Focusing on Fees. Sections of the newly minted SOP 50 10 5 (J) reinforce the Office of Credit Risk Management’s increased oversight of SBA lender relationships with – and fees paid to –Packagers/Referral Agents/Lender Service Providers. That’s a big signal for ongoing due diligence and careful review of your third party vendor procedures to make sure you have proper documentation for fees paid and retained all documentation in your files.
And if a PARRiS* Review comes your way, you’ll be prepared. More and more we’re seeing some common pitfalls in OCRM’s PARRiS reviews:
- Lack of documentation of fees charged regardless of the amount. No matter the amount of the fee, lenders are required to document how the fee was calculated and what services were provided to incur the charge.
- Lack of proof that before services such as packaging were provided, the lender advised the applicant in writing that they are not required to pay for unwanted services.
- Form 159 was not maintained in the file, regardless of whether the fee was paid by the applicant or the lender.
- Lender failed to submit all required Form 159s to Colson and retain proof of submission in the file.
- Duplicate payment was made to the lender and the agent for same service.
- Fees are contingent upon approval/funding.
Our recommendation: Be proactive: Be up on the SOP. See Subpart B, Chapter 3, Sections VI-X pgs. 158-169, with special focus on Sections IX and X, Guidance on Agents & LSPs. See also SBA Information Notice 5000-17008, an overview of the changes in SOP 50 10 5 (J) dated 10/13/2017 and Information Notice 5000-17028.effective 12/15/2017, outlining technical corrections to the SOP. Ongoing portfolio management will help ensure your portfolio’s position and avoid possible issues that could trigger a review.
J.R. Bruno & Associates
*PARRiS is an acronym for the components SBA reviews as their measurement objectives: P = Portfolio Performance; A – Asset Management; R = Regulatory Compliance; Ri- = Risk Management; and S = Special Items. Measure of 7 (a) lender benchmarks is graded with scores of 1 (lower risk); 3 (moderate risk); and 3 (higher risk).
Vol. 17, No. 23