42 U.S.C. § 300e–7 — General provisions relating to loan guarantees and loans

submitted 82 years ago by Pub. L. 93-222 to r/title-42-THE-PUBLIC-HEALTH-AND-WELFARE · 1,654 words · no verdicts yet

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This section tells the Secretary how to guarantee and issue loans to health maintenance organizations. It sets rules for loan terms, selling loans, two Treasury funds, and what happens if a borrower defaults.

(a) Conditions (1) The Secretary can only approve a loan guarantee if two things are true. First, the loan's terms — interest rate, repayment schedule, and any collateral — must protect the government's money and be reasonable. The interest rate can't be higher than what the Secretary decides is fair, based on rates for similar private loans and the risk the government is taking. Second, the loan must not be available on reasonable terms without the government's guarantee. (2)(A) If the government has to pay out on a guarantee, it can normally collect that money back from the organization that got the loan — unless the Secretary waives that right for good cause. When the government pays, it steps into the lender's shoes and gets all the lender's rights against the borrower. (B) The Secretary can change the terms of a guarantee later, as long as the change is fair to the government's financial interests. (C) Once a guarantee is issued, it generally can't be challenged. The borrower can't lose the guarantee unless the borrower lied or committed fraud to get it. The same protection covers a lender who relied on the guarantee, unless that lender committed fraud. (D) The Secretary can add any other conditions needed to make sure the loan guarantee program works as intended. (b) Application requirements (1) Before approving a direct loan, the Secretary must be reasonably sure the borrower can repay it, and the borrower must show it can get any extra money needed to finish the project. (2) Every loan must have security, a set maturity date, and a repayment schedule. The starting interest rate must match the rate on comparable U.S. government bonds, plus a charge for administrative costs. The Secretary can add other terms needed to carry out the loan program while protecting the government's money. If money is paid out in more than one installment, the Secretary can reset the interest rate on each later payment to match the government bond rate on the day that payment is made. (3) The Secretary can waive the right to collect from a borrower who fails to pay, for good cause and while still protecting the government's interests. But if the loan was sold and guaranteed, this waiver doesn't cancel the government's guarantee to the buyer. (c) Sale of loans (1) The Secretary may sell loans made under this program, while still protecting the government's financial interests. (2) Before selling a loan, the Secretary can promise the buyer that the borrower will keep meeting the loan's terms. This promise can include the Secretary collecting payments from the borrower and passing them to the buyer, and it can let the Secretary buy the loan back later. The full faith and credit of the United States backs this guarantee. (3) Interest a buyer earns on a loan sold this way counts as taxable income for federal income tax purposes. (4) Money the Secretary gets from selling loans goes into the loan fund described in subsection (e). (5) Elsewhere in this subchapter, "loan guarantee" does not include a guarantee made when a loan is sold under this subsection. (d) Loan guarantee fund (1) The Treasury holds a loan guarantee fund that Congress funds through appropriations. The Secretary uses it to pay out on loan guarantees and to take protective action under subsection (f). Money the Secretary collects from guarantee activities, and other related property, also goes into this fund. (2) If the fund doesn't have enough money to cover guarantees issued before October 1, 1986, the Secretary can borrow by issuing notes to the Treasury. The interest rate on these notes is set by the Secretary of the Treasury based on current market rates for similar government bonds. The Treasury must buy these notes, using money from selling other government securities, and can later resell them. All these transactions count as public debt transactions. Money borrowed this way goes into the fund, and the notes are repaid from the fund. (e) Loan fund The Treasury also holds a separate loan fund that Congress funds through appropriations. The Secretary uses it to make loans and to take protective action under subsection (f). Interest and principal payments from borrowers, along with proceeds from selling loans and other related property, go into this fund too. (f) Actions to protect interest of United States in event of default If a borrower defaults on a loan or loan guarantee, the Secretary can take whatever action is needed to protect the government's interest. This includes taking possession of, holding, and using real property that was pledged as collateral.

the actual law source: uscode.house.gov ↗public domain

(a) Conditions

(1)

The Secretary may not approve an application for a loan guarantee under this subchapter unless he determines that (A) the terms, conditions, security (if any), and schedule and amount of repayments with respect to the loan are sufficient to protect the financial interests of the United States and are otherwise reasonable, including a determination that the rate of interest does not exceed such per centum per annum on the principal obligation outstanding as the Secretary determines to be reasonable, taking into account the range of interest rates prevailing in the private market for loans with similar maturities, terms, conditions, and security and the risks assumed by the United States, and (B) the loan would not be available on reasonable terms and conditions without the guarantee under this subchapter.

(2)

(A)

The United States shall be entitled to recover from the applicant for a loan guarantee under this subchapter the amount of any payment made pursuant to such guarantee, unless the Secretary for good cause waives such right of recovery; and, upon making any such payment, the United States shall be subrogated to all of the rights of the recipient of the payments with respect to which the guarantee was made.

(B)

To the extent permitted by subparagraph (C), any terms and conditions applicable to a loan guarantee under this subchapter (including terms and conditions imposed under subparagraph (D)) may be modified by the Secretary to the extent he determines it to be consistent with the financial interest of the United States.

(C)

Any loan guarantee made by the Secretary under this subchapter shall be incontestable (i) in the hands of an applicant on whose behalf such guarantee is made unless the applicant engaged in fraud or misrepresentation in securing such guarantee, and (ii) as to any person (or his successor in interest) who makes or contracts to make a loan to such applicant in reliance thereon unless such person (or his successor in interest) engaged in fraud or misrepresentation in making or contracting to make such loan.

(D)

Guarantees of loans under this subchapter shall be subject to such further terms and conditions as the Secretary determines to be necessary to assure that the purposes of this subchapter will be achieved.

(b) Application requirements

(1)

The Secretary may not approve an application for a loan under this subchapter unless—

(A)

the Secretary is reasonably satisfied that the applicant therefor will be able to make payments of principal and interest thereon when due, and

(B)

the applicant provides the Secretary with reasonable assurances that there will be available to it such additional funds as may be necessary to complete the project or undertaking with respect to which such loan is requested.

(2)

Any loan made under this subchapter shall (A) have such security, (B) have such maturity date, (C) be repayable in such installments, (D) on the date the loan is made, bear interest at a rate comparable to the rate of interest prevailing on such date with respect to marketable obligations of the United States of comparable maturities, adjusted to provide for appropriate administrative charges, and (E) be subject to such other terms and conditions (including provisions for recovery in case of default) as the Secretary determines to be necessary to carry out the purposes of this subchapter while adequately protecting the financial interests of the United States. On the date disbursements are made under a loan after the initial disbursement under the loan, the Secretary may change the rate of interest on the amount of the loan disbursed on that date to a rate which is comparable to the rate of interest prevailing on the date the subsequent disbursement is made with respect to marketable obligations of the United States of comparable maturities, adjusted to provide for appropriate administrative charges.

(3)

The Secretary may, for good cause but with due regard to the financial interests of the United States, waive any right of recovery which he has by reason of the failure of a borrower to make payments of principal of and interest on a loan made under this subchapter, except that if such loan is sold and guaranteed, any such waiver shall have no effect upon the Secretary’s guarantee of timely payment of principal and interest.

(1)

The Secretary may from time to time, but with due regard to the financial interests of the United States, sell loans made by him under this subchapter.

(2)

The Secretary may agree, prior to his sale of any such loan, to guarantee to the purchaser (and any successor in interest of the purchaser) compliance by the borrower with the terms and conditions of such loan. Any such agreement shall contain such terms and conditions as the Secretary considers necessary to protect the financial interests of the United States or as otherwise appropriate. Any such agreement may (A) provide that the Secretary shall act as agent of any such purchaser for the purpose of collecting from the borrower to which such loan was made and paying over to such purchaser, any payments of principal and interest payable by such organization under such loan; and (B) provide for the repurchase by the Secretary of any such loan on such terms and conditions as may be specified in the agreement. The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guarantee under this paragraph.

(3)

After any loan under this subchapter to a public health maintenance organization has been sold and guaranteed under this subsection, interest paid on such loan which is received by the purchaser thereof (or his successor in interest) shall be included in the gross income of the purchaser of the loan (or his successor in interest) for the purpose of chapter 1 of title 26.

(4)

Amounts received by the Secretary as proceeds from the sale of loans under this subsection shall be deposited in the loan fund established under subsection (e).

(5)

Any reference in this subchapter (other than in this subsection and in subsection (d)) to a loan guarantee under this subchapter does not include a loan guarantee made under this subsection.

(d) Loan guarantee fund

(1)

There is established in the Treasury a loan guarantee fund (hereinafter in this subsection referred to as the “fund”) which shall be available to the Secretary without fiscal year limitation, in such amounts as may be specified from time to time in appropriation Acts, to enable him to discharge his responsibilities under loan guarantees issued by him under this subchapter and to take the action authorized by subsection (f). There are authorized to be appropriated from time to time such amounts as may be necessary to provide the sums required for the fund. To the extent authorized in appropriation Acts, there shall also be deposited in the fund amounts received by the Secretary in connection with loan guarantees under this subchapter and other property or assets derived by him from his operations respecting such loan guarantees, including any money derived from the sale of assets.

(2)

If at any time the sums in the funds are insufficient to enable the Secretary to discharge his responsibilities under guarantees issued by him before October 1, 1986, under this subchapter and to take the action authorized by subsection (f), he is authorized to issue to the Secretary of the Treasury notes or other obligations in such forms and denominations, bearing such maturities, and subject to such terms and conditions, as may be prescribed by the Secretary with the approval of the Secretary of the Treasury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States of comparable maturities during the month preceding the issuance of the notes or other obligations. The Secretary of the Treasury shall purchase any notes and other obligations issued under this paragraph and for that purpose he may use as a public debt transaction the proceeds from the sale of any securities issued under chapter 31 of title 31, and the purposes for which the securities may be issued under that chapter are extended to include any purchase of such notes and obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired by him under this paragraph. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States. Sums borrowed under this paragraph shall be deposited in the fund and redemption of such notes and obligations shall be made by the Secretary from the fund.

(e) Loan fund

There is established in the Treasury a loan fund (hereinafter in this subsection referred to as the “fund”) which shall be available to the Secretary without fiscal year limitation, in such amounts as may be specified from time to time in appropriation Acts, to enable him to make loans under this subchapter and to take the action authorized by subsection (f). There shall also be deposited in the fund amounts received by the Secretary as interest payments and repayment of principal on loans made under this subchapter and other property or assets derived by him from his operations respecting such loans, from the sale of loans under subsection (c) of this section, or from the sale of assets.

(f) Actions to protect interest of United States in event of default

The Secretary may take such action as he deems appropriate to protect the interest of the United States in the event of a default on a loan made or guaranteed under this subchapter, including taking possession of, holding, and using real property pledged as security for such a loan or loan guarantee.

Source credit: (July 1, 1944, ch. 373, title XIII, § 1308, as added Pub. L. 93–222, § 2, Dec. 29, 1973, 87 Stat. 927; amended Pub. L. 94–460, title I, § 109(b)(2), (c), Oct. 8, 1976, 90 Stat. 1950; Pub. L. 95–559, § 4(c), Nov. 1, 1978, 92 Stat. 2132; Pub. L. 97–35, title IX, § 945, Aug. 13, 1981, 95 Stat. 577; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 99–660, title VIII, § 807, Nov. 14, 1986, 100 Stat. 3800.)

history & why it existsrecord from the source credit

1944Enacted · Pub. L. 93-222 · 87 Stat. 927
1976Amended · Pub. L. 94-460 · 90 Stat. 1950
1978Amended · Pub. L. 95-559 · 92 Stat. 2132
1981Amended · Pub. L. 97-35 · 95 Stat. 577
1986Amended · Pub. L. 99-514 · 100 Stat. 2095
1986Amended · Pub. L. 99-660 · 100 Stat. 3800

A history note hasn’t been published yet. The record shows enactment by Pub. L. 93-222 on 1944-07-01.

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