12 USC 4745 - Terms of participation agreements

U.S Code last checked for updates: Apr 29, 2024

§ 4745.

Terms of participation agreements

(a)

In general

(b)

Establishment of separate reserve funds

A separate reserve fund shall be established by the participating State for each participating financial institution. All funds credited to a reserve 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 financial institution and contributions by the participating State; and

(2)

disbursing funds, either to cover losses sustained by the participating financial institution in connection with loans made under the Program, or as contemplated by subsections (d) and (r).

(c)

Investment authority

(d)

Earned income and interest

(e)

Loan terms and conditions

(1)

In general

(2)

Lines of credit

(f)

Enrollment process

(1)

Filing

(A)

In general

(B)

Form

(C)

Premium charges

(D)

Submission

(2)

Enrollment by State

(g)

Coverage amount

(h)

Premium charges

(1)

Minimum and maximum amounts

(2)

Allocation of premium charges

(i)

Restrictions

(1)

Actions prohibited

Except as provided in subsection (h) and paragraph (2) of this subsection, the participating State may not—

(A)

impose any restrictions or requirements, relating to the interest rate, fees, collateral, or other business terms and conditions 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

(j)

State contributions

(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 participating State by submitting a form that—

(A)

includes the representation by the participating financial institution that it is filing 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

(l)

Elements of claims

(m)

Payment of claims

(1)

In general

(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 participating State shall pay to the participating financial institution an amount equal to the current balance in the reserve fund. If the enrolled 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 receive 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 balance in the reserve fund, the participating State shall, upon the request of the participating financial institution, pay any remaining amount of the claim.

(n)

Denial of claims

(o)

Subsequent recovery of claim 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 financial 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 participating financial institution;

(II)

a member of the immediate family of an executive officer, director, or principal shareholder of the participating financial institution; or

(III)

a related interest of any such executive officer, director, principal shareholder, or member of the immediate family;

(B)

shall require the participating financial institution to provide assurances to the participating State that the loan has not been made in order to place under the protection of the Program prior debt that is not covered under the Program and that is or was owed by the borrower to the participating 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 refinancing of a loan previously made to the borrower by the participating financial institution or an affiliate of the participating financial institution;

(ii)

such prior loan was not enrolled in the Program; and

(iii)

additional or new financing is extended by the participating financial institution 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

(q)

Termination clause

(r)

Allowable withdrawals from fund

(s)

Grandfathered provision

(1)

Special treatment of premium charges

Notwithstanding subsection (b) or (d), the participation agreement, if explicitly authorized 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 institution and the borrower into the reserve fund, and interest or income earned on funds in the reserve fund that are deemed to be attributable 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 institution’s withdrawal from authority to make new loans under the Program.

(2)

Payment of post-withdrawal claims

(3)

Conditions for terminating special authority

(Pub. L. 103–325, title II, § 255, Sept. 23, 1994, 108 Stat. 2207.)

cite as: 12 USC 4745