CUNA Regulatory Comment Call
September 12, 2006
SBA Lender Examination and Review Fees
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 SBAs 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 institutions 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 proposals 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, SBAs 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 firstname.lastname@example.org. If you have any questions, contact Deputy General Counsel Mary Dunn at email@example.com or to Senior Regulatory Counsel Catherine Orr at firstname.lastname@example.org. 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:
DESCRIPTION OF THE PROPOSAL
On-Site Examinations and Reviews
SBAs proposed assessment formula is based primarily on allocating the actual cost of a particular Lenders examination and review to that Lender. This is feasible because SBAs 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 institutions assets; (2) an institutions exam rating; and (3) economies of scale. These factors have been incorporated into SBAs proposed fee assessment methodology to determine the proposed on-site review charge.
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 SBAs Loan and Lender Monitoring System (L/LMS). L/LMS is also used in conjunction with SBAs onsite exams/reviews, for purposes of planning and prioritization of exams/reviews. Under the proposed rule, SBAs 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 Lenders 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 Lenders charge to that of SBAs risk of dollar loss.
The annual cost of the L/LMS reviews under SBAs current contract is about $82 per $1 million in outstanding guarantees. SBA proposes to use this ratio in calculating the Lenders fee for off- site monitoring/reviews. Should SBAs 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.
SBAs 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 Lenders fee would be calculated by multiplying the total annual cost of SBAs oversight operational expenses by the Lenders 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.
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 SBAs available appropriations.
Each Lenders 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 SBAs 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.
QUESTIONS REGARDING THE PROPOSAL
- Do you feel that it is reasonable to charge Lenders for the direct costs of their individual examination or review expenses?
Yes ______ No ______
- Do you agree that the allocation of off-site review expenses based on each Lenders 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?
- DSBA contends that, overall, the agencys 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 ______
- Do you agree that the proposal is consistent with the legislative guidance in the amendment to tie fees to the size of the lenders portfolio being reviewed, and the time necessary to review the portfolios.
Yes ______ No ______
If not, why not?
- Do the billing and payment processes (including late/delinquency fees) seem
Yes ______ No ______
- Other comments?
Eric Richard EVP &General Counsel (202) 508-6742 email@example.com |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 firstname.lastname@example.org
Jeffrey Bloch Senior Assistant General Counsel (202) 508-6732 email@example.com
Lilly Thomas Assistant General Counsel (202) 508-6733 firstname.lastname@example.org
Catherine Orr Senior Regulatory Counsel (202) 508-6743 email@example.com