81 FR 19934 - Disaster Assistance Loan Program; Disaster Loan Mitigation, Contractor Malfeasance and Secured Threshold

SMALL BUSINESS ADMINISTRATION

Federal Register Volume 81, Issue 66 (April 6, 2016)

Page Range		19934-19936
FR Document		2016-07750
The U.S. Small Business Administration (SBA) proposes to amend its disaster loan program regulations in response to changes made to the Small Business Act (the Act) by the Recovery Improvements for Small Entities After Disaster Act of 2015 (the RISE Act). The first change would expand the definition of a mitigating measure to include the construction of a safe room or similar storm shelter designed to protect property and occupants. The second change would allow for an increase of the unsecured threshold for physical damage loans for non- major disasters. The third change would allow SBA to increase loan amounts to address contractor malfeasance. In addition, SBA proposes to make several technical corrections to conform certain regulatory provisions to existing statutory authority and remove an obsolete reference in part 123.
Federal Register, Volume 81 Issue 66 (Wednesday, April 6, 2016)
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)]
[Proposed Rules]
[Pages 19934-19936]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-07750]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

RIN 3245-AG78


Disaster Assistance Loan Program; Disaster Loan Mitigation, 
Contractor Malfeasance and Secured Threshold

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The U.S. Small Business Administration (SBA) proposes to amend 
its disaster loan program regulations in response to changes made to 
the Small Business Act (the Act) by the Recovery Improvements for Small 
Entities After Disaster Act of 2015 (the RISE Act). The first change 
would expand the definition of a mitigating measure to include the 
construction of a safe room or similar storm shelter designed to 
protect property and occupants. The second change would allow for an 
increase of the unsecured threshold for physical damage loans for non-
major disasters. The third change would allow SBA to increase loan 
amounts to address contractor malfeasance. In addition, SBA proposes to 
make several technical corrections to conform certain regulatory 
provisions to existing statutory authority and remove an obsolete 
reference in part 123.

DATES: Comments must be received on or before June 6, 2016.

ADDRESSES: You may submit comments, identified by RIN 3245-AG78, by any 
of the following methods: (1) Federal Rulemaking Portal: http://regulations.gov. Follow the specific instructions for submitting 
comments; (2) Fax: (202) 205-7728 or Email [email protected]; or (3) 
Mail/Hand Delivery/Courier: James E. Rivera, Associate Administrator 
for Disaster Assistance, 409 3rd Street SW., Washington, DC 20416.
    SBA will post all comments to this proposed rule on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to U.S. Small Business Administration, 
Jerome Edwards, Office of Disaster Assistance, 409 3rd Street SW., Mail 
code 2990, Washington, DC 20416, or send an email to 
[email protected]. Highlight the information that you consider to 
be CBI and explain why you believe SBA should hold this information as 
confidential. SBA will review your information and determine whether it 
will make the information public.

FOR FURTHER INFORMATION CONTACT: Jerome Edwards, Office of Disaster 
Assistance 202-205-6734 or [email protected].

SUPPLEMENTARY INFORMATION: Section 7(b) of the Small Business Act, 15 
U.S.C. 636(b), authorizes SBA to make direct loans to homeowners, 
renters, businesses, and non-profit organizations that have been 
adversely affected by a disaster. After a declared disaster, SBA makes 
loans of up to $200,000 to homeowners and renters (plus up to $40,000 
for personal property) and loans of up to $2 million to businesses of 
all sizes and non-profit organizations to assist with any uninsured and 
otherwise uncompensated physical losses sustained during the disaster. 
In addition to loans for the repair or replacement of damaged physical 
property, SBA also offers working capital loans, known as Economic 
Injury Disaster Loans (EIDLs), to small businesses, small agricultural 
cooperatives, and most private non-profit organizations that have 
suffered economic injury caused by a disaster. The maximum loan amount 
is $2 million for physical and economic injuries combined. SBA may 
waive this $2 million limit if a business is a major source of 
employment.
    The Recovery Improvements for Small Entities After Disaster Act of 
2015, Public Law 114-88, 129 Stat. 686 (November 25, 2015), amended 
certain terms and conditions of SBA's Disaster Assistance program. As 
discussed below, this rulemaking proposes to implement three of those 
amendments, as set out in sections 1102, 2102 and 2107 of the RISE Act. 
SBA also proposes to make several minor technical amendments to the 
program regulations that, among other things, would ensure consistency 
between the program's regulatory and statutory authorities.

Changes Made as a Result of the RISE Act

    Section 1102 of the RISE Act, Use of Physical Damage Disaster Loans 
to Construct Safe Rooms, expanded the definition of mitigation to 
include ``construction of a safe room or similar storm shelter designed 
to protect property and occupants from tornadoes or other natural 
disasters, if such safe room or similar storm shelter is constructed in 
accordance with applicable standards issued by the Federal Emergency 
Management Agency.'' This change allows SBA to include a safe room or 
storm shelter as a mitigating measure; therefore, SBA proposes to amend 
13 CFR 123.21 to reflect this change in the definition of a

[[Page 19935]]

mitigation measure. By policy, SBA increases the amount of a disaster 
loan for mitigation purposes only when the mitigation protects or 
mitigates against damage from the same type of occurrence as the 
declared disaster. Revised Sec.  123.21 would also clarify that a 
mitigation measure is something done for the purpose of protecting 
property (real and personal) and occupants. In addition, safe rooms and 
storm shelters would be included in the examples of mitigation 
measures.
    Section 2102 of the RISE Act, Collateral Requirements for Disaster 
Loans, increased SBA's unsecured loan limits for all disaster loans for 
a period of three years. In 2014, SBA published an Interim Final Rule, 
Disaster Assistance Loan Program; Disaster Loan Credit and Collateral 
Requirements (79 FR 22859, April 25, 2014), to raise the unsecured 
limit to $25,000 for economic injury loans for all disasters and for 
physical damage loans for major disasters. The unsecured limit for 
physical damage loans for non-major disasters continued to be $14,000, 
in accordance with the Small Business Act. Section 2102 of the RISE Act 
expanded on these previous changes by increasing the unsecured limit to 
$25,000 to include physical damage loans for non-major disasters for a 
period of three years, until November 25, 2018. Therefore, SBA proposes 
to amend 13 CFR 123.11 to reflect a $25,000 unsecured threshold for all 
disaster declarations. After November 25, 2018, the unsecured limit for 
physical damage loans for non-major disasters would revert back to 
$14,000, unless Congress makes the increase permanent.
    Section 2107 of the RISE Act, Contractor Malfeasance, expanded 
SBA's ability to provide disaster assistance by expressly allowing for 
supplemental assistance for malfeasance by a contractor or other person 
and defining what constitutes malfeasance. Prior to implementation of 
the RISE Act, SBA provided assistance only for malfeasance by 
contractors, not malfeasance by any ``other person'' in connection with 
the loan, and did not allow for increases in the loan amount beyond the 
regulatory limit of $200,000 for repair or replacement of damaged 
property. The RISE Act gave SBA authority to increase a disaster loan 
when a contractor or other person engages in malfeasance in connection 
with repairs to, rehabilitation of, or replacement of property for 
which SBA made a disaster loan and the malfeasance results in 
substantial economic damage or substantial risks to health or safety. 
SBA proposes to revise 13 CFR 123.18, 123.20, and 123.105 to include 
details on what constitutes malfeasance, provide guidance on when 
borrowers are eligible to apply for loan increases due to malfeasance, 
and allow home loan borrowers to increase their loans up to an 
additional $200,000 for malfeasance. For business loans, the total 
maximum loan amount, including any increase for malfeasance, remains 
$2,000,000.
    The proposed changes made as a result of the RISE Act apply to all 
eligible recipients of SBA disaster loans for disasters declared on or 
after the effective date of the RISE Act, November 25, 2015.

Technical Corrections

    In addition to the changes proposed as a result of the RISE Act, 
SBA is also proposing to make several technical corrections. SBA 
proposes to change the phrase ``sudden physical event'' to ``sudden 
event'' in 13 CFR 123.2 to conform the regulation to SBA's statutory 
definition of ``disaster'' in 15 U.S.C. 632(k). SBA proposes to revise 
13 CFR 123.3 to remove the reference to ``emergency'' declarations in 
Sec.  123.3(a)(1) in order to conform the regulations to SBA's 
statutory authority. SBA proposes this change to clarify that SBA 
disaster assistance is not automatically authorized when the President 
declares an emergency; such assistance may be available, however, if 
SBA declares a disaster under its own authority. Finally, SBA proposes 
to revise 13 CFR 123.13(a) to remove the reference to an expired OMB 
control number.
    SBA invites comments from interested members of the public on all 
changes proposed in this rule. These comments must be received on or 
before the close of the comment period noted in the DATES section of 
this document.

Compliance with Executive Orders 12866, 12988, 13132, and 13563 and the 
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule does not constitute a significant regulatory action under 
Executive Order 12866. This is not a major rule under the Congressional 
Review Act, 5 U.S.C. 800.

Executive Order 12988

    This action meets applicable standards set forth in sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. This action does 
not have preemptive or retroactive effect.

Executive Order 13132

    For the purposes of Executive Order 13132, this proposed rule will 
not have substantial direct effects on the States, on the relationship 
between the national government and the States, or the distribution of 
power and responsibilities among the various levels of government. 
Therefore, SBA determined that this proposed rule has no federalism 
implications warranting preparation of a federalism assessment.

Executive Order 13563

    Executive Order 13563 reaffirms the principles of Executive Order 
12866 while calling for improvements in the nation's regulatory system 
to promote predictability, to reduce uncertainty, and to use the best, 
most innovative, and least burdensome tools for achieving regulatory 
ends. The Executive order directs agencies to consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public where these approaches are relevant, feasible, 
and consistent with regulatory objectives. Executive Order 13563 
emphasizes further that regulations must be based on the best available 
science and that the rulemaking process must allow for public 
participation and an open exchange of ideas. We have developed this 
proposed rule in a manner consistent with these requirements and are 
affording the public 60 days to participate and provide comments.

Paperwork Reduction Act (44 U.S.C. Ch. 35)

    For purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
has determined that this proposed rule would not impose any new 
reporting or recordkeeping requirements.

Regulatory Flexibility Act (5 U.S.C. 601-612)

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires 
administrative agencies to consider the effect of their actions on 
small entities, including small businesses. According to the RFA, when 
an agency issues a rule, the agency must prepare an analysis to 
determine whether the impact of the rule will have a significant 
economic impact on a substantial number of small entities. However, the 
RFA allows an agency to certify a rule in lieu of preparing an analysis 
if the rulemaking is not expected to have a significant impact on a 
substantial number of small entities. This proposed rule conforms to

[[Page 19936]]

recent legislative action made under the RISE Act and will implement 
new agency policies regarding the expansion of the definition of 
mitigation as it pertains to the Disaster Loan Program, and the 
inclusion of malfeasance.

List of Subjects in 13 CFR Part 123

    Disaster assistance, Loan programs-business, Reporting and 
recordkeeping requirements, Small businesses.

    For reasons set forth in the preamble, SBA proposes to amend 13 CFR 
part 123 as follows:

PART 123--DISASTER LOAN PROGRAM

0
1. The authority citation for part 123 continues to read as follows:

    Authority:  15 U.S.C. 632, 634(b)(6), 636(b), 636(d), 657n; Pub. 
L. 102-395, 106 Stat. 1828, 1864; Pub. L. 103-75, 107 Stat. 739; and 
Pub. L. 106-50, 113 Stat. 245.

0
2. Amend Sec.  123.2 by revising the seventh sentence to read as 
follows:


Sec.  123.2  What are disaster loans and disaster declarations?

    * * * Sudden events that cause substantial economic injury may be 
disasters even if they do not cause physical damage to a victim's 
property. * * *
0
3. Amend Sec.  123.3 by revising paragraph (a)(1) to read as follows:


Sec.  123.3  How are disaster declarations made?

    (a) * * *
    (1) The President declares a Major Disaster and authorizes Federal 
Assistance, including individual assistance (Assistance to Individuals 
and Households Program).
* * * * *
    4. Amend Sec.  123.11 by revising paragraph (a)(2) to read as 
follows:


Sec.  123.11  Does SBA require collateral for any of its disaster 
loans?

    (a) * * *
    (2) Physical disaster home and physical disaster business loans. 
Generally, SBA will not require that you pledge collateral to secure a 
physical disaster home or physical disaster business loan of $25,000 or 
less. This authority expires on November 25, 2018, unless extended by 
statute.
* * * * *


Sec.  123.13  [Amended]

0
5. Amend Sec.  123.13 by removing the parenthetical phrase ``(OMB 
Approval No. 3245-0122.)'' from paragraph (a).
0
6. Amend Sec.  123.18 by:
0
a. Redesignating the undesignated text as paragraph (a);
0
b. Revising the first sentence of the redesignated paragraph (a); and
0
c. Adding paragraph (b).
    The revisions and additions read as follows:


Sec.  123.18  Can I request an increase in the amount of a physical 
disaster loan?

    (a) Generally, SBA will consider your request for an increase in 
your loan if you can show that the eligible cost of repair or 
replacement of damages increased because of events occurring after the 
loan approval that were beyond your control.* * *
    (b) For all disasters occurring on or after November 25, 2015, you 
may also request an increase in your loan if you suffered substantial 
economic damage or substantial risks to health or safety as a result of 
malfeasance in connection with the repair or replacement of real 
property or business machinery and equipment for which SBA made a 
disaster loan. See Sec.  123.105 for limits on home loan amounts and 
Sec.  123.202 for limits on business loan amounts. Malfeasance may 
include, but is not limited to, nonperformance of all or any portion of 
the work for which a contractor was paid, work that does not meet 
acceptable standards, or use of substandard materials.
0
7. Amend Sec.  123.20 by redesignating the undesignated text as 
paragraph (a) and adding paragraph (b) to read as follows:


Sec.  123.20  How long do I have to request an increase in the amount 
of a physical disaster loan or an economic injury loan?

    (a) * * *
    (b) For physical disaster loan increases requested under Sec.  
123.18(b) as a result of malfeasance, the request must be received not 
later than two years after the date of final disbursement.
0
8. Amend Sec.  123.21 by revising the first and third sentences to read 
as follows:


Sec.  123.21  What is a mitigation measure?

    A mitigation measure is something done for the purpose of 
protecting property and occupants against disaster related damage.* * * 
Examples of mitigation measures include building retaining walls, sea 
walls, grading and contouring land, elevating flood prone structures, 
relocating utilities, constructing a safe room or similar storm shelter 
(if such safe room or similar storm shelter is constructed in 
accordance with applicable standards issued by the Federal Emergency 
Management Agency), or retrofitting structures to protect against high 
winds, earthquakes, flood, wildfires, or other physical disasters.* * *
0
9. Amend Sec.  123.105 by:
0
a. Revising paragraph (a) introductory text;
0
b. Removing the word ``and'' from paragraph (a)(3);
0
c. Revising paragraph (a)(4); and
0
d. Adding paragraph (a)(5).
    The revisions and additions read as follows:


Sec.  123.105  How much can I borrow with a home disaster loan and what 
limits apply on use of funds and repayment terms?

    (a) There are limits on how much money you can borrow for 
particular purposes:
* * * * *
    (4) 20 percent of the verified loss (not including refinancing or 
malfeasance), before deduction of compensation from other sources, up 
to a maximum of $200,000 for post-disaster mitigation (see Sec.  
123.107); and
    (5) $200,000 for eligible malfeasance, pursuant to Sec.  123.18.
* * * * *

    Dated: March 30, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-07750 Filed 4-5-16; 8:45 am]
 BILLING CODE 8025-01-P
19936 Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Proposed Rules

recent legislative action made under the ■ b. Revising the first sentence of the ■ a. Revising paragraph (a) introductory
RISE Act and will implement new redesignated paragraph (a); and text;
agency policies regarding the expansion ■ c. Adding paragraph (b). ■ b. Removing the word ‘‘and’’ from
of the definition of mitigation as it The revisions and additions read as paragraph (a)(3);
pertains to the Disaster Loan Program, follows: ■ c. Revising paragraph (a)(4); and
and the inclusion of malfeasance. ■ d. Adding paragraph (a)(5).
§ 123.18 Can I request an increase in the The revisions and additions read as
List of Subjects in 13 CFR Part 123 amount of a physical disaster loan?
follows:
Disaster assistance, Loan programs- (a) Generally, SBA will consider your
business, Reporting and recordkeeping request for an increase in your loan if § 123.105 How much can I borrow with a
requirements, Small businesses. you can show that the eligible cost of home disaster loan and what limits apply on
repair or replacement of damages use of funds and repayment terms?
For reasons set forth in the preamble,
increased because of events occurring (a) There are limits on how much
SBA proposes to amend 13 CFR part 123
after the loan approval that were beyond money you can borrow for particular
as follows:
your control.* * * purposes:
PART 123—DISASTER LOAN (b) For all disasters occurring on or * * * * *
PROGRAM after November 25, 2015, you may also (4) 20 percent of the verified loss (not
request an increase in your loan if you including refinancing or malfeasance),
■ 1. The authority citation for part 123 suffered substantial economic damage before deduction of compensation from
continues to read as follows: or substantial risks to health or safety as other sources, up to a maximum of
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), a result of malfeasance in connection $200,000 for post-disaster mitigation
636(d), 657n; Pub. L. 102–395, 106 Stat. with the repair or replacement of real (see § 123.107); and
1828, 1864; Pub. L. 103–75, 107 Stat. 739; property or business machinery and (5) $200,000 for eligible malfeasance,
and Pub. L. 106–50, 113 Stat. 245. equipment for which SBA made a pursuant to § 123.18.
■ 2. Amend § 123.2 by revising the disaster loan. See § 123.105 for limits on * * * * *
seventh sentence to read as follows: home loan amounts and § 123.202 for
Dated: March 30, 2016.
limits on business loan amounts.
§ 123.2 What are disaster loans and Malfeasance may include, but is not Maria Contreras-Sweet,
disaster declarations? limited to, nonperformance of all or any Administrator.
* * * Sudden events that cause portion of the work for which a [FR Doc. 2016–07750 Filed 4–5–16; 8:45 am]
substantial economic injury may be contractor was paid, work that does not BILLING CODE 8025–01–P
disasters even if they do not cause meet acceptable standards, or use of
physical damage to a victim’s property. substandard materials.
* * * ■ 7. Amend § 123.20 by redesignating FEDERAL TRADE COMMISSION
■ 3. Amend § 123.3 by revising the undesignated text as paragraph (a)
paragraph (a)(1) to read as follows: and adding paragraph (b) to read as 16 CFR Part 460
follows:
§ 123.3 How are disaster declarations RIN 3084–AB40
made? § 123.20 How long do I have to request an
(a) * * * increase in the amount of a physical Labeling and Advertising of Home
(1) The President declares a Major disaster loan or an economic injury loan? Insulation
Disaster and authorizes Federal (a) * * * AGENCY: Federal Trade Commission
Assistance, including individual (b) For physical disaster loan (‘‘FTC’’ or ‘‘Commission’’).
assistance (Assistance to Individuals increases requested under § 123.18(b) as
ACTION: Advance notice of proposed
and Households Program). a result of malfeasance, the request must
rulemaking; request for public
* * * * * be received not later than two years after
comment.
4. Amend § 123.11 by revising the date of final disbursement.
paragraph (a)(2) to read as follows: ■ 8. Amend § 123.21 by revising the first SUMMARY: As part of the Commission’s
and third sentences to read as follows: systematic review of all current FTC
§ 123.11 Does SBA require collateral for
§ 123.21 What is a mitigation measure? rules and guides, the Commission
any of its disaster loans?
requests public comment on the overall
(a) * * * A mitigation measure is something costs, benefits, necessity, and regulatory
(2) Physical disaster home and done for the purpose of protecting and economic impact of the FTC’s
physical disaster business loans. property and occupants against disaster ‘‘Trade Regulation Rule Concerning the
Generally, SBA will not require that you related damage.* * * Examples of Labeling and Advertising of Home
pledge collateral to secure a physical mitigation measures include building Insulation’’ (the ‘‘R-value Rule’’ or
disaster home or physical disaster retaining walls, sea walls, grading and ‘‘Rule’’).
business loan of $25,000 or less. This contouring land, elevating flood prone
authority expires on November 25, structures, relocating utilities, DATES: Comments must be received on
2018, unless extended by statute. constructing a safe room or similar or before June 6, 2016.
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS

* * * * * storm shelter (if such safe room or ADDRESSES: Interested parties may file a
similar storm shelter is constructed in comment online or on paper, by
§ 123.13 [Amended] accordance with applicable standards following the instructions in the
■ 5. Amend § 123.13 by removing the issued by the Federal Emergency Request for Comment part of the
parenthetical phrase ‘‘(OMB Approval Management Agency), or retrofitting SUPPLEMENTARY INFORMATION section
No. 3245–0122.)’’ from paragraph (a). structures to protect against high winds, below. Write: ‘‘16 CFR part 460—R-
■ 6. Amend § 123.18 by: earthquakes, flood, wildfires, or other value Rule Review, File No. R811001’’
■ a. Redesignating the undesignated text physical disasters.* * * on your comment, and file your
as paragraph (a); ■ 9. Amend § 123.105 by: comment online at https://

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Document Created: 2018-02-07 13:52:13
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Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Proposed rule.
Dates		Comments must be received on or before June 6, 2016.
Contact		Jerome Edwards, Office of Disaster Assistance 202-205-6734 or [email protected]
FR Citation		81 FR 19934
RIN Number		3245-AG78
CFR Associated		Disaster Assistance; Loan Programs-Business; Reporting and Recordkeeping Requirements and Small Businesses