IB 

Union Calendar No. 75

108TH CONGRESS 

1ST SESSION H. R. 923

[Report No. 108–153] 

To amend the Small Business Investment Act of 1958 to allow certain 

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

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 26, 2003

Mr. DOOLITTLE introduced the following bill; which was referred to the 

Committee on Small Business 

JUNE 12, 2003 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on February 26, 2003] 

A BILL

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 Lend3 ers 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 Business 

9 Investment Act of 1958 (15 U.S.C. 697e(c)) is amended—

10 (1) by striking ‘‘The Administration’’ and in11 serting the following: 

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

13 and 

14 (2) by adding at the end the following new sub15 paragraph: 

16 ‘‘(B) TEMPORARY REDUCTION BASED ON

17 OUTSTANDING BALANCE.—Notwithstanding sub18 paragraph (A), during the 2-year period begin19 ning on the date that is 90 days after the date 

20 of the enactment of this subparagraph, the Ad21 ministration shall allow the certified develop22 ment company to withdraw from the loss reserve 

23 such amounts as are in excess of 1 percent of the 

24 aggregate outstanding balances of debentures to 

25 which such loss reserve relates. The preceding 

26 sentence shall not apply with respect to any de-
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1 benture before 100 percent of the contribution de2 scribed in paragraph (4) with respect to such de3 benture has been made.’’. 

4 SEC. 3. ALTERNATIVE LOSS RESERVE PILOT PROGRAM FOR 

5 CERTAIN PREMIER CERTIFIED LENDERS. 

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

7 Small Business Investment Act of 1958 (15 U.S.C. 697e) 

8 is amended by adding at the end the following new para9 graphs: 

10 ‘‘(7) ALTERNATIVE LOSS RESERVE.—

11 ‘‘(A) ELECTION.—With respect to any eligi12 ble calendar quarter, any qualified high loss re13 serve PCL may elect to have the requirements of 

14 this paragraph apply in lieu of the requirements 

15 of paragraphs (2) and (4) for such quarter. 

16 ‘‘(B) CONTRIBUTIONS.—

17 ‘‘(i) ORDINARY RULES INAPPLI18 CABLE.—Except as provided under clause 

19 (ii) and paragraph (5), a qualified high loss 

20 reserve PCL that makes the election de21 scribed in subparagraph (A) with respect to 

22 a calendar quarter shall not be required to 

23 make contributions to its loss reserve during 

24 such quarter. 
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1 ‘‘(ii) BASED ON LOSS.—A qualified 

2 high loss reserve PCL that makes the elec3 tion described in subparagraph (A) with re4 spect to any calendar quarter shall, before 

5 the last day of such quarter, make such con6 tributions to its loss reserve as are necessary 

7 to ensure that the amount of the loss reserve 

8 of the PCL is—

9 ‘‘(I) not less than $100,000; and 

10 ‘‘(II) sufficient, as determined by 

11 a qualified independent auditor, for 

12 the PCL to meet its obligations to pro13 tect the Federal Government from risk 

14 of loss. 

15 ‘‘(iii) CERTIFICATION.—Before the end 

16 of any calendar quarter for which an elec17 tion is in effect under subparagraph (A), 

18 the head of the PCL shall submit to the Ad19 ministrator a certification that the loss re20 serve of the PCL is sufficient to meet such 

21 PCL’s obligation to protect the Federal Gov22 ernment from risk of loss. Such certification 

23 shall be in such form and submitted in such 

24 manner as the Administrator may require 

25 and shall be signed by the head of such PCL 
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1 and the auditor making the determination 

2 under clause (ii)(II). 

3 ‘‘(C) DISBURSEMENTS.—

4 ‘‘(i) ORDINARY RULE INAPPLICABLE.—

5 Paragraph (6) shall not apply with respect 

6 to any qualified high loss reserve PCL for 

7 any calendar quarter for which an election 

8 is in effect under subparagraph (A). 

9 ‘‘(ii) EXCESS FUNDS.—At the end of 

10 each calendar quarter for which an election 

11 is in effect under subparagraph (A), the Ad12 ministration shall allow the qualified high 

13 loss reserve PCL to withdraw from its loss 

14 reserve the excess of—

15 ‘‘(I) the amount of the loss reserve, 

16 over 

17 ‘‘(II) the greater of $100,000 or 

18 the amount which is determined under 

19 subparagraph (B)(ii) to be sufficient to 

20 meet the PCL’s obligation to protect 

21 the Federal Government from risk of 

22 loss. 

23 ‘‘(D) RECONTRIBUTION.—If the require24 ments of this paragraph apply to a qualified 

25 high loss reserve PCL for any calendar quarter 
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1 and cease to apply to such PCL for any subse2 quent calendar quarter, such PCL shall make a 

3 contribution to its loss reserve in such amount as 

4 the Administrator may determine provided that 

5 such amount does not exceed the amount which 

6 would result in the total amount in the loss re7 serve being equal to the amount which would 

8 have been in such loss reserve had this para9 graph never applied to such PCL. The Adminis10 trator may require that such payment be made 

11 as a single payment or as a series of payments. 

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

13 high loss reserve PCL fails to meet the require14 ment of subparagraph (F)(iii) during any period 

15 for which an election is in effect under subpara16 graph (A) and such failure continues for 180 

17 days, the requirements of paragraphs (2), (4), 

18 and (6) shall apply to such PCL as of the end 

19 of such 180-day period and such PCL shall make 

20 the contribution to its loss reserve described in 

21 subparagraph (D). The Administrator may 

22 waive the requirements of this subparagraph. 

23 ‘‘(F) QUALIFIED HIGH LOSS RESERVE

24 PCL.—The term ‘qualified high loss reserve PCL’ 

25 means, with respect to any calendar year, any
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1 premier certified lender designated by the Ad2 ministrator as a qualified high loss reserve PCL 

3 for such year. The Administrator shall not des4 ignate a company under the preceding sentence 

5 unless the Administrator determines that—

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

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

8 ‘‘(ii) the company has established and 

9 is utilizing an appropriate and effective 

10 process for analyzing the risk of loss associ11 ated with its portfolio of PCLP loans and 

12 for grading each PCLP loan made by the 

13 company on the basis of the risk of loss as14 sociated with such loan; and 

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

16 or more of the specified risk management 

17 benchmarks as of the most recent assessment 

18 by the Administration or the Administra19 tion has issued a waiver with respect to the 

20 requirement of this clause. 

21 ‘‘(G) SPECIFIED RISK MANAGEMENT BENCH22 MARKS.—For purposes of this paragraph, the 

23 term ‘specified risk management benchmarks’ 

24 means the following rates, as determined by the 

25 Administrator: 
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1 ‘‘(i) Currency rate. 

2 ‘‘(ii) Delinquency rate. 

3 ‘‘(iii) Default rate. 

4 ‘‘(iv) Liquidation rate. 

5 ‘‘(v) Loss rate. 

6 ‘‘(H) QUALIFIED INDEPENDENT AUDITOR.—

7 For purpose of this paragraph, the term ‘quali8 fied independent auditor’ means any auditor 

9 who—

10 ‘‘(i) is compensated by the qualified 

11 high loss reserve PCL; 

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

13 ‘‘(iii) has been approved by the Ad14 ministrator during the preceding year. 

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

16 paragraph, the term ‘PCLP loan’ means any 

17 loan guaranteed under this section. 

18 ‘‘(J) ELIGIBLE CALENDAR QUARTER.—For 

19 purposes of this paragraph, the term ‘eligible cal20 endar quarter’ means—

21 ‘‘(i) the first calendar quarter that be22 gins after the end of the 90-day period be23 ginning with the date of the enactment of 

24 this paragraph; and 
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1 ‘‘(ii) the 7 succeeding calendar quar2 ters. 

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

4 of this paragraph, the term ‘calendar quarter’ 

5 means—

6 ‘‘(i) the period which begins on Janu7 ary 1 and ends on March 31 of each year; 

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

9 1 and ends on June 30 of each year; 

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

11 1 and ends on September 30 of each year; 

12 and 

13 ‘‘(iv) the period which begins on Octo14 ber 1 and ends on December 31 of each 

15 year. 

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

17 days after the date of the enactment of this para18 graph, the Administrator shall publish in the 

19 Federal Register and transmit to the Congress 

20 regulations to carry out this paragraph. Such 

21 regulations shall include provisions relating to—

22 ‘‘(i) the approval of auditors under 

23 subparagraph (H); and 

24 ‘‘(ii) the designation of qualified high 

25 loss reserve PCLs under subparagraph (F), 
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1 including the determination of whether a 

2 process for analyzing risk of loss is appro3 priate and effective for purposes of subpara4 graph (F)(ii). 

5 ‘‘(8) BUREAU OF PCLP OVERSIGHT.—

6 ‘‘(A) ESTABLISHMENT.—There is hereby es7 tablished in the Small Business Administration 

8 a bureau to be known as the Bureau of PCLP 

9 Oversight. 

10 ‘‘(B) PURPOSE.—The Bureau of PCLP 

11 Oversight shall carry out such functions of the 

12 Administration under this subsection as the Ad13 ministrator may designate. 

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

15 after the date of the enactment of this Act—

16 ‘‘(i) the Administrator shall ensure 

17 that the Bureau of PCLP Oversight is pre18 pared to carry out any functions designated 

19 under subparagraph (B), and 

20 ‘‘(ii) the Office of the Inspector General 

21 of the Administration shall report to the 

22 Congress on the preparedness of the Bureau 

23 of PCLP Oversight to carry out such func24 tions.’’. 
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1 (b) INCREASED REIMBURSEMENT FOR LOSSES RE2 LATED TO DEBENTURES ISSUED DURING ELECTION PE3 RIOD.—Subparagraph (C) of section 508(b)(2) of the Small 

4 Business Investment Act of 1958 (15 U.S.C. 697e(b)(2)) is 

5 amended by inserting ‘‘(15 percent in the case of any such 

6 loss attributable to a debenture issued by the company dur7 ing any period for which an election is in effect under sub8 section (c)(7) for such company)’’ before ‘‘; and’’. 

9 (c) CONFORMING AMENDMENTS.—

10 (1) Subparagraph (D) 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 striking ‘‘subsection (c)(2)’’ 

13 and inserting ‘‘subsection (c)’’. 

14 (2) Paragraph (5) of section 508(c) of the Small 

15 Business Investment Act of 1958 (15 U.S.C. 697e(c)) 

16 is amended by striking ‘‘10 percent’’. 

17 (d) STUDY AND REPORT.—

18 (1) IN GENERAL.—The Administrator shall enter 

19 into a contract with a Federal agency experienced in 

20 community development lending and financial regu21 lation or with a member of the Federal Financial In22 stitutions Examinations Council to study and pre23 pare a report regarding—

24 (A) the extent to which statutory require25 ments have caused overcapitalization in the loss 
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1 reserves maintained by certified development 

2 companies participating in the Premier Certified 

3 Lenders Program established under section 508 

4 of the Small Business Investment Act of 1958 

5 (15 U.S.C. 697e); and 

6 (B) alternatives for establishing and main7 taining loss reserves that are sufficient to protect 

8 the Federal Government from the risk of loss as9 sociated with loans guaranteed under such Pro10 gram. 

11 (2) TRANSMISSION OF REPORT.—The report de12 scribed in paragraph (1) shall be transmitted to the 

13 Committee on Small Business of the House of Rep14 resentatives and the Committee on Small Business 

15 and Entrepreneurship of the Senate not later than 90 

16 days after the date of the enactment of this Act. 

17 (3) LIMITATION.—The amount of the contract de18 scribed in paragraph (1) shall not exceed $75,000.

Union Calendar No. 75

108TH CONGRESS 

1ST SESSION H. R. 923

[Report No. 108–153] 

A BILL

To amend the Small Business Investment Act of 

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

JUNE 12, 2003

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, 

and ordered to be printed