13 CFR 120.1400 - Grounds for enforcement actions

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§ 120.1400 Grounds for enforcement actions—SBA Lenders.
(a) Agreement. By making SBA 7(a) guaranteed loans or 504 loans, SBA Lenders automatically agree to the terms, conditions, and remedies in Loan Program Requirements, as promulgated or issued from time to time and as if fully set forth in the SBA Form 750, Loan Guaranty Agreement or other applicable participation, guaranty, or supplemental agreement.
(b) Scope. SBA may undertake one or more of the enforcement actions listed in § 120.1500 or as otherwise authorized by law, if SBA determines that the grounds applicable to the enforcement action exist. Paragraphs (c) through (e) of this section list the grounds that trigger enforcement actions against each type of SBA Lender. In general, the grounds listed in paragraph (c) apply to all SBA Lenders. However, certain enforcement actions against SBA Supervised Lenders require the existence of certain grounds, as set forth in paragraphs (d) and (e). In addition, paragraph (f) of this section lists two additional grounds for taking enforcement action against CDCs that do not apply to other SBA Lenders.
(c) Grounds in general. Except as provided in paragraphs (d) and (e) of this section, the grounds that may trigger an enforcement action against any SBA Lender (regardless of its Risk Rating) include:
(1) Failure to maintain eligibility requirements for specific SBA programs and delegated authorities, including but not limited to: 7(a), PLP, SBAExpress, 504, ALP, PCLP, the alternative loss reserve pilot program and any pilot loan program;
(2) Failure to comply materially with any requirement imposed by Loan Program Requirements;
(3) Making a material false statement or failure to disclose a material fact to SBA. (A material fact is any fact which is necessary to make a statement not misleading in light of the circumstances under which the statement was made.);
(4) Not performing underwriting, closing, disbursing, servicing, liquidation, litigation or other actions in a commercially reasonable and prudent manner for 7(a) or 504 loans, respectively, as applicable. Evidence of such performance or actions may include, but is not limited to, the SBA Lender having a repeated Less Than Acceptable Risk Rating (generally in conjunction with other evidence) or an on-site review/examination assessment which is Less Than Acceptable;
(5) Failure within the time period specified to correct an underwriting, closing, disbursing, servicing, liquidation, litigation, or reporting deficiency, or failure in any material respect to take other corrective action, after receiving notice from SBA of a deficiency and the need to take corrective action;
(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. Prior to issuing a notice of a proposed enforcement action or immediate suspension under § 120.1500 based upon this paragraph, SBA must send prior written notice to the SBA Lender explaining why the SBA Lender's actions were uncooperative, detrimental to the program, undermined SBA's management of the program, or were not consistent with standards of good conduct. The prior notice must also state that the SBA Lender's actions could give rise to a specified enforcement action, and provide the SBA Lender with a reasonable time to cure the deficiency before any further action is taken;
(7) Repeated failure to correct continuing deficiencies;
(8) Unauthorized disclosure of Reports, Risk Rating, or Confidential Information;
(9) Any other reason that SBA determines may increase SBA's financial risk (for example, repeated Less Than Acceptable Risk Ratings (generally in conjunction with other indicators of increased financial risk) or indictment on felony or fraud charges of an officer, key employee, or loan agent involved with SBA loans for the SBA Lender);
(10) As otherwise authorized by law; and
(11) For immediate suspension of all SBA Lenders from delegated authorities—upon a determination by SBA that one or more of the grounds in paragraph (c) or paragraph (f) of this section, as applicable, exist and that immediate action is needed to prevent significant impairment of the integrity of the 7(a) or 504 loan program.
(12) For immediate suspension of all SBA Lenders except SBA Supervised Lenders from the authority to participate in the SBA loan program, including the authority to make, service, liquidate, or litigate 7(a) or 504 loans—upon a determination by SBA that one or more of the grounds in paragraph (c) or paragraph (f) of this section, as applicable, exist and that immediate action is needed to prevent significant impairment of the integrity of the 7(a) or 504 loan program.
(d) Grounds required for certain enforcement actions against SBA Supervised Lenders (except Other Regulated SBLCs) or, as applicable, Other Persons. For purposes of Subpart I, Other Person means a Management Official, attorney, accountant, appraiser, Lender Service Provider or other individual involved in the SBA Supervised Lender's operations. For the below listed SBA Supervised Lender enforcement actions, the grounds that are required to take the enforcement action are:
(1) For SBA program suspensions and revocations—
(i) False statements knowingly made in any required written submission to SBA; or
(ii) An omission of a material fact from any written submission required by SBA; or
(iii) A willful or repeated violation of the Small Business Act (the Act) or SBA regulations; or
(iv) A willful or repeated violation of any condition imposed by SBA with respect to any application, request, or agreement with SBA; or
(v) A violation of any cease and desist order of SBA.
(2) For SBA program immediate suspension— SBA may suspend an SBA Supervised Lender, effective immediately, if in addition to meeting the grounds set forth in paragraph (d)(1) of this section, the Administrator (or the Deputy Administrator, only if the Administrator is unavailable to take such action) finds extraordinary circumstances and takes such action in order to protect the financial or legal position of the United States.
(3) For cease and desist orders—
(i) A violation of the Act or SBA regulations, or
(ii) Where an SBA Supervised Lender or Other Person engages in or is about to engage in any acts or practices that will violate the Act or SBA's regulations.
(4) For an emergency cease and desist order—
(i) Where grounds for cease and desist order are met,
(ii) The Administrator (or the Deputy Administrator, only if the Administrator is unavailable to take such action) finds extraordinary circumstances, and
(iii) In order to protect the financial or legal position of the United States.
(5) For transfer of Loan portfolio—
(i) Where a court has appointed a receiver; or
(ii) The SBA Supervised Lender is either not in compliance with capital requirements or is insolvent. An SBA Supervised Lender is insolvent within the meaning of this provision when all of its capital, surplus, and undivided profits are absorbed in funding losses and the remaining assets are not sufficient to pay and discharge its contracts, debts, and other obligations as they come due.
(6) For transfer of servicing activity—
(i) Where grounds for transfer of Loan portfolio are met; or
(ii) Where the SBA Supervised Lender is otherwise operating in an unsafe and unsound condition.
(7) For order to remove Management Official— where, in the opinion of the Administrator or his/her delegatee, the Management Official—
(i) Willfully and knowingly committed a substantial violation of the Act, SBA regulation, a final cease and desist order, or any agreement by the Management Official or the SBA Supervised Lender under the Act or SBA regulations, or
(ii) Willfully and knowingly committed a substantial breach of a fiduciary duty of that person as a Management Official and the violation or breach of fiduciary duty is one involving personal dishonesty on the part of such Management Official, or
(iii) The Management Official is convicted of a felony involving dishonesty or breach of trust and the conviction is no longer subject to further judicial review (excludes writ of habeas corpus).
(8) For order to suspend or prohibit participation of Management Official (interim measure pending removal)—where SBA is undertaking enforcement action of removal of a Management Official.
(9) For order to suspend or prohibit participation of Management Official due to criminal charges— where the Management Official is charged in any information, indictment or complaint authorized by a United States attorney with a felony involving dishonesty or breach of trust.
(e) Grounds required for certain enforcement actions against SBLCs and Other Regulated SBLCs.
(1) Capital directive. If the AA/CA determines that an SBLC is capitally impaired or is otherwise being operated in an imprudent manner, the AA/CA may, in addition to any other action authorized by law, issue a directive to the SBLC to increase capital consistent with § 120.1500(d)(1).
(2) Civil action for termination. If an SBLC violates the Act or SBA regulations, SBA may institute a civil action to terminate SBLC rights, privileges, and the franchise under § 120.1500(d)(2).
(f) Additional grounds specific to CDCs. In addition to the grounds set forth in paragraphs (b) and (c) of this section, SBA may take enforcement action against a CDC for:
(1) Failure to receive SBA approval for at least four 504 loans during the last two consecutive fiscal years, or
(2) For PCLP CDCs, failure to establish or maintain a LLRF as required by the PCLP.
[73 FR 75521, Dec. 11, 2008]

Title 13 published on 2014-01-01

The following are only the Rules published in the Federal Register after the published date of Title 13.

For a complete list of all Rules, Proposed Rules, and Notices view the Rulemaking tab.

  • 2014-03-21; vol. 79 # 55 - Friday, March 21, 2014
    1. 79 FR 15641 - 504 and 7(a) Loan Programs Updates
      GPO FDSys XML | Text
      SMALL BUSINESS ADMINISTRATION
      Final rule.
      This rule is effective April 21, 2014, except for the amendment to 13 CFR 120.823, which is effective April 21, 2015.
      13 CFR Part 120

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United States Code
Statutes at Large

Title 13 published on 2014-01-01

The following are ALL rules, proposed rules, and notices (chronologically) published in the Federal Register relating to 13 CFR 120 after this date.

  • 2014-03-21; vol. 79 # 55 - Friday, March 21, 2014
    1. 79 FR 15641 - 504 and 7(a) Loan Programs Updates
      GPO FDSys XML | Text
      SMALL BUSINESS ADMINISTRATION
      Final rule.
      This rule is effective April 21, 2014, except for the amendment to 13 CFR 120.823, which is effective April 21, 2015.
      13 CFR Part 120