12 U.S.C. § 4745 — Terms of participation agreements

Page 1756 TITLE 12—BANKS AND BANKING § 4744 (e) Amendments to agreements If a State that has been approved to be a par- ticipating State wishes to amend its form of participation agreement and continue to be a participating State, such State shall submit such amendment for review by the Fund in ac- cordance with subsection (b)(4). Any such amendment shall become effective only after it has been approved by the Fund. (Pub. L. 103–325, title II, § 253, Sept. 23, 1994, 108 Stat. 2205.) Editorial Notes REFERENCES IN TEXT Section 4747 of this title, referred to in subsec. (c)(2)(A), was in the original ‘‘section 237’’ and was translated as reading ‘‘section 257’’ meaning section 257 of Pub. L. 103–325, to reflect the probable intent of Con- gress. Pub. L. 103–325 does not contain a section 237. § 4744. Participation agreements (a) In general A participating State may enter into a par- ticipation agreement with any financial institu- tion determined by the participating State, after consultation with the appropriate Federal banking agency, to have sufficient commercial lending experience and financial and managerial capacity to participate in the Program. The de- termination by the State shall not be reviewable by the Fund. (b) Participating financial institutions Upon entering into the participation agree- ment with the participating State, the financial institution shall become a participating finan- cial institution eligible to enroll loans under the Program. (Pub. L. 103–325, title II, § 254, Sept. 23, 1994, 108 Stat. 2207.) § 4745. Terms of participation agreements (a) In general The participation agreement to be entered into by a participating State and a participating financial institution shall include all provisions required by this section, and shall not include any provisions inconsistent with the provisions of this section. (b) Establishment of separate reserve funds A separate reserve fund shall be established by the participating State for each participating fi- nancial institution. All funds credited to a re- serve fund shall be the exclusive property of the participating State. Each reserve fund shall be an administrative account for the purposes of— (1) receiving all required premium charges to be paid by the borrower and participating fi- nancial institution and contributions by the participating State; and (2) disbursing funds, either to cover losses sustained by the participating financial insti- tution in connection with loans made under the Program, or as contemplated by sub- sections (d) and (r). (c) Investment authority Subject to applicable State law, the partici- pating State may invest, or cause to be in- vested, funds held in a reserve fund by estab- lishing a deposit account at the participating fi- nancial institution in the name of the partici- pating State. In the event that funds in the re- serve fund are not deposited in such an account, such funds shall be invested in a form that the participating State determines is safe and liq- uid. (d) Earned income and interest Interest or income earned on the funds cred- ited to a reserve fund shall be deemed to be part of the reserve fund, except that a participating State may, as further specified in the participa- tion agreement, provide authority for the par- ticipating State to withdraw some or all of such interest or income earned. (e) Loan terms and conditions (1) In general A loan to be filed for enrollment under the Program may be made with such interest rate, fees, and other terms and conditions as agreed upon by the participating financial institution and the borrower, consistent with applicable law. (2) Lines of credit If a loan to be filed for enrollment is in the form of a line of credit, the amount of the loan shall be considered to be the maximum amount that can be drawn by the borrower against the line of credit. (f) Enrollment process (1) Filing (A) In general A participating financial institution shall file each loan made under the Program for enrollment by completing and submitting to the participating State a form prescribed by the participating State. (B) Form The form referred to in subparagraph (A) shall include a representation by the partici- pating financial institution that it has com- plied with the participation agreement in enrolling the loan with the State. (C) Premium charges Accompanying the completed form shall be the nonrefundable premium charges paid by the borrower and the participating finan- cial institution, or evidence that such pre- mium charges have been deposited into the deposit account containing the reserve fund, if applicable. (D) Submission The participation agreement shall require that the items required by this subsection shall be submitted to the participating State by the participating financial institutions not later than 10 calendar days after a loan is made. (2) Enrollment by State Upon receipt by the participating State of the filing submitted in accordance with para- graph (1), the participating State shall promptly enroll the loan and make a matching contribution to the reserve fund in accordance Page 1757 TITLE 12—BANKS AND BANKING § 4745 with subsection (j), unless the information submitted indicates that the participating fi- nancial institution has not complied with the participation agreement in enrolling the loan. (g) Coverage amount In filing a loan for enrollment under the Pro- gram, the participating financial institution may specify an amount to be covered under the Program that is less than the full amount of the loan. (h) Premium charges (1) Minimum and maximum amounts The premium charges payable to the reserve fund by the borrower and the participating fi- nancial institution shall be prescribed by the participating financial institution, within minimum and maximum limits set forth in the participation agreement. The participa- tion agreement shall establish minimum and maximum limits whereby the sum of the pre- mium charges paid in connection with a loan by the borrower and the participating finan- cial institution is not less than 3 percent nor more than 7 percent of the amount of the loan covered under the Program. (2) Allocation of premium charges The participation agreement shall specify terms for allocating premium charges between the borrower and the participating financial institution. However, if the participating fi- nancial institution is required to pay any of the premium charges, the participation agree- ment shall authorize the participating finan- cial institution to recover from the borrower the cost of the payment of the participating fi- nancial institution, in any manner on which the participating financial institution and the borrower agree. (i) Restrictions (1) Actions prohibited Except as provided in subsection (h) and paragraph (2) of this subsection, the partici- pating State may not— (A) impose any restrictions or require- ments, relating to the interest rate, fees, collateral, or other business terms and con- ditions of the loan; or (B) condition enrollment of a loan in the Program on the review by the State of the risk or creditworthiness of a loan. (2) Effect on other law Nothing in this subchapter shall affect the applicability of any other law to the conduct by a participating financial institution of its business. (j) State contributions In enrolling a loan under the Program, the participating State shall contribute to the re- serve fund an amount, as provided for in the par- ticipation agreement, which shall not be less than the sum of the amount of premium charges paid by the borrower and the participating fi- nancial institution. (k) Submission of claims (1) Filing If a participating financial institution charges off all or part of an enrolled loan, such participating financial institution may file a claim for reimbursement with the partici- pating State by submitting a form that— (A) includes the representation by the par- ticipating financial institution that it is fil- ing the claim in accordance with the terms of the applicable participation agreement; and (B) contains such other information as may be required by the participating State. (2) Timing Any claim filed under paragraph (1) shall be filed contemporaneously with the action of the participating financial institution to charge off all or part of an enrolled loan. The participating financial institution shall deter- mine when and how much to charge off on an enrolled loan, in a manner consistent with its usual method for making such determinations on business loans that are not enrolled loans under this subchapter. (l) Elements of claims A claim filed by a participating financial in- stitution may include the amount of principal charged off, not to exceed the covered amount of the loan. Such claim may also include accrued interest and out-of-pocket expenses, if and to the extent provided for under the participation agreement. (m) Payment of claims (1) In general Except as provided in subsection (n) and paragraph (2) of this subsection, upon receipt of a claim filed in accordance with this section and the participation agreement, the partici- pating State shall promptly pay to the partici- pating financial institution, from funds in the reserve fund, the full amount of the claim as submitted. (2) Insufficient reserve funds If there are insufficient funds in the reserve fund to cover the entire amount of a claim of a participating financial institution, the par- ticipating State shall pay to the participating financial institution an amount equal to the current balance in the reserve fund. If the en- rolled loan for which the claim has been filed— (A) is not an early loan, such payment shall be deemed fully to satisfy the claim, and the participating financial institution shall have no other or further right to re- ceive any amount from the reserve fund with respect to such claim; or (B) is an early loan, such payment shall not be deemed fully to satisfy the claim of the participating financial institution, and at such time as the remaining balance of the claim does not exceed 75 percent of the bal- ance in the reserve fund, the participating State shall, upon the request of the partici- pating financial institution, pay any re- maining amount of the claim. (n) Denial of claims A participating State may deny a claim if a representation or warranty made by the partici- pating financial institution to the participating Page 1758 TITLE 12—BANKS AND BANKING § 4745 State at the time that the loan was filed for en- rollment or at the time that the claim was sub- mitted was known by the participating financial institution to be false. (o) Subsequent recovery of claim amount If, subsequent to payment of a claim by the participating State, a participating financial in- stitution recovers from a borrower any amount for which payment of the claim was made, the participating financial institution shall prompt- ly pay to the participating State for deposit into the reserve fund the amount recovered, less any expenses incurred by the institution in collec- tion of such amount. (p) Participation agreement terms (1) In general In connection with the filing of a loan for enrollment in the Program, the participation agreement— (A) shall require the participating finan- cial institution to obtain an assurance from each borrower that— (i) the proceeds of the loan will be used for a business purpose; (ii) the loan will not be used to finance passive real estate ownership; and (iii) the borrower is not— (I) an executive officer, director, or principal shareholder of the partici- pating financial institution; (II) a member of the immediate family of an executive officer, director, or prin- cipal shareholder of the participating fi- nancial institution; or (III) a related interest of any such ex- ecutive officer, director, principal share- holder, or member of the immediate fam- ily; (B) shall require the participating finan- cial institution to provide assurances to the participating State that the loan has not been made in order to place under the pro- tection of the Program prior debt that is not covered under the Program and that is or was owed by the borrower to the partici- pating financial institution or to an affiliate of the participating financial institution; (C) may provide that if— (i) a participating financial institution makes a loan to a borrower that is a refi- nancing of a loan previously made to the borrower by the participating financial in- stitution or an affiliate of the partici- pating financial institution; (ii) such prior loan was not enrolled in the Program; and (iii) additional or new financing is ex- tended by the participating financial insti- tution as part of the refinancing, the participating financial institution may file the loan for enrollment, with the amount to be covered under the Program not to exceed the amount of any additional or new financing; and (D) may include additional restrictions on the eligibility of loans or borrowers that are not inconsistent with the provisions and purposes of this subchapter. (2) Definitions For purposes of this subsection, the terms ‘‘executive officer’’, ‘‘director’’, ‘‘principal shareholder’’, ‘‘immediate family’’, and ‘‘re- lated interest’’ refer to the same relationship to a participating financial institution as the relationship described in part 215 of title 12 of the Code of Federal Regulations, or any suc- cessor to such part. (q) Termination clause In each participation agreement, the partici- pating State shall reserve for itself the ability to terminate its obligation to enroll loans under the Program. Any such termination shall be pro- spective only, and shall not apply to amounts of loans enrolled under the Program prior to such termination. (r) Allowable withdrawals from fund The participation agreement may provide that, if, for any consecutive period of not less than 24 months, the aggregate outstanding bal- ance of all enrolled loans for a participating fi- nancial institution is continually less than the outstanding balance in the reserve fund for that participating financial institution, the partici- pating State, in its discretion, may withdraw an amount from the reserve fund to bring the bal- ance in the reserve fund down to the out- standing balance of all such enrolled loans. (s) Grandfathered provision (1) Special treatment of premium charges Notwithstanding subsection (b) or (d), the participation agreement, if explicitly author- ized by a statute enacted by the State before September 23, 1994, may allow a participating financial institution to treat the premium charges paid by the participating financial in- stitution and the borrower into the reserve fund, and interest or income earned on funds in the reserve fund that are deemed to be at- tributable to such premium charges, as assets of the participating financial institution for accounting purposes, subject to withdrawal by the participating financial institution only— (A) for the payment of claims approved by the participating State in accordance with this section; and (B) upon the participating financial insti- tution’s withdrawal from authority to make new loans under the Program. (2) Payment of post-withdrawal claims After any withdrawal of assets from the re- serve fund pursuant to paragraph (1)(B), any future claims filed by the participating finan- cial institution on loans remaining in its cap- ital access program portfolio shall only be paid from funds remaining in the reserve fund to the extent that, in the aggregate, such claims exceed the sum of the amount of such withdrawn assets, and interest on that amount, imputed at the same rate as income would have accrued had the amount not been withdrawn. (3) Conditions for terminating special author- ity If the Fund determines that the inclusion in a participation agreement of the provisions Page 1759 TITLE 12—BANKS AND BANKING § 4747 authorized by this subsection is resulting in the enrollment of loans under the Program that are likely to have been made without as- sistance provided under this subchapter, the Fund may notify the participating State that henceforth, the Fund will only make reim- bursements to the State under section 4747 of this title with respect to a loan if the partici- pation agreement between the participating State and each participating financial institu- tion has been amended to conform with this section, without exercise of the special au- thority granted by this subsection. (Pub. L. 103–325, title II, § 255, Sept. 23, 1994, 108 Stat. 2207.) § 4746. Reports (a) Reserve funds report On or before the last day of each calendar quarter, a participating State shall submit to the Fund a report of contributions to reserve funds made by the participating State during the previous calendar quarter. If the partici- pating State has made contributions to one or more reserve funds during the previous quarter, the report shall— (1) indicate the total amount of such con- tributions; (2) indicate the amount of contributions which is subject to reimbursement, which shall be equal to the total amount of contribu- tions, unless one of the limitations contained in section 4747 of this title is applicable; (3) if one of the limitations in section 4747 of this title is applicable, provide documentation of the applicability of such limitation for each loan for which the limitation applies; and (4) include a certification by the partici- pating State that— (A) the information provided in accordance with paragraphs (1), (2), and (3) is accurate; (B) funds in an amount meeting the min- imum requirements of section 4743(b)(3) of this title continue to be available and le- gally committed to contributions by the State to reserve funds, less any amount that has been contributed by the State to reserve funds subsequent to the State being ap- proved for participation in the Program; (C) there has been no unapproved amend- ment to any participation agreement or the form of participation agreements; and (D) the participating State is otherwise implementing the Program in accordance with this subchapter and regulations issued pursuant to section 4749 of this title. (b) Annual data Not later than March 31 of each year, each participating State shall submit to the Fund an- nual data indicating the number of borrowers fi- nanced under the Program, the total amount of covered loans, and breakdowns by industry type, loan size, annual sales, and number of employees of the borrowers financed. (c) Form The reports and data filed pursuant to sub- sections (a) and (b) shall be in such form as the Fund may require. (Pub. L. 103–325, title II, § 256, Sept. 23, 1994, 108 Stat. 2212.) § 4747. Reimbursement by Fund (a) Reimbursements Not later than 30 calendar days after receiving a report filed in compliance with section 4746 of this title, the Fund shall reimburse the partici- pating State in an amount equal to 50 percent of the amount of contributions by the partici- pating State to the reserve funds that are sub- ject to reimbursement by the Fund pursuant to section 4746 of this title and this section. The Fund shall reimburse participating States, as it receives reports pursuant to section 4746(a) of this title, until available funds are expended. (b) Size of assisted borrower The Fund shall not provide any reimburse- ment to a participating State with respect to an enrolled loan made to a borrower that has 500 or more employees at the time that the loan is en- rolled in the Program. (c) Three-year maximum The amount of reimbursement to be provided by the Fund to a participating State over any 3- year period in connection with loans made to any single borrower or any group of borrowers among which a common enterprise exists shall not exceed $75,000. For purposes of this sub- section, ‘‘common enterprise’’ shall have the same meaning as in part 32 of title 12 of the Code of Federal Regulations, or any successor to that part. (d) Loans totaling less than $2,000,000 In connection with a loan in which the covered amount of the loan plus the covered amount of all previous loans enrolled by a participating fi- nancial institution does not exceed $2,000,000, the amount of reimbursement by the Fund to the participating State shall not exceed the less- er of— (1) 75 percent of the sum of the premium charges paid to the reserve fund by the bor- rower and the participating financial institu- tion; or (2) 5.25 percent of the covered amount of the loan. (e) Loans totaling more than $2,000,000 In connection with a loan in which the sum of the covered amounts of all previous loans en- rolled by the participating financial institution in the Program equals or exceeds $2,000,000, the amount of reimbursement to be provided by the Fund to the participating State shall not exceed the lesser of— (1) 50 percent of the sum of the premium charges paid by the borrower and the partici- pating financial institution; or (2) 3.5 percent of the covered amount of the loan. (f) Other amounts In connection with the enrollment of a loan that will cause the aggregate covered amount of all enrolled loans to exceed $2,000,000, the amount of reimbursement by the Fund to the participating State shall be determined— (1) by applying subsection (d) to the portion of the loan, which when added to the aggre- gate covered amount of all previously enrolled loans equals $2,000,000; and