[Federal Register Volume 79, Number 80 (Friday, April 25, 2014)]
[Rules and Regulations]
[Pages 22859-22862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09183]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 123
RIN 3245-AG61
Disaster Assistance Loan Program; Disaster Loan Credit and
Collateral Requirements.
AGENCY: U.S. Small Business Administration (SBA).
ACTION: Interim Final Rule with request for comments.
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SUMMARY: SBA is amending its disaster loan program regulations in
response to Hurricane Sandy Rebuilding Task Force recommendations. One
change allows SBA to rely on the disaster loan applicant's credit,
including credit score, rather than personal or business cash flow in
order to assess repayment ability for those applicants with strong
credit.
Another change will increase the amount of disaster assistance
funds that can be immediately disbursed to borrowers by raising the
unsecured threshold for economic injury loans for all disasters and for
physical damage loans for major disasters. Both of these changes will
enable SBA to provide disaster assistance more quickly and efficiently.
DATES: Effective date: April 25, 2014.
Applicability date: This rule is applicable for disasters declared
on or after April 25, 2014.
Comment date: Comments must be received on or before June 23, 2014.
ADDRESSES: You may submit comments, identified by RIN 3245-AG61, by any
of the following methods: (1) Federal Rulemaking Portal: http://www.regulations.gov, following the specific instructions for submitting
comments; (2) Fax: (202) 481-2336; or Email: [email protected]; or
(3) Mail/Hand Delivery/Courier: James E. Rivera, Associate
Administrator for Disaster Assistance, 409 3rd Street SW., Washington,
DC 20416.
SBA will post all comments to this interim final rule on
www.regulations.gov. If you wish to submit confidential business
information (CBI) as defined in the User Notice at www.regulations.gov,
you must submit such information to U.S. Small Business Administration,
Bartie J. Larsen, Office of Disaster Assistance, 409 Third Street SW.,
Mail Code 6530, Washington, DC 20416, or send an email to
[email protected]. Highlight the information that you consider to
be CBI and explain why you believe SBA should hold this information as
confidential. SBA will review your information and determine whether it
will make the information public.
FOR FURTHER INFORMATION CONTACT: Bartie J. Larsen, Office of Disaster
Assistance, 202-205-6734 or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Hurricane Sandy Rebuilding Task Force was established pursuant
to an Executive Order issued on December 7, 2012, E.O. 13632,
Establishing the Hurricane Sandy Task Force (December 7, 2012). This
Task Force was established to ensure the recovery effort benefitted
from cabinet-level focus and coordination, and was charged with
establishing guidelines for the investment of Federal funds made
available for the recovery.
With the Secretary of Housing and Urban Development as its Chair,
the Task Force consisted of the heads of twenty-three executive
department agencies and offices. As a member of this task force, SBA
collaborated with these executive agencies and offices to identify and
work to remove obstacles to resilient rebuilding while taking into
account existing and future risks and promoting the long-term
sustainability of communities and ecosystems in the Sandy-affected
region. The resultant Rebuilding Strategy developed by the Task Force
included recommendations across several policy areas. See http://portal.hud.gov/hud portal/documents/huddoc?id=HSRebuildingStrategy.pdf.
The Task Force recommended that SBA, among other recommendations, (a)
institute new and innovated process improvements to SBA's Disaster Loan
program, and (b) increase SBA's unsecured disaster loan limits in order
to expedite the disbursement of small dollar loans.
II. Explanation of Changes
SBA is incorporating the Task Force's recommendation to institute
new and
[[Page 22860]]
innovated process improvements to SBA's Disaster Loan Program by
amending 13 CFR 123.6 of SBA regulations to allow SBA to rely on a
disaster applicant's credit, including score, as evidence of repayment
ability. The current language of Sec. 123.6 requires SBA to analyze
every applicant's personal or business cash flow, which is a time
consuming process. The interim final rule revises Sec. 123.6 to allow
SBA to base its repayment ability determination on either the
applicant's cash flow or credit, including credit score. The repayment
analysis will still include the verification of income/employment
through Federal income tax returns. SBA also still plans to analyze
personal or business cash flow to determine repayment ability for those
applicants that do not have strong credit, as determined by SBA.
However, removing the requirement to analyze cash flow for all loans
allows SBA to expedite processing of applications from disaster victims
with strong credit. Expediting the approval of disaster loan
applications with strong credit will make processing more efficient
because SBA can then dedicate additional staff to applications that do
not have strong credit, thereby reducing overall processing time for
all loans. This change is also a result of SBA's Retrospective
Regulatory Review efforts, specifically the ``Accelerated Approval
Disaster Loans Based on Credit Scores'' project in SBA's Final Plan for
Retrospective Analysis of Existing Rules (available at http://www.sba.gov/about-Sba/sba_performance/strategic planning/sba--final --
plan--for--retrospective--analysis--of--existing--rules).
SBA is also revising 13 CFR 123.11 to incorporate the Task Force's
recommendation to increase SBA's unsecured disaster loan limits. SBA's
current limits on unsecured disaster loans, which do not require
collateral, are $14,000 for physical damage and $5,000 for economic
injury. The revised regulations will raise the unsecured limit to
$25,000 for economic injury loans for all disasters and for physical
damage loans for major disasters. The unsecured limit for physical
damage loans for non-major disasters will continue to be $14,000, in
accordance with the Small Business Act. With these increased limits,
more businesses, homeowners, and other potential victims that may be
impacted by future disasters will receive much-needed small dollar
loans more quickly following a disaster.
The above changes apply to all eligible recipients of SBA disaster
loans for disasters declared on or after April 25, 2014.
III. Justification for Interim Final Rule
In general, SBA publishes a rule for public comment before issuing
a final rule, in accordance with the Administrative Procedure Act, 5
U.S.C. 553. The Administrative Procedure Act provides an exception to
this standard rulemaking process, however, where an agency finds good
cause to adopt a rule without prior public participation. 5 U.S.C.
553(b)(3)(B). The good cause requirement is satisfied when prior public
participation is impracticable, unnecessary, or contrary to the public
interest. Under such circumstances, an agency may publish an interim
final rule without soliciting public comment.
Disasters are unpredictable and can happen with very little notice.
Since SBA cannot predict the occurrence or magnitude of disasters, it
reserves the right to change the rules governing SBA disaster
assistance loans without advance notice, by publishing interim
regulations in the Federal Register. 13 CFR 123.1. Advance solicitation
of comments for this rulemaking would be impracticable and contrary to
the public interest as it would prevent expedited processing and
disbursement of disaster loans. Any such delay may cause undue hardship
to homeowners, businesses and their communities as they struggle to
recover from future disasters.
SBA invites comments from all interested members of the public.
These comments must be received on or before the close of the comment
period noted in the DATES section of this interim final rule. SBA will
then consider these comments in making any necessary revisions to these
regulations.
IV. Justification for Immediate Effective Date
The APA requires that ``publication or service of a substantive
rule shall be made not less than 30 days before its effective date,
except as--otherwise provided by the agency for good cause found and
published with the rule.'' 5 U.S.C. 553(d)(3). The purpose of this
provision is to provide interested and affected members of the public
sufficient time to adjust their behavior before the rule takes effect.
SBA's disaster loan program offers low interest, fixed rate loans
to disaster victims, enabling them to replace property damaged or
destroyed in declared disasters. It also offers such loans to affected
small businesses and non-profits to help them recover from economic
injury caused by such disasters. The changes in this interim final rule
will not require members of the public to adjust their behavior.
Rather, the changes will benefit the public by expediting the
processing and disbursement of SBA disaster loans.
In light of the urgent need to assist disaster victims, SBA finds
that there is good cause for making this rule effective immediately
instead of observing the 30-day period between publication and
effective date. While this interim final rule is effective immediately
upon publication, SBA is inviting public comment on the rule during a
60-day period and will consider the comments in developing a final
rule. SBA has included an applicability date to make clear that the
rule is applicable for disasters declared on or after the date of
publication in the Federal Register in order to make these changes
available to future disaster victims as soon as possible.
Compliance With Executive Orders 12866, 12988, 13132, and 13563 and the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
interim final rule is a significant regulatory action for the purposes
of Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. However, this is not a major rule under the
Congressional Review Act, 5 U.S.C. 800.
A. Regulatory Objective of the Proposal
SBA is amending its disaster loan program regulations in response
to Hurricane Sandy Rebuilding Task Force recommendations to (a)
institute new and innovative process improvements to SBA's Disaster
Loan program; and (b) increase SBA's unsecured disaster loan limits in
order to expedite the disbursement of small dollar loans. Amending
Sec. 123.6 of SBA regulations will allow SBA to rely on a disaster
loan applicant's credit, including credit score, in order to assess
repayment ability. Amending Sec. 123.11 will raise SBA's limits on
unsecured disaster loans (currently $14,000 for physical damage and
$5,000 for economic injury) to $25,000 for economic injury loans for
all disasters and for physical damage loans for major disasters.
B. Benefits of the Rule
This interim final rule will directly benefit disaster victims by
decreasing the amount of time required by SBA to process disaster loan
applications and increasing the amount of loan proceeds available for
disbursement without collateral. Credit scoring will allow for
[[Page 22861]]
a more expeditious approval process because SBA will not be constrained
by the requirement to conduct a complete cash flow analysis for every
loan (which includes debt reconciliation and a repayment analysis to
determine if there are funds available for both loan payments and day-
to-day living expenses). Removing the requirement to analyze cash flow
for all loans allows SBA to expedite processing of applications from
disaster victims with strong credit, which will allow SBA to dedicate
more staff to more time-consuming applications, thereby reducing
overall processing time for all loans. This change is also a result of
SBA's Retrospective Regulatory Review efforts, specifically the
``Accelerated Approval Disaster Loans Based on Credit Scores'' project
in SBA's Final Plan for Retrospective Analysis of Existing Rules
(available at http://www.sba.gov/about-Sba/sba_performance/strategic--
planning/sba--final--plan--for--retrospective--analysis--of existing
rules).
Increasing the unsecured loan threshold for economic injury loans
for all disasters and for physical damage loans for major disasters to
$25,000 will also benefit disaster victims. Currently, SBA can only
disburse up to $5,000 for economic injury loans and up to $14,000 for
physical damage loans prior to obtaining the appropriate security
instruments. This increase will allow SBA to quickly disburse more
funds to disaster victims. For example, under certain circumstances SBA
may require additional documentation to disburse funds above the
unsecured limit (e.g., a building permit is required prior to any
disbursement for repairs above $14,000 to property that secures the
Joan). Unsecured loans, however, require only limited documentation: An
executed note, loan authorization and agreement, and proof of flood
insurance if the property is located in a Special Flood Hazard Zone.
Because there is less documentation to collect and review, SBA can
disburse funds below the unsecured loan threshold much more quickly.
C. Costs of the Rule
The calculated subsidy from the proposed changes has no significant
impact on the overall subsidy rate. In addition, the rule will not
result in any additional costs to disaster victims. Although SBA will
use expedited processing to approve loan applications from disaster
victims with strong credit, loan applications will not be declined
based solely on credit scores. SBA still plans to analyze personal or
business cash flow to determine repayment ability for those applicants
who do not have strong credit.
D. Alternatives
Working with the other members of the Hurricane Sandy Rebuilding
Task Force, SBA determined that these regulatory changes are the best
available means of achieving the Task Force's goals of instituting new
and innovated process improvements to SBA's Disaster Loan program and
increasing SBA's unsecured disaster loan limits.
SBA has already made several non-regulatory changes to implement
the Sandy Task Force's recommendation to institute new and innovated
process improvements to the disaster loan program. For example, SBA has
implemented a process of separate application tracks for business and
home disaster loans, which allows SBA to process business disaster
loans more quickly. In addition, SBA has established a new training
module for reserve disaster loan officers based on efficiencies and
improvements identified in an analysis of the Hurricane Sandy response
to ensure that a trained reserve staff is in place for future
disasters. However, in order to fully implement the recommendations of
the Task Force, SBA must revise its regulations to allow SBA to base
its repayment ability determination on either the applicant's cash flow
or credit, including credit score, and to increase the unsecured
disaster loan limits.
Executive Order 12988
This action meets applicable standards set forth in sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have preemptive effect. The final rule will not have retroactive effect
and will not apply to disasters declared before April 25, 2014.
Executive Order 13132
SBA has determined that this interim final rule will not have
substantial direct effects on the States, on the relationship between
the national government and the States, or 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
interim final rule has no federalism implications warranting
preparation of a federalism assessment.
Executive Order 12866 and 13563
Executive Order 13563 reaffirms the principles of E.O. 12866 while
calling for improvements in the nation's regulatory system to promote
predictability, to reduce uncertainty, and to use the best, most
innovative, and least burdensome tools for achieving regulatory ends.
The executive order directs agencies to consider regulatory approaches
that reduce burdens and maintain flexibility and freedom of choice for
the public where these approaches are relevant, feasible, and
consistent with regulatory objectives. E.O. 13563 also requires that
regulations be based on the open exchange of information and
perspectives among state and local officials, affected stakeholders in
the private sector, and the public as a whole.
In developing this rule, SBA collaborated with multiple agencies
through its participation on Hurricane Sandy Rebuilding Task Force. The
Task Force was led by the Secretary of Housing and Urban Development,
and included twenty-three executive department agencies and offices.
The Task Force worked with these Federal agency members as well as
state and local officials to identify areas where immediate steps could
be taken to help communities recovering from Hurricane Sandy. SBA
continues to communicate with the other members of the Task Force via
monthly progress reports.
Executive Order 13563 also recognizes the importance of maintaining
a consistent culture of retrospective review and analysis throughout
the executive branch. SBA had identified revisions to Sec. 123.6 to
expedite approval of disaster loans based on credit score as a part of
its retrospective review. As stated in that report, an analysis of the
performance of disaster loans to borrowers with strong credit indicated
limited risk.
Changing the current process of requiring a cash flow analysis for
all loan applications would allow SBA more flexibility to design a loan
approval that is in line with current private sector practices and
reduce the processing cost for disaster loans.
Paperwork Reduction Act (44 U.S.C. Ch. 35)
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA has determined that this interim final rule would not impose any
new reporting or recordkeeping requirements.
[[Page 22862]]
Regulatory Flexibility Act (5 U.S.C. 601-612)
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 requires
administrative agencies to consider the effect of their actions on
small entities, including small businesses.
According to the RFA, when an agency issues a rule, the agency must
prepare an analysis to determine whether the impact of the rule will
have a significant economic impact on a substantial number of small
entities. However, the RFA requires such analysis only where notice and
comment rulemaking is required. Rules are exempt from the APA notice
and comment requirements when the agency for good cause finds that
notice and public procedure thereon is impracticable, unnecessary, or
contrary to the public interest. SBA has determined that there is good
cause to adopt this interim final rule without prior public
participation; therefore, the rule is also exempt from the RFA
requirements. SBA invites comments on this determination.
List of Subjects in 13 CFR Part 123
Disaster assistance, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses, Terrorism.
For reasons set forth in the preamble, SBA amends 13 CFR part 123
as follows:
PART 123--DISASTER LOAN PROGRAM
0
1. The authority citation for part 123 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b) (6), 636(b), 636(d), 657n;
Pub. L. 102-395, 106 Stat. 1828, 1864; Pub. L. 103-75, 107 Stat.
739; and Pub. L. 106-50, 113 Stat. 245.
0
2. Amend Sec. 123.6 by revising the first sentence to read as follows:
Sec. 123.6 What does SBA look for when considering a disaster loan
applicant?
There must be reasonable assurance that you can repay your loan
based on SBA's analysis of your credit or your personal or business
cash flow, and you must also have satisfactory character.* * *
0
3. Amend Sec. 123.11 as follows:
0
a. Remove the introductory text and paragraph (c);
0
b. Redesignate paragraphs (a) and (b) as (c) and (d)
0
c. Add new paragraphs (a) and (b); and
0
d. Revise the second sentence of newly redesignated paragraph (c) to
read as follows.
Sec. 123.11 Does SBA require collateral for any of its disaster
loans?
(a) When collateral is not required:
(1) Economic injury disaster loans. Generally, SBA will not require
that you pledge collateral to secure an economic injury disaster loan
of $25,000 or less.
(2) Physical disaster home and physical disaster business loans.
SBA will not require that you pledge collateral to secure a physical
disaster home or physical disaster business loan of $14,000 or less. In
addition, under a Major Disaster, SBA generally will not require that
you pledge collateral to secure a physical disaster home or physical
disaster business loan of $25,000 or less.
(3) IDAP loans. Collateral requirements for IDAP loans are set
forth in Subpart H of this part.
(4) Military Reservist EIDL. For the purposes of the Military
Reservist EIDL only, as described in section 123.513, SBA will not
generally require that you pledge collateral to secure a loan of
$50,000 or less.
(b) For loans larger than the amounts outlined in paragraph (a) of
this section, you will be required to provide available collateral such
as a lien on the damaged or replacement property, a security interest
in personal/business property, or both.
(c) * * * In deciding whether collateral is required, SBA will add
up all physical disaster loans to see if they exceed the applicable
unsecured threshold outlined in paragraph (a)(2) of this section and
all economic injury disaster loans to see if they exceed $25,000.
* * * * *
Dated: April 16, 2014.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2014-09183 Filed 4-24-14; 8:45 am]
BILLING CODE 8025-01-P