• Regulatory Advocacy Reports
• Comment Calls
• Comment Letters
• Final Rule Analyses
• NCUA Board Meetings
• Regulatory Advocacy Podcasts
• Additional Resources
• Regulatory Advocacy Home

CUNA Regulatory Comment Call

September 12, 2006

EXECUTIVE SUMMARY

• The Small Business Administration (SBA) has published a proposed rule to implement a December 2004 amendment to the Small Business Act authorizing the agency to assess fees to lenders participating in SBA’s 7(a) loan guarantee program (Lenders). The fees are intended to cover the costs of examinations, reviews, and other Lender oversight activities. Currently, SBA does not charge Lenders for examinations/reviews conducted by the agency.

• Examination and review costs primarily consist of contractor charges for assistance with (1) on-site examinations; (2) on-site reviews; and (3) off-site reviews/monitoring activities. Under the proposal, Lenders would pay the actual costs to SBA of the on-site examinations and reviews. In addition, Lenders would be allocated off-site review/monitoring costs based on that institution’s proportionate share of the guaranteed dollars in the entire outstanding SBA portfolio. The proposed fee assessment methodology is explained in detail.

• SBA estimates the following off-site review/monitoring fees based on the proposal’s formula:

  • An average annual fee of less than $25 for each of the approximately 3,400 Lenders that have less than $1 million in outstanding SBA loan guarantees.
  • An annual fee ranging from $82 to $327 for each of the approximately 1,100 Lenders with between $1 million and $4 million in outstanding SBA loan guarantees.
  • An annual fee ranging from $330 to $816 for each of the approximately 300 Lenders with between $4 million and $10 million in outstanding SBA loan guarantees.
  • A median of $1,848 per year for each of the remaining 380 Lenders with outstanding SBA loan guarantees of greater than $10 million.

• In addition, the proposed rule describes the billing and payment processes. Basically, 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.

• The SBA has extended the comment deadline until November 9, 2006. Please send your comments directly to the SBA at proposedfeerule@sba.gov. If you have any questions, contact Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the proposal, or you may access it on the Internet at:
  
  http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-7399.pdf

DESCRIPTION OF THE PROPOSAL

On-Site Examinations and Reviews

• 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.

• SBA looked at the methodologies of NCUA and the other federal financial institution regulators, which are generally complex. There are approximately three common factors incorporated into the allocation formulas. The factors are: (1) an institution’s assets; (2) an institution’s exam rating; and (3) economies of scale. These factors have been incorporated into SBA’s proposed fee assessment methodology to determine the proposed on-site review charge.

Off-Site Monitoring/Review

• For those costs that are not incurred on a Lender-by-Lender basis (including off-site monitoring/reviews), SBA proposes a risk-based formula.

• All Lenders receive a quarterly off-site review. The off-site review is conducted using SBA’s Loan and Lender Monitoring System (L/LMS). L/LMS is also used in conjunction with SBA’s onsite 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 guaranteed dollar methodology ties a Lender’s charge to that of SBA’s risk of dollar loss.

• 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 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.

• 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.

• 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’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.

Waiver/Exemption

• 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 (that is, 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.

• If the SBA decides 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.

Billing Process

• Each Lender’s fee assessment will include a description of how the fee was calculated. 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.

• Any payment that is not received by the due date specified in the bill would be considered delinquent. SBA may charge interest, penalties and other charges on delinquent payments, as provided by applicable law. SBA may waive the interest charge if circumstances warrant.

1. Do you feel that it is reasonable to charge Lenders for the direct costs of their individual examination or review expenses?
   
   Yes ______ No ______
   
   Please explain.
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
2. Do you agree that the allocation of off-site review expenses based on each Lender’s share of the guaranteed dollars in the entire outstanding SBA portfolio provides for an equitable distribution of SBA costs?
   
   Yes ______ No ______
   
   If not, what method would be more equitable?
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
3. DSBA contends that, overall, the agency’s proposed cost allocation methodology would result in fees that are reasonable relative to federal financial institution regulator assessments. Do you believe this is correct?
   
   Yes ______ No ______
   
   Please explain.
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
4. Do you agree that the proposal is consistent with the legislative guidance in the amendment to tie fees to the “size of the lender’s portfolio being reviewed, and the time necessary to review the portfolios.”
   
   Yes ______ No ______
   
   If not, why not?
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
5. Do the billing and payment processes (including late/delinquency fees) seem reasonable?
   
   Yes ______ No ______
   
   Please explain.
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   
6. Other comments?
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---

   
   
   

   ---