[Federal Register Volume 81, Number 191 (Monday, October 3, 2016)]
[Rules and Regulations]
[Pages 67901-67904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23733]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

RIN 3245-AG78


Disaster Assistance Loan Program; Disaster Loan Mitigation, 
Contractor Malfeasance and Secured Threshold

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.

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SUMMARY: On April 6, 2016, the U.S. Small Business Administration (SBA) 
published in the Federal Register a proposed rule to amend its disaster 
loan program regulations in response to changes made to the Small 
Business Act (the Act) by the Recovery Improvements for Small Entities 
After Disaster Act of 2015 (the RISE Act). SBA received no comments on 
its proposed rule; therefore SBA adopts the proposed rule without 
change. The first change expands the definition of a mitigating measure 
to include the construction of a safe room or similar storm shelter 
designed to protect property and occupants. The second change allows 
for an increase of the unsecured threshold for physical damage loans 
for non-major disasters. The third change allows SBA to increase loan 
amounts to address contractor malfeasance. In addition, SBA is making 
several technical corrections to conform certain regulatory provisions 
to existing statutory authority and remove an obsolete reference in 
part 123.

DATES: This rule is effective on October 3, 2016.

FOR FURTHER INFORMATION CONTACT: Eric Wall, Office of Disaster 
Assistance, 409 3rd St. SW., Washington, DC 20416, (202) 205-6739.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 7(b) of the Small Business Act, 15 U.S.C. 636(b), 
authorizes SBA to make direct loans to homeowners, renters, businesses, 
and non-profit organizations that have been adversely affected by a 
disaster. After a declared disaster, SBA makes loans of up to $200,000 
to homeowners and renters (plus up to $40,000 for personal property) 
and loans of up to $2 million to businesses of all sizes and non-profit 
organizations to assist with any uninsured and otherwise uncompensated 
physical losses sustained during the disaster. In addition to loans for 
the repair or replacement of damaged physical property, SBA also offers 
working capital loans, known as Economic Injury Disaster Loans (EIDLs), 
to small businesses, small agricultural cooperatives, and most private 
non-profit organizations that have suffered economic injury caused by a 
disaster. The maximum loan amount is $2 million for physical and 
economic injuries combined. SBA may waive this $2 million limit if a 
business is a major source of employment.
    The Recovery Improvements for Small Entities After Disaster Act of 
2015, Public Law 114-88, 129 Stat. 686 (November 25, 2015), amended 
certain terms and conditions of SBA's Disaster Assistance program. SBA 
published a proposed rule in the Federal Register on April 6, 2016 (81 
FR 19934), to address three of those statutory amendments, as set out 
in sections 1102 (safe rooms), 2102 (three year temporary increase in 
unsecured loan limits), and 2107 (contractor malfeasance) of the RISE 
Act, as well as to make several minor technical amendments to the 
program regulations to ensure consistency between the program's 
regulatory and statutory authorities. The comment period for the 
proposed rule ended on June 6, 2016, and SBA received no comments. As 
discussed below, this final rule implements those statutory

[[Page 67902]]

and technical amendments without change.

II. Changes Made as a Result of the RISE Act

    Section 1102 of the RISE Act, Use of Physical Damage Disaster Loans 
to Construct Safe Rooms, expanded the definition of mitigation to 
include ``construction of a safe room or similar storm shelter designed 
to protect property and occupants from tornadoes or other natural 
disasters, if such safe room or similar storm shelter is constructed in 
accordance with applicable standards issued by the Federal Emergency 
Management Agency.'' This change allows SBA to include a safe room or 
storm shelter as a mitigating measure; therefore, SBA is amending 13 
CFR 123.21 to reflect this change in the definition of a mitigation 
measure. Increases for mitigation purposes are only available when the 
mitigation protects or mitigates against damage from the same type of 
occurrence as the declared disaster. Revised Sec.  123.21 also 
clarifies that a mitigation measure is something done for the purpose 
of protecting property (real and personal) and occupants. In addition, 
safe rooms and storm shelters are now included in the examples of 
mitigation measures. The final rule adopts the proposed revisions to 13 
CFR 123.21 without change.
    Section 2102 of the RISE Act, Collateral Requirements for Disaster 
Loans, increased SBA's unsecured loan limits for all disaster loans for 
a period of three years. Therefore, SBA proposed to amend 13 CFR 123.11 
to reflect a $25,000 unsecured threshold for all disaster declarations. 
In accordance with the RISE Act, after November 25, 2018, the unsecured 
limit for physical damage loans for non-major disasters will revert 
back to $14,000, unless Congress makes the increase permanent. The 
final rule adopts the proposed revision to 13 CFR 123.11 without 
change.
    Section 2107 of the RISE Act, Contractor Malfeasance, expanded 
SBA's ability to provide disaster assistance by expressly allowing for 
supplemental assistance for malfeasance by a contractor or other person 
and defining what constitutes malfeasance. Prior to implementation of 
the RISE Act, SBA provided assistance only for malfeasance by 
contractors, not malfeasance by any ``other person'' in connection with 
the loan, and did not allow for increases in the loan amount beyond the 
regulatory limit of $200,000 for repair or replacement of damaged 
property. The RISE Act gave SBA authority to increase a disaster loan 
when a contractor or other person engages in malfeasance in connection 
with repairs to, rehabilitation of, or replacement of property for 
which SBA made a disaster loan and the malfeasance results in 
substantial economic damage or substantial risks to health or safety. 
SBA proposed to revise 13 CFR 123.18, 123.20, and 123.105 to include 
details on what constitutes malfeasance, provide guidance on when 
borrowers are eligible to apply for loan increases due to malfeasance, 
and allow home loan borrowers to increase their loans up to an 
additional $200,000 for malfeasance. For business loans, the total 
maximum loan amount, including any increase for malfeasance, remains 
$2,000,000. The final rule adopts the proposed revisions to 13 CFR 
123.18, 123.20, and 123.105 without change.
    The changes made as a result of the RISE Act apply to all eligible 
recipients of SBA disaster loans for disasters declared on or after the 
effective date of the RISE Act, November 25, 2015.

III. Technical Corrections

    In addition to the changes made as a result of the RISE Act, SBA is 
also making several technical corrections. In the proposed rule, SBA 
proposed to change the phrase ``sudden physical event'' to ``sudden 
event'' in 13 CFR 123.2 to conform the regulation to SBA's statutory 
definition of ``disaster'' in 15 U.S.C. 632(k). SBA also proposed to 
revise 13 CFR 123.3 to remove the reference to ``emergency'' 
declarations in 123.3(a)(1) in order to conform the regulations to 
SBA's statutory authority. SBA proposed this change to clarify that SBA 
disaster assistance is not automatically authorized when the President 
declares an emergency; such assistance may be available, however, if 
SBA declares a disaster under its own authority. Finally, SBA proposed 
to revise 13 CFR 123.13(a) to remove the reference to an expired OMB 
control number. These proposed technical corrections are all adopted 
without change in the final rule.

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 Assistance 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 final rule will 
not require members of the public to adjust their behavior. Rather, the 
changes will benefit the public by increasing the unsecured threshold 
for all disaster loans, allowing SBA to provide supplemental assistance 
for malfeasance by a contractor or other person, and expanding 
available uses of mitigation funds to include safe rooms and storm 
shelters.
    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.
    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 
rule does not constitute a significant regulatory action under 
Executive Order 12866. This is not a major rule under the Congressional 
Review Act, 5 U.S.C. 800.

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. This action does 
not have preemptive effect. The final rule will have retroactive effect 
to the enactment date of the statutory amendments. Sections 1102 (Safe 
Rooms), 2102 (3 year temporary increase in unsecured loan limits) and 
2107 (Contractor Malfeasance) of the RISE Act amended the Small 
Business Act effective November 25, 2015. The regulatory changes made 
as a result of the RISE Act will apply to disasters declared on or 
after November 25, 2015.

Executive Order 13132

    For the purposes of Executive Order 13132, this 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, 
SBA determined that this rule has no

[[Page 67903]]

federalism implications warranting preparation of a federalism 
assessment.

Executive Order 13563

    Executive Order 13563 reaffirms the principles of Executive Order 
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. Executive Order 13563 
emphasizes further that regulations must be based on the best available 
science and that the rulemaking process must allow for public 
participation and an open exchange of ideas. We developed this rule in 
a manner consistent with these requirements and afforded the public 60 
days to participate and provide comments. No comments were received.

Paperwork Reduction Act (44 U.S.C. Ch. 35)

    For purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
has determined that this rule will not impose any new reporting or 
recordkeeping requirements.

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 allows an agency to certify a rule in lieu of preparing an analysis 
if the rulemaking is not expected to have a significant economic impact 
on a substantial number of small entities.
    While this rule will affect all future applicants for disaster 
assistance, some of which would be small entities, it does not impose 
any requirements on small entities. It streamlines SBA's processes in 
order to enable the Agency to provide disaster assistance more quickly 
and efficiently to small entities. SBA is not a small entity. As such, 
SBA certifies that this rule does not have a significant economic 
impact on a substantial number of small entities.

List of Subjects in 13 CFR Part 123

    Disaster assistance, Loan programs--business, Reporting and 
recordkeeping requirements, Small businesses.

    For reasons stated in the preamble, the U.S. Small Business 
Administration amends 13 CFR part 123 as follows:

PART 123--DISASTER LOAN PROGRAM

0
1. The authority citation for part 123 is revised to read as follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 636(b), 636(d), 657n; and 
Pub. L. 102-395, 106 Stat. 1828, 1864.

0
2. Amend Sec.  123.2 by revising the seventh sentence to read as 
follows:


Sec.  123.2  What are disaster loans and disaster declarations?

    * * * Sudden events that cause substantial economic injury may be 
disasters even if they do not cause physical damage to a victim's 
property. * * *

0
3. Amend Sec.  123.3 by revising paragraph (a)(1) to read as follows:


Sec.  123.3  How are disaster declarations made?

    (a) * * *
    (1) The President declares a Major Disaster and authorizes Federal 
Assistance, including individual assistance (Assistance to Individuals 
and Households Program).
* * * * *

0
4. Amend Sec.  123.11 by revising paragraph (a)(2) to read as follows:


Sec.  123.11  Does SBA require collateral for any of its disaster 
loans?

    (a) * * *
    (2) Physical disaster home and physical disaster business loans. 
Generally, SBA will not require that you pledge collateral to secure a 
physical disaster home or physical disaster business loan of $25,000 or 
less. This authority expires on November 25, 2018, unless extended by 
statute.
* * * * *


Sec.  123.13  [Amended]

0
5. Amend Sec.  123.13 by removing the parenthetical phrase ``(OMB 
Approval No. 3245-0122.)'' from paragraph (a).

0
6. Amend Sec.  123.18 by:
0
a. Redesignating the undesignated text as paragraph (a);
0
b. Revising the first sentence of the redesignated paragraph (a); and
0
c. Adding paragraph (b).
    The revisions and additions read as follows:


Sec.  123.18  Can I request an increase in the amount of a physical 
disaster loan?

    (a) Generally, SBA will consider your request for an increase in 
your loan if you can show that the eligible cost of repair or 
replacement of damages increased because of events occurring after the 
loan approval that were beyond your control. * * *
    (b) For all disasters occurring on or after November 25, 2015, you 
may also request an increase in your loan if you suffered substantial 
economic damage or substantial risks to health or safety as a result of 
malfeasance in connection with the repair or replacement of real 
property or business machinery and equipment for which SBA made a 
disaster loan. See Sec.  123.105 for limits on home loan amounts and 
Sec.  123.202 for limits on business loan amounts. Malfeasance may 
include, but is not limited to, nonperformance of all or any portion of 
the work for which a contractor was paid, work that does not meet 
acceptable standards, or use of substandard materials.

0
7. Amend Sec.  123.20 by redesignating the undesignated text as 
paragraph (a) and adding paragraph (b) to read as follows:


Sec.  123.20  How long do I have to request an increase in the amount 
of a physical disaster loan or an economic injury loan?

    (a) * * *
    (b) For physical disaster loan increases requested under Sec.  
123.18(b) as a result of malfeasance, the request must be received not 
later than two years after the date of final disbursement.

0
8. Amend Sec.  123.21 by revising the first and third sentences to read 
as follows:


Sec.  123.21  What is a mitigation measure?

    A mitigation measure is something done for the purpose of 
protecting property and occupants against disaster related damage. * * 
* Examples of mitigation measures include building retaining walls, sea 
walls, grading and contouring land, elevating flood prone structures, 
relocating utilities, constructing a safe room or similar storm shelter 
(if such safe room or similar storm shelter is constructed in 
accordance with applicable standards issued by the Federal Emergency 
Management Agency), or retrofitting structures to protect against high 
winds, earthquakes, flood, wildfires, or other physical disasters. * * 
*

0
9. Amend Sec.  123.105 by:
0
a. Revising paragraph (a) introductory text;
0
b. Removing the word ``and'' from paragraph (a)(3);
0
c. Revising paragraph (a)(4); and
0
d. Adding paragraph (a)(5).

[[Page 67904]]

    The revisions and additions read as follows:


Sec.  123.105  How much can I borrow with a home disaster loan and what 
limits apply on use of funds and repayment terms?

    (a) There are limits on how much money you can borrow for 
particular purposes:
* * * * *
    (4) 20 percent of the verified loss (not including refinancing or 
malfeasance), before deduction of compensation from other sources, up 
to a maximum of $200,000 for post-disaster mitigation (see Sec.  
123.107); and
    (5) $200,000 for eligible malfeasance, pursuant to Sec.  123.18.
* * * * *

    Dated: September 22, 2016.
Maria Contreras-Sweet,
Administrator .
[FR Doc. 2016-23733 Filed 9-30-16; 8:45 am]
 BILLING CODE 8025-01-P