B-300248, SBA's Imposition of Oversight Review Fees on PLP Lenders, January 15, 2004

B-300248 Jan 15, 2004 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights This legal opinion supplements Small Business Administration: Progress Made But Improvements Needed in Lender Oversight, GAO-03-90, our report on the Small Business Administration's (SBA) oversight of lenders who make SBA-guaranteed loans under section 7(a) of the Small Business Act. In this opinion, which focuses on SBA's oversight of lenders in its Preferred Lender Program (PLP), we conclude that SBA is constructively imposing, retaining, and using PLP review fees without statutory authority, in contravention of the Small Business Act and the Miscellaneous Receipts Statute. In addition, because SBA should pay the costs of PLP oversight from its appropriations, we conclude that its constructive use of the fees to pay for costs that would otherwise be paid from its appropriations constitutes an improper augmentation. SBA should cease these practices unless and until Congress authorizes them, and in the meantime, it should identify the review costs paid by lenders to its contractor and pay these costs itself from appropriations accounts available for this purpose. View Decision B-300248, SBA's Imposition of Oversight Review Fees on PLP Lenders, January 15, 2004 B-300248   January 15, 2004 The Honorable Christopher S. Bond Committee on Small Business and Entrepreneurship United States Senate Subject: SBA's Imposition of Oversight Review Fees on PLP Lenders       Dear Senator Bond:   This legal opinion is a supplement to Small Business Administration: Progress Made But Improvements Needed in Lender Oversight, GAO-03-90, our report to you on the Small Business Administration's (SBA) oversight of lenders who make SBA-guaranteed loans under section 7(a) of the Small Business Act, 15 U.S.C. sect. 636. As we reported, in implementing the section 7(a) program, SBA has increased its reliance on private lenders to provide small businesses with access to credit, in part through its Preferred Lender Program (PLP). Under the PLP, eligible lenders may make section 7(a) loans without prior SBA approval, but SBA is required by the Small Business Act to evaluate PLP lenders' participation in this program at least annually. We reported that it is essential that this SBA oversight be conducted effectively because of the great autonomy that PLP lenders exercise in making section 7(a) loans. In the course of evaluating SBA's oversight of PLP lenders, we learned that SBA has contracted with a private firm to assist in conducting these PLP lender oversight reviews. We also learned that the contractor is paid not from SBA's appropriated funds but rather from fees imposed by SBA on the lenders that the lenders pay directly to the contractor. We believed this arrangement raised questions about whether SBA was in compliance with certain appropriations restrictions, but because these legal issues were beyond the scope of our report and required additional factual investigation, we agreed with your staff to issue a separate legal opinion addressing them. We have now obtained the necessary information to analyze these issues and we are issuing this opinion as a supplement to our previous report.[1]   As discussed in more detail below, we conclude that SBA is not authorized to fund its PLP oversight reviews by charging a fee to the PLP lenders and that doing so contravenes the Miscellaneous Receipts Statute. Furthermore, we conclude that SBA has improperly augmented its appropriations by not bearing the costs of the PLP oversight reviews itself and instead using the fees collected from PLP lenders to pay for these costs. SBA should cease these practices unless and until Congress authorizes them, and in the meantime, it should identify the review costs paid by lenders to its contractor and pay these costs itself from appropriations accounts available for this purpose. BACKGROUND SBA helps small businesses obtain access to credit primarily through loan guarantee programs authorized by section 7(a) and other provisions of the Small Business Act. SBA guarantees up to 85 percent of loans made by lenders participating in the section 7(a) program, and lenders that SBA designates as –preferred— or –certified— have greater autonomy and authority in making SBA-guaranteed loans than other participating lenders. Preferred and certified lenders may process, close, service, and liquidate SBA-guaranteed loans, and preferred lenders have full authority to make loans without prior SBA approval, making their own assessments about borrower eligibility and creditworthiness. PLP lenders tend to be the largest section 7(a) program lenders, and they account for slightly over half of section 7(a) lending.   Although SBA has delegated certain of its loan authority to certified and PLP lenders, SBA remains responsible for the activities of these lenders.