June 6, 2016
By Bob Coleman
Editor, Coleman Report
NAGGL’s Tactics Questioned in Supporting SBA Oversight Bill Part 1 of 2
Reader comments are in red responding to NAGGL’s May 26th email.
Background on & Summary of Small Business Lending Oversight Act of 2016
First, it’s important to remember that the Small Business Lending Oversight Act of 2016 was just introduced yesterday and therefore nothing has been finalized or enacted. Perhaps it was just introduced officially yesterday, but you obviously had a big head start on that. It appears the groundwork has already been laid for this to move forward so this point feels disingenuous.
NAGGL’s job is to respond with the best, neutral, factual information that we can. Why neutral? Why not an advocate for your members? I understand that you don’t want your input to be discounted as biased, but what did you actually do to present reasonable arguments against this from the lenders’ perspective? NAGGL and congressional staff met with dozens of lenders of all sizes, before, during and after our recent conference. I guess I missed the invitation—too bad for me.
You’ve heard the old saw that making legislation is like making sausage – you don’t want to know how it’s made. In this case, what members see is a final proposed piece of legislation that has gone through several iterations and a long negotiating process that included all stakeholders in the 7(a) program. WHAT?! Only those actually involved in the process know, understand and can communicate the facts. Really?! What are the rest of us, fertilizer?
In an attempt to ensure better stewardship of the 7(a) program, the bill proposes to address congressional concerns over rapid program growth in several ways. Did anyone bring up the fact that the Feds low interest rate policy has demolished the yields necessary for the banking industry, particularly community banks, to survive? This will continue to apply until rates go up. When rates go up the yields will return and more alternative loan opportunities will occur.
This lowering of the Secondary Market premium split from 110 to 108 is one piece of the proposed legislation; but what only those truly engaged in the serious business of protecting the 7(a) program can accurately communicate to you about the proposed change in the premium split is the fact that the original congressional desire was to enforce the split at 100. For how long has the split been at 110? 22 years! This is a knee jerk reaction that penalizes lenders who are prudent and SOP compliant. An industry has grown up around this specialty lending area. That’s a lot of people and an infrastructure. It is not appropriate to just pull the rug out from something like this, from any point of view.
Finally, it is important to remember that the premium split will help lower the program’s subsidy rate, When? By how much? which in turn helps to lower the lender guaranty fee, which is close to hitting its statutory maximum—an occurrence that would seriously impact the future of the entire 7(a) program. I have a proposal: allow lenders that have a positive cumulative net SBA return to make loans with a significantly discounted guaranty fee. Did anyone suggest this? What better way to incentivize lenders to make good loans?
We all must recall that SBA lending does not operate in a free market economy I beg to differ, this statement is crap. All business are highly regulated, some just more than others.; it is a federal credit program – and with a 50% increase in volume, with public perception and sometimes proof that some participants are stepping over the line of prudent behavior, again, the answer is positive incentives it’s not surprising I won’t argue with you on this point– and we believe appropriate but I disagree with this one as to the type of action— that Congress is taking action to support and strengthen SBA’s lender oversight abilities.
And, finally, here is an accurate summary of the legislation proposed by the Senate Committee on Small Business & Entrepreneurship:
Here’s a finally of my own: the structure and administration of the SBA SOP forces an enormous additional cost burden on participating lenders. Have you studied that? Like some help?
NAGGL’s Tactics Questioned in Supporting SBA Oversight Bill — Part 2 of 2
From a Reader . . . . . . .
My comments, Bob, are intended to be confidential, I do not want the trade organization coming after me, I am using a friend’s email account so as to not cause any backlash to my organization.
Bob, in response to your poll questions, would answer an empathetic no to all of the questions. Our program is operating at historic lows for problem loans. OCRM’s lender oversight PARRIS capabilities are comprehensive and effective. They are already tracking the potential risk factors included in the bill. While I appreciate all the effort that the trade association says they put forth to make the bill less burdensome than they claim it could have been; if the bill is less than perfect for our industry and in any way harms the membership why would NAGGL support it?
We could have said we support giving the SBA some enforcement capabilities but stopped short of supporting the bill in its entirety. And who decided it should be supported? I do not recall seeing a poll asking me if I supported it. Did the Board approve supporting the bill or was it just Tony Wilkinson? I do not believe the bill would have captured the attention nor the support of the ABA and ICBA if NAGGL had not supported it.
I read the transcript of the meeting and when asked if the Administrator needed more resources to keep up with the growing program she said PARRIS was working. We already pay for them to monitor us through PARRIS. We already pay to have them come onsite. There is no evidence of widespread problems in the portfolio. If there are bad actors, SBA has the tools to ferret them out and providing them with enforcement actions is appropriate.
The Bill seems to have been crafted so as to not impact large lenders who do not sell. And it seems to target certain business models that focus on specific industries like Live Oak Bank and SBLC’s.
It impacts small banks like mine by taking 10% of top line revenue because yes I sell in the secondary market. We thought long and hard about getting into SBA business as we do every business line. The ability to sell the guaranteed portion was a factor in deciding to invest in this program. We did our research and are aware that premium income is dynamic and the levels will fall as rates climb and prepayments pick up. We had hoped we would be well into our use of the program and be able to change course and rely on the interest income as the economic situation changes. As a Bank we make business decisions in every aspect of banking that takes into account prevailing interest rates and how they impact the assets and liability sides of our balance sheet. Is NAGGL planning on supporting a bill that will impact our deposit gathering activities as well? Maybe they don’t approve of the way we handle and trust and wealth management activities.
I smell a rat here. It seems as though our trade organization is not representing its members; it seems instead as though they are turning on some of their own. Is the goal to have the program run completely by the large banks or banks whose business model fits more in line with their idea of how to operate an SBA division?
A trade association is supposed to represent its members not target them. And again, who decided we support this bill?