Kerry Pushes for Increased Lender Oversight in Wake of $76 Million Loan Fraud Scheme

Today, Sen. John Kerry [D-Mass.] pushed for more aggressive oversight of small-business lenders, and called on the Bush administration to strengthen its commitment to preventing future fraud. The hearing was prompted by $76 million in fraudulent loans originated by Business Loan Center LLC [BLX], one of the Small Business Administration’s [SBA] largest lenders. Kerry raised concerns that the SBA’s oversight had been ineffective or nonexistent due to staffing shortages, insufficient funding and a lack of other necessary resources.

“Government-backed small-business loans for minorities, women and veterans are more important than ever as we brace for the full fallout from the subprime mortgage loan crisis,” said Sen. Kerry, chairman of the Committee on Small Business and Entrepreneurship. “The Bush administration’s lax oversight of these important loan programs ultimately costs the taxpayers money. It’s crucial that the agency fixes these problems in the light of day and works to make sure that these failures don’t happen again.”

Last month, the SBA Office of Inspector General publicly released a report summarizing its audit of the SBA’s oversight of BLX. The SBA requested a large amount of the report to be redacted, including many of the Inspector General’s recommendations and the agency’s plans to respond to those recommendations. Kerry pressed SBA Administrator Steven Preston to increase transparency and make changes to the agency’s lender oversight procedures publicly.

Inspector General Eric Thorson testified that, “Whether SBA has effective safeguards, and a means of overseeing lenders that facilitates the prevention and detection of fraud, has been an area of concern and focus for my office for a number of years.

“Our audits and investigations have identified significant weaknesses in the agency’s oversight of its lenders and, since 2000, we have identified lender oversight, guaranty purchase reviews, and loan agent fraud as major management challenges facing the agency. SBA has been slow to develop its lender oversight program and, only in recent years, has the agency made progress in addressing longstanding weaknesses.”

Sens. Olympia Snowe [R-Maine] and Kerry recently introduced legislation to measure the economic outcomes and improve the oversight of SBA’s 7[a] [working capital] and 504 [fixed assets] lending programs. The Small Business Lending Oversight and Program Performance Improvements Act [S. 2288] will ensure that the SBA fully assesses the quality and performance of lender portfolios so that these loan programs remain strong and benefit small businesses to the greatest extent possible.

The National Association of Government Guaranteed Lenders and the National Association of Development Companies – trade associations for the 7[a] and 504 programs, respectively – both support the bill.

GoodBiz113's take: Once again, Sen. Kerry and his colleagues are moving federal agencies -- in this case, SBA, supposedly our nation's small-biz watchdog -- closer to full accountability and transparency. Small-business owners and all U.S. citizens deserve nothing less.

SOURCES: GovTrack.us, Library of Congress, U.S. Senate Committee on Small Business and Entrepreneurship
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