108TH CONGRESS

1ST SESSION H. R. 923

AN ACT

To amend the Small Business Investment Act of

1958 to allow certain premier certified lenders toelect to maintain an alternative loss reserve.

108TH CONGRESS

1ST SESSION H. R. 923

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:

Clerk.