[Federal Register Volume 76, Number 138 (Tuesday, July 19, 2011)]
[Proposed Rules]
[Pages 42593-42595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18007]
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DEPARTMENT OF AGRICULTURE
Rural Business-Cooperative Service
Rural Utilities Service
7 CFR Part 4279
RIN 0570-AA81
Conditions of Guarantee
AGENCY: Rural Business-Cooperative Service, USDA.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Rural Business-Cooperative Service is proposing to amend
its regulations for the Business and Industry Guaranteed Loan Program
to ensure the Agency has sufficient right(s) for reimbursement when an
Agency guaranteed portion of a loan is sold to a holder. This action is
necessary because the rule is not sufficiently clear that the use of
loan funds for purposes not approved by the Agency is a reason to find
the guarantee unenforceable regardless of whether the guaranteed
portion of the loan has been sold to a holder. This action ensures the
Agency has sufficient rights for reimbursement when an Agency
guaranteed portion of the loan is sold to a holder.
[[Page 42594]]
DATES: Comments on this proposed rule must be received on or before
August 18, 2011. A second public comment period will not be held.
ADDRESSES: You may submit comments to this proposed rule by any of the
following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Submit written comments via the U.S. Postal Service
to the Branch Chief, Regulations and Paperwork Management Branch, U.S.
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW.,
Washington, DC 20250-0742.
Hand Delivery/Courier: Submit written comments via Federal
Express Mail or other courier service requiring a street address to the
Branch Chief, Regulations and Paperwork Management Branch, U.S.
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington,
DC 20024.
All written comments will be available for public inspection during
regular work hours at the 300 7th Street, SW., 7th Floor address listed
above.
FOR FURTHER INFORMATION CONTACT: Mr. David Lewis, Rural Development,
Business Programs, U.S. Department of Agriculture, 1400 Independence
Avenue, SW., Stop 3224, Washington, DC 20250-3221; e-mail:
[email protected]; telephone (202) 690-0797.
SUPPLEMENTARY INFORMATION:
Classification
This rule has been determined to be not significant for purposes of
Executive Order 12866 and has not been reviewed by the Office of
Management and Budget (OMB).
Programs Affected
The Catalog of Federal Domestic Assistance Program number assigned
to the Business and Industry Guaranteed Loan Program is 10.782.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' Rural Development has determined
that this action does not constitute a major Federal action
significantly affecting the quality of the human environment and, in
accordance with the National Environmental Policy Act (NEPA) of 1969,
42 U.S.C. 4321 et seq., an Environmental Impact Statement is not
required.
Executive Order 12372, Intergovernmental Consultation
The program is subject to the provisions of Executive Order 12372,
which requires intergovernmental consultation with State and local
officials. Consultation will be completed at the time of the action
performed.
Executive Order 12988, Civil Justice
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. The Agency has determined that this rule meets the
applicable standards provided in section 3 of the Executive Order.
Additionally, (1) All state and local laws and regulations that are in
conflict with this rule will be preempted; (2) no retroactive effect
will be given to the rule; and (3) administrative appeal procedures, if
any, must be exhausted before litigation against the Department or its
agencies may be initiated, in accordance with the regulations of the
National Appeals Division of USDA at 7 CFR part 11.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
final rule impose substantial direct compliance costs on state and
local governments. Therefore, consultation with states is not required.
Regulatory Flexibility Act Certification
Under section 605(b) of the Regulatory Flexibility Act, 5 U.S.C.
605(b), the Agency certifies that this rule will not have a significant
economic impact on a substantial number of small entities. The Agency
made this determination based on the fact that this regulation only
impacts those who choose to participate in the program. Small entity
applicants will not be impacted to a greater extent than large entity
applicants.
Unfunded Mandates
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the Unfunded Mandates Reform Act of 1995) for
State, local, and tribal governments or the private sector. Thus, this
rule is not subject to the requirements of sections 202 and 205 of the
Unfunded Mandates Reform Act of 1995.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
This executive order imposes requirements on Rural Development in
the development of regulatory policies that have tribal implications or
preempt tribal laws. Rural Development has determined that the proposed
rule does not have a substantial direct effect on one or more Indian
tribe(s) or on either the relationship or the distribution of powers
and responsibilities between the Federal Government and Indian tribes.
Thus, this proposed rule is not subject to the requirements of
Executive Order 13175. If a tribe determines that this rule has
implications of which Rural Development is not aware and would like to
engage with Rural Development on this rule, please contact Rural
Development's Native American Coordinator at (202) 690-1681 or
[email protected].
Paperwork Reduction Act
This rule contains no new reporting or recordkeeping requirements
that would require approval under the Paperwork Reduction Act of 1995
(44 U.S.C. chapter 35).
E-Government Act Compliance
Rural Development is committed to complying with the E-Government
Act, to promote the use of the Internet and other information
technologies, to provide increased opportunities for citizen access to
Government information and services, and other purposes.
I. Background
The Agency reviewed 7 CFR 4279.72, which is composed of three
paragraphs, the first two of which are pertinent.
Section 4279.72(a) lays out the conditions under which a guarantee
is not enforceable. The text separately identifies four such
conditions:
1. In cases of fraud or misrepresentation of which a lender or
holder has actual knowledge at the time it becomes such lender or
holder or which a lender or holder participates in or condones;
2. To the extent that any loss is occasioned by a provision for
interest on interest;
3. To the extent any loss is occasioned by the violation of usury
laws, negligent servicing, or failure to obtain the required security
regardless of the time at which the Agency acquires knowledge thereof;
and
4. To the extent that loan funds are used for purposes other than
those specifically approved by the Agency in its Conditional
Commitment.
[[Page 42595]]
Section 4279.72(b) discusses rights and liabilities when a
guaranteed portion of a loan is sold to a holder. It states, in part,
that the lender will be liable for payments made by USDA to any holder
in the event of ``material fraud, negligence or misrepresentation by
the lender or the lender's participation in or condoning of such
material fraud, negligence or misrepresentation.'' Section 4279.72(b)
does not, however, refer to the other conditions listed in Sec.
4279.72(a).
The Agency believes the lender's responsibility to reimburse the
Agency for the improper activity should not be dependent upon whether
the lender or holder owns the loan guarantee. However, the Agency is
concerned that this policy is not sufficiently clear in this
regulation. Therefore, the Agency is clarifying its position on this
matter. The regulatory change is not retroactive nor does it affect the
rights of current holders. However, the Agency recognizes that the
issue should be clarified in the regulation. Accordingly, the Agency is
proposing to make these changes in this proposed rule.
II. Discussion of Change
Section 4279.72(a) addresses the lender's coverage under the loan
note guarantee. It also identifies those instances when the conduct of
a holder may jeopardize their interest in the loan note guarantee.
Section 4279.72(b) addresses the holder's coverage under the loan note
guarantee. The change being made by this rule clarifies that having a
holder purchase part of the loan note guarantee does not increase the
coverage provided to the lender under the loan note guarantee.
Therefore, the Agency will require the lender to reimburse it for any
amount it pays to a holder that would not have been paid to a lender
under Sec. 4279.72(a).
The Agency is proposing to revise Sec. 4279.72(b) to address the
situation discussed in the ``Background'' section and similar
situations.
List of Subjects in 7 CFR Part 4279
Loan programs--Business and industry--Rural development assistance,
Rural areas.
For the reasons set forth in the preamble, chapter XLII, title 7 of
the Code of Federal Regulations is proposed to be amended as follows:
Chapter XLII--Rural Business-Cooperative Service and Rural Utilities
Service, Department of Agriculture
PART 4279--GUARANTEED LOANMAKING
1. The authority citation for part 4279 is revised to read as
follows:
Authority: 5 U.S.C. 301; 7 U.S.C. 1932(a); and 7 U.S.C. 1989.
Subpart A--General
2. Amend Sec. 4279.72 by revising the last sentence of paragraph
(b) to read as follows:
Sec. 4279.72 Conditions of guarantee.
* * * * *
(b) * * * The lender will reimburse the Agency for any payments the
Agency makes to a holder of lender's guaranteed loan that, under the
Loan Note Guarantee, would not have been paid to the lender had the
lender retained the entire interest in the guaranteed loan and not
conveyed an interest to a holder.
* * * * *
Dated: July 12, 2011.
Dallas Tonsager,
Under Secretary Rural Development.
[FR Doc. 2011-18007 Filed 7-18-11; 8:45 am]
BILLING CODE 3410-XY-P