In March 1998, the OIG issued Inspection Audit Report 98-03-01, Loan Agents and the Section 7(a) Program, which focused on preventing loan agent fraud. Although loan agents help small businesses gain access to capital, some have perpetrated fraudulent schemes that have resulted in SBA’s purchase of defaulted loans. At the end of Fiscal Year 1997, in the 7(a) program alone, criminal investigations were initiated on 354 individuals involving loan applications handled by 18 loan agents, 28 percent of whom had prior criminal records.
Agency officials had been examining ways to make loan agents more accountable. One tool that was recommended by the SBA’s Committee on Loan Packager Reforms was the registration of loan agents. Effective loan agent controls or accountability is not possible without an up-to-date registry. As part of this process, loan agents should provide limited personal data so that the OIG could conduct a criminal history check. Based on the experience of some lenders, the OIG believes that the mere act of requesting verifiable information could deter dishonest individuals from involvement in the 7(a) program. The OIG recommended that the SBA:
- Propose the expansion of current legislation to include loan agents among those subject to criminal history checks.
- Establish a loan agent registration system that, among other things, creates Internet lists of registered agents.
- Establish a loan agent monitoring system that (1) holds the lender responsible for the accuracy of data (including electronic data), originated by loan agents and transmitted by the lender to the SBA; (2) ensures that all loan data is linked to the agents involved; (3) establishes purchase rate benchmarks that would trigger closer examination of a loan agent’s performance; and (4) centralizes the evaluation of agent performance to ensure consistency.