SBA Hot Topic Tuesday — OIG Lists Loan Agent Fraud a Serious SBA Management Challenge

December 16, 2014

By Bob Coleman
Editor, Coleman Report Afternoon Brief

Every year, SBA’s Inspector General issues a report of what she considers the top management and performance challenges facing SBA.

Four of the eleven challenges concern the SBA 7(a) loan program.

Loan agent, and loan broker fraud is an issue everyone in the industry agrees is problematic.

Writes the OIG;

For years, OIG investigations have revealed a pattern of fraud by loan packagers and other for-fee agents in the 7(a) Loan Program involving hundreds of millions of dollars. Yet the SBA’s oversight of loan agents has been limited, putting taxpayer dollars at risk. The Agency could reduce this risk through effective loan agent disclosure requirements, a database or equivalent means to track loan agent activity, updated regulations, new guidance for lenders, and a registration system.

Tracking Loan Agent Data.

In response to this Challenge, the SBA has proposed various methods of tracking loan agent activity. The SBA eventually decided to have lenders fax a loan agent disclosure form (Form 159) to the SBA’s fiscal and transfer agent (FTA) and require the FTA to enter the data into a database accessible to the SBA. The SBA also began to link Form 159 information with its loan data. Despite some data problems, quality is improving. Moreover, the FTA is testing an automated Form 159.

Updating Regulations.

Any Government enforcement program requires effective regulations and procedures. In response to OIG concerns that the SBA loan agent enforcement regulations are outdated, the SBA drafted revised regulations that the OMB is reviewing.

Notice of SBA Enforcement Actions.

Lenders need to ensure that agents involved with their loans have not been subject to enforcement action by the SBA. The SBA now lists the names of loan agents and others named in SBA enforcement actions on its website, and updated an SOP in FY 2014 to instruct lenders to consult this list to avoid problematic loan agents.

Registration System.

The SBA needs to develop a system to assign a unique identifier to loan agents that participate in the 7(a) program. Without these identifiers, the SBA cannot effectively track loan agents to ensure suspended agents do not simply change their name and continue participating in the program. The SBA has not committed to implementing a registration system, and is waiting for the OIG to complete an audit on loan agents.

Read the entire OIG Report here.