As most of our readers know by now, the SBA has released the updated SOP 50 10 5(C), which became effective on October 1, 2010.  Less well known is the fact that the SBA has also released a brand new SOP which also became effective on October 1, 2010.  The SOP 50 53 is the newest member of the SOP family and covers Lender Supervision and Enforcement by the SBA Office of Credit Risk Management ("OCRM").  This SOP provides guidance on the types of supervision that OCRM may conduct over SBA Lender participants and sets forth the disciplinary and enforcement actions that SBA may employ in response to "violations of law, rules, regulations, final agency notices and/or unsafe and unsound practices or conditions."  Although this SOP expressly states that it "is not intended to, does not, and may not be relied upon to, create rights, substantive or procedural for Lending Partners or any other party enforceable at law or in any administrative proceeding against SBA," an understanding of this SOP is still critical for SBA Lenders to understand the approach that SBA may take in conducting its lender oversight activities.

                The SOP 50 53 is supplemented by the SOP 51 00 "On-Site Lender Reviews and Examinations" and provides for different levels of monitoring by the agency depending on the size of Lenders SBA portfolios.  The 50 53 also provides guidance on the different types of lender monitoring and reviews, including off-site and on-site reviews and circumstances that warrant increased levels of supervision by the SBA, and covers the enforcement actions the SBA may take against lender participants that are determined to be non-compliant with applicable law and SBA regulations.  Additionally, the SOP sets forth ten general grounds for enforcement actions.  These ten grounds are:

(1) Failure to maintain eligibility requirements for specific SBA program and delegated authorities;

(2) Failure to comply materially with any requirement imposed by SBA Loan Program Requirements, e.g., program fee requirements, program reporting requirements, maintenance;

(3) Making a material false statement or failure to disclose a material fact to SBA;

(4) Not performing underwriting, closing, disbursing, servicing, liquidation, litigation or other actions in a commercially reasonable and prudent manner;

(5) Failure within the time period specified to correct an underwriting, closing, disbursing, servicing, liquidation, litigation or reporting deficiency or failure in a material respect to take corrective action after receiving notice from SBA of deficiency and need to take corrective action. SBA will consider failure to take corrective action an example of a willful violation of the regulations/Act;

(6) Engaging in a pattern of uncooperative behavior or taking an action that SBA determines is detrimental to an SBA program, that undermines management or administration of a program, or that is not consistent with standards of good conduct (See 13 CFR 120.1400(c)(6) for additional guidance specific to this ground);

(7) Repeated failure to correct continuing deficiencies;

(8) Unauthorized disclosure of Reports, Risk Rating, or other Confidential Information, e.g., SBA Supervisory Information; including but not limited to, SBPS loan scores; loan level performance data; and review, examination and systematic off-site monitoring assessments;

(9) Any other reason that SBA determines in its discretion that may increase SBA's financial risk, e.g., repeated Less Than Acceptable Risk Rating (generally in conjunction with other indicators of increased financial risk), Less Than Acceptable on-site review results, operating or other deficiencies that increase SBA's potential risk, or possible fraud; or

(10) As otherwise authorized by law.

It is important to note that SBA has broad discretion to impose an enforcement action.  Accordingly, a thorough understanding and consistent application of all applicable SBA related laws and regulations is critical for lenders, not just to preserve and protect the SBA guaranty, but also to maintain a lender's good standing with the SBA.

For more information on the SOP 50 53, or other  SBA regulatory related matters, contact Ethan at esmith@starfieldsmith.com, or 215-542-7070.