Lender Oversight Slammed

A federal watchdog says the government isn't doing enough to monitor small-business lenders.
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In the wake of a massive loan scam and amid growing uncertainties in the credit market, federal officials aren't doing enough to monitor lenders that provide government-backed loans to small firms, a federal watchdog says.

A report released this week by the inspector general of the Small Business Administration identified ongoing weaknesses in the agency's lender oversight efforts. These included delays in reviewing defaulted loans, limited onsite examinations, inconsistent use of corrective action plans, and a failure to alert lenders of risky loans, the report said.

Last year, federal investigators uncovered $76 million in fake SBA 7(a) loans issued by Business Loan Express, also called BLX, one of the agency's largest small-business lenders. A vice president of the company's Troy, Mich. office has since pleaded guilty to fraud charges.

The inspector general has criticized the agency for allowing BLX to continue issuing government-backed loans even after problems came to light.

This week's report, which examined oversight efforts for risky lenders, said the agency continued to ignore "recurring performance and compliance issues."

Sen. John Kerry (D-Mass.), chairman of the Senate Committee on Small Business and Entrepreneurship, said the report showed the administration was "asleep at the wheel" in its handling of high-risk loans.

"This pattern of weak or non-existent oversight is undermining the critical lending programs that are the largest source of long-term capital for small business," Kerry said in a statement.

At a federal hearing in November, SBA Administrator Steven Preston said the agency was taking steps to improve lender oversight.

Last updated: May 15, 2008




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