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107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-630
======================================================================
 
                 INDIAN FINANCING ACT REFORM AMENDMENT

                                _______
                                

 September 4, 2002.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

  Mr. Hansen, from the Committee on Resources, submitted the following

                              R E P O R T

                        [To accompany H.R. 3407]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Resources, to whom was referred the bill 
(H.R. 3407) to amend the Indian Financing Act of 1974 to 
improve the effectiveness of the Indian loan guarantee and 
insurance program, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Indian Financing Act Reform 
Amendment''.

SEC. 2. FINDINGS AND PURPOSE.

  (a) Findings.--Congress finds the following:
          (1) The Indian Financing Act of 1974 (Public Law 93-262; 88 
        Stat. 77 et seq.) was intended to provide Native American 
        borrowers with access to commercial capital sources which 
        otherwise would not be available through loans guaranteed or 
        insured by the Secretary of the Interior.
          (2) Although the Secretary has made loan guarantees and 
        insurance available, their use by lenders to benefit Native 
        American business borrowers has been limited.
          (3) 27 years after the date of the enactment of the Indian 
        Financing Act of 1974, the promotion and development of Native 
        American-owned business remains an essential foundation for 
        growth of economic and social stability of Native Americans.
          (4) Commercial lenders' use of the available loan insurance 
        and guarantees may be limited by liquidity and other capital 
        market-driven concerns.
          (5) It is in the best interest of the Secretary's insured and 
        guaranteed loan program to encourage the orderly development 
        and expansion of a secondary market, for loans guaranteed or 
        insured by the Secretary of the Interior, and expand the number 
        of lenders originating loans under the Indian Financing Act of 
        1974.
  (b) Purpose.--It is the purpose of this Act to reform and clarify the 
Indian Financing Act of 1974 in order to--
          (1) stimulate the use by lenders of secondary market 
        investors for loans guaranteed or insured by the Secretary;
          (2) preserve the authority of the Secretary to administer the 
        program and regulate lenders;
          (3) clarify that a good faith investor in loans insured or 
        guaranteed by the Secretary will receive appropriate payments;
          (4) provide for the appointment by the Secretary of a 
        qualified fiscal transfer agent which will establish and 
        administer a system for the orderly transfer of such loans;
          (5) authorize the Secretary to develop regulations to 
        encourage and expand a secondary market program for loans 
        guaranteed or insured by the Secretary and to allow the pooling 
        of such loans as the secondary market develops; and
          (6) authorize the Secretary to establish a schedule for 
        assessing lenders and investors for the necessary costs of the 
        fiscal transfer agent and system.

SEC. 3. AMENDMENT OF THE INDIAN FINANCING ACT.

  (a) Limitation on Loan Amounts Without Prior Approval.--Section 204 
of the Indian Financing Act of 1974 (25 U.S.C. 1484) is amended by 
striking ``$100,000'' and inserting ``$250,000''.
  (b) Sale or Assignment of Loans and Underlying Security.--Section 205 
of such Act (25 U.S.C. 1485) is amended--
          (1) by inserting ``(a)'' before ``Any loan'';
          (2) by inserting ``insured or'' before ``guaranteed''; and
          (3) by adding at the end the following new subsections:
  ``(b)(1) The lender of a loan insured or guaranteed under this title 
may transfer to any individual or legal entity all of the lender's 
rights and obligations in such loan or in the unguaranteed or uninsured 
portion thereof, and the security given therefor. Such transfer shall 
be consistent with such regulations as the Secretary shall establish, 
and the lender shall give notice of such transfer to the Secretary or 
the Secretary's designee.
  ``(2) Upon any transfer permitted by this subsection, the transferee 
shall be deemed to be the lender under this title, shall become the 
secured party of record, and shall be responsible for performing the 
duties of the lender and for serving the loan in accordance with the 
terms of the Secretary's guarantee thereof.
  ``(c)(1) The lender of a loan insured or guaranteed under this title, 
and any subsequent transferee of all or part of the insured or 
guaranteed portion of such loan, may transfer to any individual or 
legal entity all or part of the insured or guaranteed portion of such 
loan and the security therefor. Such transfer shall be consistent with 
such regulations as the Secretary shall establish, and the transferor 
shall give notice of such transfer to the Secretary or the Secretary's 
designee. The Secretary or the Secretary's designee shall issue to the 
transferee the Secretary's acknowledgement of the transfer and of the 
transferee's interest in the guaranteed or insured portion of the loan.
  ``(2) Notwithstanding any transfer permitted by this subsection, the 
lender shall--
          ``(A) remain obligated on its guarantee agreement or 
        insurance agreement with the Secretary;
          ``(B) continue to be responsible for servicing the loan in a 
        manner consistent with such guarantee agreement or insurance 
        agreement; and
          ``(C) remain the secured creditor of record.
  ``(d) The full faith and credit of the United States is pledged to 
the payment of all loan guarantees and loan insurance made under this 
title after the date of the enactment of this subsection. The validity 
of a guarantee of, or insurance of, a loan shall be incontestable in 
the hands of a transferee of the guaranteed or insurance obligations 
whose interest in a guaranteed loan or insurance has been acknowledged 
by the Secretary, or by the Secretary's designee, except if the 
transferee has actual knowledge of fraud or misrepresentation, or 
participates in or condones fraud or misrepresentation in connection 
with the loan.
  ``(e) Notwithstanding section 3302 of title 31, United States Code 
(commonly known as the `Miscellaneous Receipts Act'), the Secretary may 
recover from the lender any damages suffered by the Secretary as a 
result of a material breach of the lender's obligations under the 
Secretary's guarantee or insurance of the loan.
  ``(f) The Secretary may collect a fee for any loan or guaranteed or 
insured portion thereof transferred in accordance with subsection (g).
  ``(g) Not later than 180 days after the date of the enactment of this 
subsection, the Secretary shall develop such procedures and shall adopt 
such regulations as are necessary for the facilitation, administration, 
and promotion of transfers of loans and guaranteed and insured portions 
thereof under this section.
  ``(h) Upon adoption of final regulations, the Secretary shall provide 
for a central registration of all guaranteed or insured loans 
transferred pursuant to this section and shall contract with a fiscal 
transfer agent to act as the Secretary's designee and to carry out on 
behalf of the Secretary the central registration and paying agent 
functions and issuance of the Secretary's acknowledgement required by 
subsection (b).
  ``(i) Nothing in this title prohibits the pooling of whole loans or 
interests in loans transferred under this section. The Secretary may 
issue regulations to effect orderly and efficient pooling 
procedures.''.

                          Purpose of the Bill

    The purpose of H.R. 3407, as ordered reported, is to amend 
the Indian Financing Act of 1974 to improve the effectiveness 
of the Indian loan guarantee and insurance program.

                  Background and Need for Legislation

    The Indian Financing Act of 1974 was the legislative 
vehicle that brought Indian and tribal entrepreneurs access to 
private capital for economic activities. Any tribal member who 
lives on a reservation, or any tribe as a whole, may 
participate in the loan program established under the Indian 
Financing Act. Loans under the program may only be used for the 
creation or expansion of a small business on tribal property. 
The only business a loan cannot be used for is casino gaming.
    Although the Indian Financing Act of 1974 created new 
access to private capital for Indian tribes, lenders have had a 
hard time selling their Native American small business loans to 
a secondary market because secondary purchasers of Indian loans 
currently have no guarantee or investor protection from loss. 
Thus, lenders have tied up capital in already existing Native 
American loans without the ability to liquidate them in order 
to make new loans.
    H.R. 3407 amends the Indian Financing Act of 1974 to 
authorize the Secretary of the Interior to provide for a 
secondary market for small business loans that are guaranteed 
by the Bureau of Indian Affairs (BIA) and to expand the number 
of lending banks that can purchase existing Native American 
small business loans. The legislation provides for the transfer 
of guaranteed loans, requires that the Secretary of the 
Interior be notified of such transfers, allocates 
responsibility to the Secretary on the guarantee agreement for 
servicing, and makes the Secretary the secured creditor of 
record after such transfers are made.

                            Committee Action

    H.R. 3407 was introduced on December 5, 2001 by 
Congresswoman Mary Bono (R-CA), and was referred to the 
Committee on Resources. On July 17, 2002 the full Resources 
Committee held a hearing on the bill, and on July 24, 2002, the 
Committee met to consider the legislation. Congressman James V. 
Hansen (R-UT) offered an amendment in the nature of a 
substitute to extend the concept of a secondary market to the 
BIA's loan insurance program; increase from $100,000 to 
$250,000 the amount of BIA insured loans a lender can offer to 
a borrower; provide for the return of recovered damages from a 
lender to the Department of the Interior; and to establish that 
upon the bill's enactment, all loans approved through the BIA's 
program will carry the full faith and credit of the United 
States. The amendment was agreed to by unanimous consent. There 
were no further amendments and the bill, as amended, was 
ordered favorably reported to the House of Representatives by 
unanimous consent.

            Committee Oversight Findings and Recommendations

    Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of 
rule XIII of the Rules of the House of Representatives, the 
Committee on Resources' oversight findings and recommendations 
are reflected in the body of this report.

                   Constitutional Authority Statement

    Article I, section 8 of the Constitution of the United 
States grants Congress the authority to enact this bill.

                    Compliance With House Rule XIII

    1. Cost of Legislation. Clause 3(d)(2) of rule XIII of the 
Rules of the House of Representatives requires an estimate and 
a comparison by the Committee of the costs which would be 
incurred in carrying out this bill. However, clause 3(d)(3)(B) 
of that rule provides that this requirement does not apply when 
the Committee has included in its report a timely submitted 
cost estimate of the bill prepared by the Director of the 
Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974.
    2. Congressional Budget Act. As required by clause 3(c)(2) 
of rule XIII of the Rules of the House of Representatives and 
section 308(a) of the Congressional Budget Act of 1974, this 
bill does not contain any new budget authority, spending 
authority, credit authority, or an increase or decrease in 
revenues or tax expenditures. While enactment of this 
legislation may affect direct spending, according to the 
Congressional Budget Office, such effects would be 
insignificant.
    3. General Performance Goals and Objectives. As required by 
clause 3(c)(4) of rule XIII, the general performance goal or 
objective of this bill is to amend the Indian Financing Act of 
1974 to improve the effectiveness of the Indian loan guarantee 
and insurance program.
    4. Congressional Budget Office Cost Estimate. Under clause 
3(c)(3) of rule XIII of the Rules of the House of 
Representatives and section 403 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for this bill from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, August 28, 2002.
Hon. James V. Hansen,
Chairman, Committee on Resources,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3407, the Indian 
Financing Act Reform Amendment.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Lanette J. 
Walker.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 3407--Indian Financing Act Reform Amendment

    H.R. 3407 would allow lenders of loans guaranteed or 
insured under the Indian Financing Act of 1974 to sell such 
loans to the secondary market. CBO estimates that implementing 
this bill would have no significant budgetary impact. Because 
the legislation could affect direct spending, pay-as-you-go 
procedures would apply, but CBO estimates that such effects 
would be insignificant.
    Under this bill, loans transferred from lenders to 
secondary markets would continue to be guaranteed and insured 
by the federal government. Based on information from the 
Department of the Interior (DOI), CBO estimates that the annual 
cost of administering such transfers would be negligible over 
the 2003-2007 period. Any costs incurred by DOI to administer 
the program would be subject to the availability of 
appropriated funds.
    H.R. 3407 also would authorize the Secretary of the 
Interior to collect a fee for any guaranteed or insured loan 
being transferred. Allowing the Secretary to impose fees on 
such transfers could reduce the subsidy cost of the guarantees 
and insurance that DOI has provided for existing loans under 
the Indian Financing Act. Based on information from DOI, CBO 
estimates that the change in direct spending would be 
negligible, however, because it is unlikely that the department 
would collect these fees.
    H.R. 3407 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On August 27, 2002, CBO transmitted a cost estimate for S. 
2017, the Indian Financing Amendments Act of 2002, as ordered 
reported by the Senate Committee on Indian Affairs on August 1, 
2002. The two bills are very similar and our cost estimates are 
identical.
    The CBO staff contact for this estimate is Lanette J. 
Walker. This estimate was approved by Peter H. Fontaine, Deputy 
Assistant Director for Budget Analysis.

                    Compliance With Public Law 104-4

    This bill contains no unfunded mandates.

                Preemption of State, Local or Tribal Law

    This bill is not intended to preempt any State, local or 
tribal law.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INDIAN FINANCING ACT OF 1974

           *       *       *       *       *       *       *



TITLE II--LOAN GUARANTY AND INSURANCE

           *       *       *       *       *       *       *


  Sec. 204. The application for a loan to be guaranteed 
hereunder shall be submitted to the Secretary for approval. The 
Secretary may review each loan application individually and 
independently from the lender. Upon approval, the Secretary 
shall issue a certificate as evidence of the guaranty. Such 
certificate shall be issued only when, in the judgment of the 
Secretary, there is a reasonable prospect of repayment. No loan 
to an individual Indian may be guaranteed or insured which 
would cause the total unpaid principal indebtedness to exceed 
$500,000. No loan to an economic enterprise (as defined in 
section 3) in excess of [$100,000] $250,000, or such lower 
amount as the Secretary may determine to be appropriate, shall 
be insured unless prior approval of the loan is obtained from 
the Secretary.
  Sec. 205. (a) Any loan insured or guaranteed under this 
title, including the security given for such loan, may be sold 
or assigned by the lender to any person.
  (b)(1) The lender of a loan insured or guaranteed under this 
title may transfer to any individual or legal entity all of the 
lender's rights and obligations in such loan or in the 
unguaranteed or uninsured portion thereof, and the security 
given therefor. Such transfer shall be consistent with such 
regulations as the Secretary shall establish, and the lender 
shall give notice of such transfer to the Secretary or the 
Secretary's designee.
  (2) Upon any transfer permitted by this subsection, the 
transferee shall be deemed to be the lender under this title, 
shall become the secured party of record, and shall be 
responsible for performing the duties of the lender and for 
serving the loan in accordance with the terms of the 
Secretary's guarantee thereof.
  (c)(1) The lender of a loan insured or guaranteed under this 
title, and any subsequent transferee of all or part of the 
insured or guaranteed portion of such loan, may transfer to any 
individual or legal entity all or part of the insured or 
guaranteed portion of such loan and the security therefor. Such 
transfer shall be consistent with such regulations as the 
Secretary shall establish, and the transferor shall give notice 
of such transfer to the Secretary or the Secretary's designee. 
The Secretary or the Secretary's designee shall issue to the 
transferee the Secretary's acknowledgement of the transfer and 
of the transferee's interest in the guaranteed or insured 
portion of the loan.
  (2) Notwithstanding any transfer permitted by this 
subsection, the lender shall--
          (A) remain obligated on its guarantee agreement or 
        insurance agreement with the Secretary;
          (B) continue to be responsible for servicing the loan 
        in a manner consistent with such guarantee agreement or 
        insurance agreement; and
          (C) remain the secured creditor of record.
  (d) The full faith and credit of the United States is pledged 
to the payment of all loan guarantees and loan insurance made 
under this title after the date of the enactment of this 
subsection. The validity of a guarantee of, or insurance of, a 
loan shall be incontestable in the hands of a transferee of the 
guaranteed or insurance obligations whose interest in a 
guaranteed loan or insurance has been acknowledged by the 
Secretary, or by the Secretary's designee, except if the 
transferee has actual knowledge of fraud or misrepresentation, 
or participates in or condones fraud or misrepresentation in 
connection with the loan.
  (e) Notwithstanding section 3302 of title 31, United States 
Code (commonly known as the ``Miscellaneous Receipts Act''), 
the Secretary may recover from the lender any damages suffered 
by the Secretary as a result of a material breach of the 
lender's obligations under the Secretary's guarantee or 
insurance of the loan.
  (f) The Secretary may collect a fee for any loan or 
guaranteed or insured portion thereof transferred in accordance 
with subsection (g).
  (g) Not later than 180 days after the date of the enactment 
of this subsection, the Secretary shall develop such procedures 
and shall adopt such regulations as are necessary for the 
facilitation, administration, and promotion of transfers of 
loans and guaranteed and insured portions thereof under this 
section.
  (h) Upon adoption of final regulations, the Secretary shall 
provide for a central registration of all guaranteed or insured 
loans transferred pursuant to this section and shall contract 
with a fiscal transfer agent to act as the Secretary's designee 
and to carry out on behalf of the Secretary the central 
registration and paying agent functions and issuance of the 
Secretary's acknowledgement required by subsection (b).
  (i) Nothing in this title prohibits the pooling of whole 
loans or interests in loans transferred under this section. The 
Secretary may issue regulations to effect orderly and efficient 
pooling procedures.

           *       *       *       *       *       *       *