Business and 

Entrepreneurship 

AN ACT

To amend the Small Business Investment Act of 1958 to 

allow certain premier certified lenders to elect to maintain an alternative loss reserve.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Premier Certified 

3 Lenders Program Improvement Act of 2003’’. 

4 SEC. 2. LOSS RESERVES OF PREMIER CERTIFIED LENDERS 

5 TEMPORARILY DETERMINED ON THE BASIS 

6 OF OUTSTANDING BALANCE OF DEBEN7 TURES. 

8 Paragraph (6) of section 508(c) of the Small Busi9 ness Investment Act of 1958 (15 U.S.C. 697e(c)) is 

10 amended—

11 (1) by striking ‘‘The Administration’’ and in12 serting the following: 

13 ‘‘(A) IN GENERAL.—The Administration’’; 

14 and 

15 (2) by adding at the end the following new sub16 paragraph: 

17 ‘‘(B) TEMPORARY REDUCTION BASED ON

18 OUTSTANDING BALANCE.—Notwithstanding 

19 subparagraph (A), during the 2-year period be20 ginning on the date that is 90 days after the 

21 date of the enactment of this subparagraph, the 

22 Administration shall allow the certified develop23 ment company to withdraw from the loss re24 serve such amounts as are in excess of 1 per25 cent of the aggregate outstanding balances of 

26 debentures to which such loss reserve relates. 
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1 The preceding sentence shall not apply with re2 spect to any debenture before 100 percent of 

3 the contribution described in paragraph (4) 

4 with respect to such debenture has been 

5 made.’’. 

6 SEC. 3. ALTERNATIVE LOSS RESERVE PILOT PROGRAM FOR 

7 CERTAIN PREMIER CERTIFIED LENDERS. 

8 (a) IN GENERAL.—Subsection (c) of section 508 of 

9 the Small Business Investment Act of 1958 (15 U.S.C. 

10 697e) is amended by adding at the end the following new 

11 paragraphs: 

12 ‘‘(7) ALTERNATIVE LOSS RESERVE.—

13 ‘‘(A) ELECTION.—With respect to any eli14 gible calendar quarter, any qualified high loss 

15 reserve PCL may elect to have the requirements 

16 of this paragraph apply in lieu of the require17 ments of paragraphs (2) and (4) for such quar18 ter. 

19 ‘‘(B) CONTRIBUTIONS.—

20 ‘‘(i) ORDINARY RULES INAPPLI21 CABLE.—Except as provided under clause 

22 (ii) and paragraph (5), a qualified high 

23 loss reserve PCL that makes the election 

24 described in subparagraph (A) with respect 

25 to a calendar quarter shall not be required 
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1 to make contributions to its loss reserve 

2 during such quarter. 

3 ‘‘(ii) BASED ON LOSS.—A qualified 

4 high loss reserve PCL that makes the elec5 tion described in subparagraph (A) with 

6 respect to any calendar quarter shall, be7 fore the last day of such quarter, make 

8 such contributions to its loss reserve as are 

9 necessary to ensure that the amount of the 

10 loss reserve of the PCL is—

11 ‘‘(I) not less than $100,000; and 

12 ‘‘(II) sufficient, as determined by 

13 a qualified independent auditor, for 

14 the PCL to meet its obligations to 

15 protect the Federal Government from 

16 risk of loss. 

17 ‘‘(iii) CERTIFICATION.—Before the 

18 end of any calendar quarter for which an 

19 election is in effect under subparagraph 

20 (A), the head of the PCL shall submit to 

21 the Administrator a certification that the 

22 loss reserve of the PCL is sufficient to 

23 meet such PCL’s obligation to protect the 

24 Federal Government from risk of loss. 

25 Such certification shall be in such form 
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1 and submitted in such manner as the Ad2 ministrator may require and shall be 

3 signed by the head of such PCL and the 

4 auditor making the determination under 

5 clause (ii)(II). 

6 ‘‘(C) DISBURSEMENTS.—

7 ‘‘(i) ORDINARY RULE INAPPLI8 CABLE.—Paragraph (6) shall not apply 

9 with respect to any qualified high loss re10 serve PCL for any calendar quarter for 

11 which an election is in effect under sub12 paragraph (A). 

13 ‘‘(ii) EXCESS FUNDS.—At the end of 

14 each calendar quarter for which an election 

15 is in effect under subparagraph (A), the 

16 Administration shall allow the qualified 

17 high loss reserve PCL to withdraw from its 

18 loss reserve the excess of—

19 ‘‘(I) the amount of the loss re20 serve, over 

21 ‘‘(II) the greater of $100,000 or 

22 the amount which is determined under 

23 subparagraph (B)(ii) to be sufficient 

24 to meet the PCL’s obligation to pro-
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1 tect the Federal Government from 

2 risk of loss. 

3 ‘‘(D) RECONTRIBUTION.—If the require4 ments of this paragraph apply to a qualified 

5 high loss reserve PCL for any calendar quarter 

6 and cease to apply to such PCL for any subse7 quent calendar quarter, such PCL shall make a 

8 contribution to its loss reserve in such amount 

9 as the Administrator may determine provided 

10 that such amount does not exceed the amount 

11 which would result in the total amount in the 

12 loss reserve being equal to the amount which 

13 would have been in such loss reserve had this 

14 paragraph never applied to such PCL. The Ad15 ministrator may require that such payment be 

16 made as a single payment or as a series of pay17 ments. 

18 ‘‘(E) RISK MANAGEMENT.—If a qualified 

19 high loss reserve PCL fails to meet the require20 ment of subparagraph (F)(iii) during any pe21 riod for which an election is in effect under sub22 paragraph (A) and such failure continues for 

23 180 days, the requirements of paragraphs (2), 

24 (4), and (6) shall apply to such PCL as of the 

25 end of such 180-day period and such PCL shall 
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1 make the contribution to its loss reserve de2 scribed in subparagraph (D). The Adminis3 trator may waive the requirements of this sub4 paragraph. 

5 ‘‘(F) QUALIFIED HIGH LOSS RESERVE

6 PCL.—The term ‘qualified high loss reserve 

7 PCL’ means, with respect to any calendar year, 

8 any premier certified lender designated by the 

9 Administrator as a qualified high loss reserve 

10 PCL for such year. The Administrator shall not 

11 designate a company under the preceding sen12 tence unless the Administrator determines 

13 that—

14 ‘‘(i) the amount of the loss reserve of 

15 the company is not less than $100,000; 

16 ‘‘(ii) the company has established and 

17 is utilizing an appropriate and effective 

18 process for analyzing the risk of loss asso19 ciated with its portfolio of PCLP loans and 

20 for grading each PCLP loan made by the 

21 company on the basis of the risk of loss as22 sociated with such loan; and 

23 ‘‘(iii) the company meets or exceeds 4 

24 or more of the specified risk management 

25 benchmarks as of the most recent assess-
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1 ment by the Administration or the Admin2 istration has issued a waiver with respect 

3 to the requirement of this clause. 

4 ‘‘(G) SPECIFIED RISK MANAGEMENT

5 BENCHMARKS.—For purposes of this para6 graph, the term ‘specified risk management 

7 benchmarks’ means the following rates, as de8 termined by the Administrator: 

9 ‘‘(i) Currency rate. 

10 ‘‘(ii) Delinquency rate. 

11 ‘‘(iii) Default rate. 

12 ‘‘(iv) Liquidation rate. 

13 ‘‘(v) Loss rate. 

14 ‘‘(H) QUALIFIED INDEPENDENT AUDI15 TOR.—For purpose of this paragraph, the term 

16 ‘qualified independent auditor’ means any audi17 tor who—

18 ‘‘(i) is compensated by the qualified 

19 high loss reserve PCL; 

20 ‘‘(ii) is independent of such PCL; and 

21 ‘‘(iii) has been approved by the Ad22 ministrator during the preceding year. 

23 ‘‘(I) PCLP LOAN.—For purposes of this 

24 paragraph, the term ‘PCLP loan’ means any 

25 loan guaranteed under this section. 
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1 ‘‘(J) ELIGIBLE CALENDAR QUARTER.—For 

2 purposes of this paragraph, the term ‘eligible 

3 calendar quarter’ means—

4 ‘‘(i) the first calendar quarter that be5 gins after the end of the 90-day period be6 ginning with the date of the enactment of 

7 this paragraph; and 

8 ‘‘(ii) the 7 succeeding calendar quar9 ters. 

10 ‘‘(K) CALENDAR QUARTER.—For purposes 

11 of this paragraph, the term ‘calendar quarter’ 

12 means—

13 ‘‘(i) the period which begins on Janu14 ary 1 and ends on March 31 of each year; 

15 ‘‘(ii) the period which begins on April 

16 1 and ends on June 30 of each year; 

17 ‘‘(iii) the period which begins on July 

18 1 and ends on September 30 of each year; 

19 and 

20 ‘‘(iv) the period which begins on Octo21 ber 1 and ends on December 31 of each 

22 year. 

23 ‘‘(L) REGULATIONS.—Not later than 45 

24 days after the date of the enactment of this 

25 paragraph, the Administrator shall publish in 
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1 the Federal Register and transmit to the Con2 gress regulations to carry out this paragraph. 

3 Such regulations shall include provisions relat4 ing to—

5 ‘‘(i) the approval of auditors under 

6 subparagraph (H); and 

7 ‘‘(ii) the designation of qualified high 

8 loss reserve PCLs under subparagraph 

9 (F), including the determination of wheth10 er a process for analyzing risk of loss is 

11 appropriate and effective for purposes of 

12 subparagraph (F)(ii). 

13 ‘‘(8) BUREAU OF PCLP OVERSIGHT.—

14 ‘‘(A) ESTABLISHMENT.—There is hereby 

15 established in the Small Business Administra16 tion a bureau to be known as the Bureau of 

17 PCLP Oversight. 

18 ‘‘(B) PURPOSE.—The Bureau of PCLP 

19 Oversight shall carry out such functions of the 

20 Administration under this subsection as the Ad21 ministrator may designate. 

22 ‘‘(C) DEADLINE.—Not later than 90 days 

23 after the date of the enactment of this Act—

24 ‘‘(i) the Administrator shall ensure 

25 that the Bureau of PCLP Oversight is pre-
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1 pared to carry out any functions des2 ignated under subparagraph (B), and 

3 ‘‘(ii) the Office of the Inspector Gen4 eral of the Administration shall report to 

5 the Congress on the preparedness of the 

6 Bureau of PCLP Oversight to carry out 

7 such functions.’’. 

8 (b) INCREASED REIMBURSEMENT FOR LOSSES RE9 LATED TO DEBENTURES ISSUED DURING ELECTION PE10 RIOD.—Subparagraph (C) of section 508(b)(2) of the 

11 Small Business Investment Act of 1958 (15 U.S.C. 

12 697e(b)(2)) is amended by inserting ‘‘(15 percent in the 

13 case of any such loss attributable to a debenture issued 

14 by the company during any period for which an election 

15 is in effect under subsection (c)(7) for such company)’’ 

16 before ‘‘; and’’. 

17 (c) CONFORMING AMENDMENTS.—

18 (1) Subparagraph (D) of section 508(b)(2) of 

19 the Small Business Investment Act of 1958 (15 

20 U.S.C. 697e(b)(2)) is amended by striking ‘‘sub21 section (c)(2)’’ and inserting ‘‘subsection (c)’’. 

22 (2) Paragraph (5) of section 508(c) of the 

23 Small Business Investment Act of 1958 (15 U.S.C. 

24 697e(c)) is amended by striking ‘‘10 percent’’. 

25 (d) STUDY AND REPORT.—
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1 (1) IN GENERAL.—The Administrator shall 

2 enter into a contract with a Federal agency experi3 enced in community development lending and finan4 cial regulation or with a member of the Federal Fi5 nancial Institutions Examinations Council to study 

6 and prepare a report regarding—

7 (A) the extent to which statutory require8 ments have caused overcapitalization in the loss 

9 reserves maintained by certified development 

10 companies participating in the Premier Cer11 tified Lenders Program established under sec12 tion 508 of the Small Business Investment Act 

13 of 1958 (15 U.S.C. 697e); and 

14 (B) alternatives for establishing and main15 taining loss reserves that are sufficient to pro16 tect the Federal Government from the risk of 

17 loss associated with loans guaranteed under 

18 such Program. 

19 (2) TRANSMISSION OF REPORT.—The report 

20 described in paragraph (1) shall be transmitted to 

21 the Committee on Small Business of the House of 

22 Representatives and the Committee on Small Busi23 ness and Entrepreneurship of the Senate not later 

24 than 90 days after the date of the enactment of this 

25 Act. 
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1 (3) LIMITATION.—The amount of the contract 

2 described in paragraph (1) shall not exceed $75,000.

Passed the House of Representatives June 24, 2003. 

Attest: JEFF TRANDAHL, 

Clerk.