Business Loan Program; Lender Examination and Review Fees, 52296-52300 [06-7399]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 71, Number 171 (Tuesday, September 5, 2006)]
[Proposed Rules]
[Pages 52296-52300]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-7399]


=======================================================================
-----------------------------------------------------------------------

SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AF49


Business Loan Program; Lender Examination and Review Fees

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed 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 proposed rule describes the 
methodology for fee assessment. Under the proposed rule, Lenders would 
pay the actual costs to SBA of the on-site examinations and reviews, 
and would 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 proposed rule also describes the billing and 
payment processes.

DATES: Comments must be received on or before October 5, 2006.

ADDRESSES: You may submit comments, identified by [RIN number 3245-
AF49], by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web Site: proprule@sba.gov. Follow the instructions 
for submitting comments.
     E-mail: lender.oversight@sba.gov.
     Fax: (202) 205-6831.
     Mail: Bryan Hooper, Associate Administrator for Lender 
Oversight, Small Business Administration, 409 3rd Street, SW., 8th 
floor, Washington, DC 20416.
     Hand Delivery/Courier: 409 3rd Street, SW., 8th floor, 
Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: John White, Deputy Associate 
Administrator for Lender Oversight, (202) 205-6345, john.white@sba.gov; 
or Paul Bishop, Financial Analyst, Office of Lender Oversight, (202) 
205-7516, paul.bishop@sba.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    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 over 5,000 Lenders authorized to make 
such SBA guaranteed 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. SBA's 
contractors for on-site exams and reviews bill SBA separately for each 
examination/review as it is conducted. The contractor supporting off-
site reviews/monitoring generally bills SBA on a quarterly basis to 
cover its contract price.
    A discussion of the proposal and a section-by-section analysis 
follows.

II. Proposal

A. Review and Examination

    SBA conducts the following examinations and reviews of Lenders: (i) 
Off-site reviews/monitoring; (ii) on-site examinations; and (iii) on-
site reviews. Under the proposed rule, the fee that SBA would charge a 
Lender would generally depend on the reviews/examinations that SBA 
conducts for that Lender.

B. All Lenders

    All Lenders receive a quarterly off-site review. The off-site 
review is conducted using SBA's Loan and Lender Monitoring System (L/
LMS). This L/LMS review is the primary method of monitoring all of 
SBA's approximately 5,200 Lenders. For lower volume Lenders, it also 
may be SBA's sole method of reviewing them. L/LMS is also used in 
conjunction with SBA's on-site exams/reviews, for purposes of planning 
and prioritization of exams/reviews. Under the proposed rule, SBA's 
cost of off-site review/monitoring (primarily the L/LMS contract cost) 
would be recovered through fees charged to all Lenders. The cost would 
be allocated according to each Lender's respective outstanding SBA 
guarantees (guaranteed dollars) relative to the total guaranteed 
dollars SBA has outstanding in its 7(a) loan portfolio. Both Lenders' 
outstanding SBA guarantees and the total guaranteed SBA dollars would 
be calculated using September 30 portfolio figures. 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 participation interest. It also includes loans that 
have been purchased by SBA but have not yet been charged off.
    The annual cost of the L/LMS reviews under SBA's current contract 
is about $82 per $1 million in outstanding guarantees. SBA proposes to 
use this ratio in calculating the Lender's fee for off-site monitoring/
reviews. Should SBA's costs under the contract change, the ratio would 
change accordingly. SBA does not plan at this time to

[[Page 52297]]

recover its own costs related to the conduct of the off-site review, 
including the salary and expenses of SBA employees involved in the 
review.
    Under the current formula, approximately 3,400 Lenders that have 
less than $1 million in outstanding SBA loan guarantees would incur an 
average annual fee of less than $25. The approximately 1,100 Lenders 
with between $1 million and $4 million in outstanding SBA loan 
guarantees would incur an annual off-site review fee ranging from $82 
to $327. The approximately 300 Lenders with between $4 million and $10 
million in outstanding SBA loan guarantees would pay an estimated 
annual off-site review fee ranging from $330 to $816. Finally, the 
remaining 380 Lenders with outstanding SBA loan guarantees of greater 
than $10 million would pay a median of $1,848 per year for off-site 
reviews/monitoring. Each Lender's fee assessment will include a 
description of how the fee was calculated. This off-site review cost 
could, over time, serve to maintain on-site examination/review costs at 
a minimum by allowing SBA to focus its on-site reviews and examinations 
on those Lenders whose portfolios or operational performance present 
SBA with the most risk. SBA may waive or provide an exemption for the 
fees due from very small volume Lenders when the administrative costs 
of collecting the fee from a Lender are greater than the amount of the 
fee itself (i.e. when it is not cost effective to collect such fees). 
SBA is in the process of determining at which dollar amount it would 
not be cost effective for SBA to bill and collect. SBA is also in the 
process of estimating the total amount of fees in case SBA determines 
to implement the waiver/exemption. SBA is considering other 
methodologies for determining the appropriate basis for waiver/
exemption. Should SBA decide to grant fee waivers/exemptions, such 
action will not affect the fee charged to other Lenders, and any 
shortfall will be made up with SBA's available appropriations.

C. SBA Supervised Lenders

    In addition to quarterly off-site reviews, SBA also performs on-
site safety and soundness examinations of SBA's Small Business Lending 
Companies (``SBLCs'') and large Non-Federally Regulated Lenders 
(``NFRLs'') (together ``SBA Supervised Lenders''). Each SBLC is usually 
examined on a 12 to 24 month cycle. NFRLs may also be examined on a 12 
to 24 month cycle, depending upon such factors as size, level of SBA 
lending activity, and results of previous examinations. Under the 
proposed rule, each SBA Supervised Lender's fees would, generally, 
include: (i) The annual L/LMS charge and (ii) the on-site examination 
cost (if an exam was performed that fiscal year). The examination fee 
component would be based primarily on actual hourly charges of, and 
travel expenses incurred by, the contractor (currently a Federal 
financial institution regulator).
    The safety and soundness examination that these Lenders receive is 
similar in scope to safety and soundness examinations conducted by 
other Federal regulators. However, the cost of an SBA examination is 
reasonable in relation to the assessments for examinations by other 
Federal regulators. For example, the Comptroller of the Currency's 
current annual assessment on a bank with $1 billion in assets is 
$219,580, and the Office of Thrift Supervision assesses the same size 
institution $204,096; whereas the annual 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 
$139,220. This amount is calculated as follows: The biennial safety and 
soundness examination for a Lender with $1 billion in assets under the 
current contract typically costs $162,000, for an average annual cost 
of $81,000. In addition, the L/LMS fee for the same sized SBLC would be 
$58,220, for a total annual cost to the Lender of $139,220.

D. Non-SBA Supervised Lenders

    In addition to quarterly off-site reviews/monitoring, SBA plans to 
conduct, on a 12 to 24 month review cycle, on-site reviews of the 7(a) 
operations of Lenders with $10 million or more in outstanding SBA loan 
guarantees. On-site reviews will not be conducted for the SBLCs and 
NFRLs that receive on-site examinations. On-site reviews are performed 
with the assistance of a financial services firm under contract with 
SBA. Under the proposed rule, fees for the Lenders in this category 
would generally include: (i) The annual L/LMS charge and (ii) the on-
site review fee (if a review was performed that fiscal year). On-site 
review costs of a Lender's 7(a) operations currently range from $20,000 
to $24,000. Factors that may affect where a Lender falls in the 
estimated range include, but are not limited to, the complexity of a 
Lender's 7(a) operations, rating trends, guaranteed dollars 
outstanding, and results of previous examinations. The timing of on-
site reviews may also depend upon SBA's ability to coordinate reviews 
of Lenders that will minimize travel expenses and achieve economies of 
scale, thus reducing Lenders' review fees.
    In addition to Lenders with $10 million or more in SBA in 7(a) loan 
guarantees, SBA may perform on-site reviews of Lenders with loan 
guarantees of as little as $4 million in situations where SBA's off-
site monitoring indicate such a Lender is a very high risk to SBA.

E. SBA's Other Lender Oversight Expenses

    Under the proposed rule, SBA has the authority to recover its other 
expenses in carrying out Lender oversight activities (for example, the 
salaries and travel expenses of SBA employees and equipment expenses 
that are related to carrying out Lender oversight activities). However, 
SBA does not plan at this time to charge Lenders for these costs. 
Should SBA decide to assess a fee for these expenses in the future, 
each Lender's fee would be calculated by multiplying the total annual 
cost of SBA's oversight operational expenses by the Lender's dollar 
share of the total outstanding SBA guarantees. SBA will notify Lenders 
if it proposes to recover expenses resulting from its other Lender 
oversight activities.

F. Assessment Methodology

    SBA's proposed assessment formula is based primarily on allocating 
the actual cost of a particular Lender's examination and review to that 
Lender. This is feasible because SBA's on-site examination and review 
costs, unlike those of most of the other financial institution 
regulators, primarily consist of contractor assistance billed on a 
Lender-specific basis.
    For those costs that are not incurred on a Lender-by-Lender basis 
(for example, off-site monitoring/reviews), SBA proposes a risk-based 
formula based on a Lender's outstanding guaranteed dollars relative to 
that of SBA's outstanding guaranteed portfolio, as of September 30. The 
guaranteed dollar methodology ties a Lender's charge to that of SBA's 
risk of dollar loss. SBA considered allocating these costs based on the 
number of loans that a Lender has outstanding. The loan number-based 
methodology, however, fails to consider varying guarantee percentages 
in SBA's loan programs (for example SBA Express at 50% versus regular 
7(a) lending at 75% or more) and diversity of loan sizes. It also fails 
to consider that SBA's dollar loss is directly related to the size of 
the loans rather than the number of loans; the loss from a large loan 
will greatly exceed the loss from a small loan. It, therefore,

[[Page 52298]]

would result in a less equitable distribution of the costs. Finally, 
the loan-based methodology may be contrary to SBA's goal to assist as 
many of America's small businesses as are eligible for agency 
assistance.
    SBA also considered the fee assessment methodologies of the various 
federal financial institution regulators. The federal financial 
institution regulators' methodologies are generally complex. There are 
approximately three common factors incorporated into the allocation 
formulas. The factors are: (i) An institution's assets; (ii) an 
institution's exam rating; and (iii) economies of scale. These factors 
were considered and incorporated into SBA's proposed fee assessment 
methodology to determine the proposed on-site review charge.
    The off-site monitoring/review cost allocation formula is also 
based on outstanding guaranteed dollars of the institution's SBA loan 
assets. Exam rating trends are indirectly incorporated into the 
methodology to the extent that better ratings could translate to less 
frequent on-site examinations and reviews. Overall, SBA's proposed cost 
allocation methodology would result in fees that are reasonable 
relative to federal financial institution regulator assessments. It 
provides for equitable distribution of SBA costs. Finally, it is 
consistent with legislative guidance to tie fees to the ``size of the 
lender's portfolio being reviewed, and the time necessary to review the 
portfolios.'' Sen. Rept. 108-124 pg. 12 (Aug. 26, 2003).

III. Section-by-Section Analysis

    Section 120.454--PLP Performance Review. To eliminate redundancy, 
SBA proposes to strike the second sentence of this provision, which 
authorizes SBA to charge a PLP Lender fee to cover the costs of the PLP 
performance review.
    Subpart I--Lender Oversight. SBA would add a new subpart for lender 
oversight, which would initially consist of proposed section 120.1070 
governing lender oversight fees.
    Section 120.1070--Lender Oversight Fees. SBA proposes to add this 
new section to part 120 of Title 13 CFR to implement the fee authority 
granted to SBA.
    Section 120.1070(a)--Fee Components. This provision sets forth the 
components that may be included in the total fee, including charges to 
cover the costs of: (1) On-site safety and soundness examinations 
conducted for SBLCs and NFRLs; (2) on-site reviews conducted for other 
Lenders; (3) off-site reviews/monitoring conducted for all Lenders; and 
(4) SBA's other Lender oversight expenses, as assessed. The fee would 
be based on SBA's costs. The amount of each Lender's fee for the on-
site examination or review would include the actual expenses incurred 
for that Lender's on-site review or examination. In the case of off-
site reviews/monitoring, SBA would allocate the charge based on the 
Lender's share of SBA guaranteed dollars outstanding. Finally, if SBA 
later decides to include charges for other lender oversight activities, 
those costs would be allocated similar to the formula for allocating 
off-site review/monitoring costs.
    Section 120.1070(b)--Billing Process. This provision describes the 
process for billing the Lenders for the fees. For the on-site 
examinations and reviews, SBA would bill the Lender following 
completion of the review. SBA would bill the Lender for the charges for 
the off-site reviews and SBA's other Lender oversight expenses (the 
latter if assessed) on an annual basis. The bill will include the 
approved payment method(s). The payment due date will be no less than 
30 calendar days from the bill date.
    Section 120.1070(c)--Delinquent Payment and Late-Payment Charges. 
This provision provides that any payment that is not received by the 
due date specified in the bill would be considered delinquent. It also 
provides that SBA may charge interest, penalties and other charges on 
delinquent payments, as provided by applicable law, and that SBA may 
waive the interest charge if circumstances warrant.

IV. Comments

    The form and content of the proposal should not be viewed as 
exhaustive. SBA seeks comments on all aspects of the proposal and 
suggestions as to any modifications. For example, SBA would be 
interested in comments concerning the methodology used to distribute 
costs to Lenders. However, SBA will rely on its own expertise in making 
final determinations for the final rule.

V. 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 rule 
constitutes a significant regulatory action under Executive Order 12866 
thus requiring a Regulatory Impact Analysis, as set forth below.
A. Regulatory Objective
    As the SBA moves to more streamlined lending processes and 
delegates more authority to its Lenders, the need for better and more 
comprehensive Lender oversight is essential. With the integration of L/
LMS, the SBA has an early warning system that allows SBA to monitor its 
Lenders on a regular basis. Off-site reviews/monitoring and on-site 
examinations or reviews allow SBA to determine which Lenders pose the 
most risk to the SBA from both an exposure and credit risk perspective. 
By identifying Lenders with unacceptable levels of risk, the SBA can 
work with the Lenders to limit the risk.
    This proposed rule implements a recent amendment to the Small 
Business Act authorizing SBA to require 7(a) Lenders to pay fees to 
cover the costs of examinations or reviews and other Lender oversight 
activities. SBA believes that the methodology for charging fees to 
Lenders, which is based on direct costs of individual Lender 
examination or review expenses and the allocation of off-site review 
expenses by each Lender's share of the guaranteed dollars in the entire 
outstanding SBA portfolio, is equitable and reasonable.
B. Baseline Costs
    SBA currently performs examinations and reviews for all 7(a) 
lenders. This proposal does not modify the current examination and 
review scope. Rather, it implements the recent amendment to the Small 
Business Act authorizing SBA to assess lenders fees to cover the costs 
of those examinations or reviews. 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. SBA's contractors for on-site exams and reviews 
bill SBA separately for each examination/review as it is conducted. The 
total annual cost of contractor on-site examinations and reviews is 
$4,915,000. The contractor for off-site reviews/monitoring generally 
bills SBA one flat fee for the year to cover the reviews/monitoring of 
all Lenders. The total annual cost for off-site reviews/monitoring is 
approximately $2,604,000; the apportionment of these costs at the 
Lender level have been discussed above in the ``Supplemental 
Information, Section II Proposal.''
C. Potential Benefits and Costs
    The costs to Lenders associated with SBA's on-site and off-site 
reviews and monitoring are described elsewhere in this notice. The 
benefit for Lenders is that it allocates direct costs of on-site 
examinations or reviews to those Lenders for whom those costs are 
incurred.

[[Page 52299]]

    Indirect costs of off-site monitoring will be allocated according 
to each Lender's participation level as measured by SBA guaranteed 
dollars, so that the costs will be proportionate to the benefits 
Lenders derive from participating in the 7(a) program. In addition, 
Lenders with the highest amount of SBA guaranteed dollars represent the 
most risk to SBA and require the greatest level of off-site monitoring; 
therefore, apportioning the monitoring costs in relation to the amount 
of SBA guaranteed dollars is more equitable to smaller or new Lenders 
that represent proportionately less risk to SBA. The 92% of 7(a) 
Lenders with under $10 million in outstanding SBA guarantees benefit by 
the off-site review process. Most of these Lenders will be subject to 
off-site reviews instead of on-site reviews, which will eliminate space 
and staff costs associated with SBA's on-site review process. Payment 
of fees proposed in this rule will allow SBA to maintain the off-site 
review process for less active lenders while allocating the higher cost 
of on-site reviews and examinations to those active lenders that 
represent the most risk to SBA and for whom the expense is directly 
incurred. The SBA and lenders will incur additional administrative 
costs related to the billing, collection, and payment of the fees. 
These administrative costs are limited to accounting input for SBA's 
bill and receipt system and writing a check by the lender. They are 
deemed to be minimal.
    Besides allocating its review and monitoring costs to its Lenders, 
SBA will benefit through the relative ease of administering the 
assessment process. SBA's additional costs would only consist of new 
expenses incurred in collecting the fees. SBA anticipates that these 
new expenses would be minimal.
D. Alternatives (Cost/Benefits Estimated)
    An alternative off-site review/monitoring cost allocation plan was 
considered, based on the number of loans outstanding for each 
respective Lender. A significant portion of the cost of analytics used 
in the L/LMS is that of obtaining credit scores on borrowers with 
outstanding SBA guaranteed loans to assess the credit risk of the 
Lender's 7(a) loan portfolio. The benefit of this scheme is that it 
charges each Lender based on the credit scores obtained for their SBA 
portfolio. We have determined that this methodology is contrary to the 
SBA's mission and would not be well related to risk. Our mission is to 
provide capital access to as many small business concerns as possible 
within the authorized funding level. Lending partners that reach out to 
very small businesses and startup businesses should not be charged the 
same off-site monitoring fee for their small loan as another Lender 
with a very large loan. The loan number based methodology also fails to 
consider varying guarantee percentages in SBA's loan programs (for 
example SBA Express at 50% versus regular 7(a) lending at 75%). Risk 
considered is the dollar risk of defaulted guaranteed balances. 
Therefore, a scheme that assesses fees directly proportionate to the 
guaranteed balances is the most equitable.

Executive Order 12988

    This proposed action meets applicable standards set forth in 
Sec. Sec.  3(a) and 3(b)(2) of Executive Order 12988, Civil Justice 
Reform, to minimize litigation, eliminate ambiguity, and reduce burden. 
This rule would not have retroactive or pre-emptive effect.

Executive Order 13132

    This proposed rule would 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 proposed rule has no 
federalism implications warranting preparation of a federalism 
assessment.

Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RF), 5 U.S.C. 601-612, requires the agency to 
``prepare and make available for public comment an initial regulatory 
flexibility analysis'' which will ``describe the impact of the proposed 
rule on small entities.'' 5 U.S.C. 603(a). Section 605 of the RFA 
allows an agency to certify a rule, in lieu of preparing an analysis, 
if the proposed 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 proposal will 
have a significant economic impact on a substantial number of small 
entities.
    This proposed 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 proposed would apply to all 7(a) lenders with outstanding SBA 
guaranteed loan balances. Approximately 5,200 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.
    The proposed rule would 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 would only be 
subject to fees for the off-site reviews/monitoring. The annual fee for 
98% percent of these lenders would be less than $945, the cost of a one 
year subscription to the ``American Banker'' magazine. The estimated 
annual fee for 2,068 of these small Lenders would be less than $50. SBA 
may waive the fees when it is not cost-effective to bill and collect. 
SBA is in the process of determining at which dollar amount it would 
not be cost effective for SBA to bill and collect. That determination 
may be revised periodically to reflect changes in SBA's costs. Another 
443 would be assessed annual fees of less than $100. For 469 Lenders, 
the annual fee would be between $100 and $1,000. The largest of the 
approximately 51 remaining Lenders classified as small business 
concerns has over $100 million in outstanding SBA guarantees. The 
estimated annualized fee for this Lender, which would cover the cost of 
the bi-annual on-site review plus annual off-site monitoring cost, 
would be $21,440. 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 $26,034 to $40,302.
    Moreover, since SBA would calculate and bill for the fee, there 
would 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 
Proposed Rule. Accordingly, the Administrator of SBA hereby certifies 
to the Chief Counsel of Advocacy that this proposed rule will

[[Page 52300]]

not have a significant economic impact on a substantial number of small 
entities.

Paperwork Reduction Act

    SBA has determined that this proposed rule does not impose 
additional reporting or recordkeeping requirements under the Paperwork 
Reduction Act, 44 U.S.C. Chapter 35.

List of Subjects in 13 CFR Part 120

    Loan programs--business, Small businesses.

    For the reasons discussed in the preamble, SBA proposes to amend 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 Sec.  120.454 to read as follows:


Sec.  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


Sec.  120.1070  Lender Oversight Fees.

    Lenders are required to pay to SBA fees to cover costs of 
examinations, reviews, and 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.
    (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). SBA will assess this charge 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 paragraphs (a)(1) and (a)(2) of this section, SBA will 
bill each Lender for the amount owed following completion of the 
examination or review. For the off-site reviews/monitoring conducted 
under paragraph (a)(3) of this section and the other Lender oversight 
expenses incurred under paragraph (a)(4) of this section, 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 Late-Payment 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 under Sec.  120.415, 
or to limit a participant's delegated authority under other provisions 
of this part.

    Dated: August 24, 2006.
Steven C. Preston,
Administrator.
[FR Doc. 06-7399 Filed 9-1-06; 8:45 am]
BILLING CODE 8025-01-P