The Marshall Project reports on criminal history barriers to small business relief

In the past two weeks we have written at length about the U.S. Small Business Administration (SBA)’s “bumpy guidance on criminal history requirements” for small business financial relief during the COVID-19 pandemic (see also “Applying for an SBA loan with a criminal record“).  Today, Eli Hager of The Marshall Project has picked up the story with a new piece that draws on our research and will bring the story to a wider audience.  We hope this will prompt the SBA to revise its policy, or guide Congress toward clearer and fairer standards if it passes a planned new round of small business assistance.

Before the pandemic, the SBA didn’t automatically disqualify people for small business loans based on a past criminal record, and we can’t understand why it would suddenly decide to do so now, when small businesses across the country are struggling to stay afloat.  (Preexisting policy, described here, disqualifies a business if it has a principal who is incarcerated, is under supervision, is facing charges, or lacks “good character.”)  The new SBA policy—which automatically disqualifies even certain people who have completed a diversionary program and were never convicted—seems entirely at odds with the wave of recent state and federal law reforms aimed at encouraging reintegration.

The Marshall Project piece notes that “never in recent U.S. history have so many conservatives and liberals agreed that people with criminal histories deserve a second chance—especially job-creating small-business owners.”  It is no wonder that the SBA “did not respond Tuesday to multiple requests for clarification,” when its new policy is so indefensible.

An excerpt from The Marshall Project piece, “Trump Administration Tells Some Business Owners ‘Do Not Apply’ for Coronavirus Loans,” is included below:

Michelle E. of Scottsdale, Arizona, was relieved when President Trump last month signed into law the sweeping stimulus package intended to keep the U.S. economy afloat during the coronavirus pandemic.

Michelle and her husband have owned a small hardwood flooring business for 18 years. She hoped the law’s $350 billion for small-business loans would help them avoid laying off any of their five employees, whom she said are like family. So she got a loan application through her bank.

But as she filled it out, Michelle saw the question: Had any of the business owners pleaded guilty to or been on probation for a criminal offense? Michelle immediately thought of her husband, who is on probation because he took a guilty plea on a theft charge after taking home the scope of someone else’s rifle on a hunting trip, something he says he did accidentally. His name and her last name are being withheld because his criminal case, and the couple’s loan application, are pending.

“Because of that, our employees can’t get help from the United States government?” Michelle said.

It’s a little noticed frustration compared to the logistical problems of the Trump administration’s rollout of the CARES Act. A set of new regulations for implementing the law, issued by the Small Business Administration, prohibits small-business owners with criminal records from accessing the desperately needed loans.

“We have never seen such a sweeping mandatory disqualification based on a criminal record, in any area of the law,” wrote the Collateral Consequences Resource Center, a nonprofit, nonpartisan website that tracks how federal, state and local laws affect people with past charges or convictions. The site is run by Margaret Love, who was the U.S. Pardon Attorney during the Clinton administration.

[. . . .]

Critics of the new regulations said the rules waste precious time examining people’s pasts when so many are, with each new day, losing their lives or livelihoods.  One New Jersey pet-supply store owner with a 10-year-old felony conviction put it this way in an email to the Collateral Consequences Resource Center: It is as if, after Hurricane Katrina flooded New Orleans, rescuers flying in helicopters asked families stranded on their roofs if they had ever faced a criminal charge.“

And if anyone answered yes,” he wrote, “they would move along to the next house.”

SBA’s bumpy guidance on criminal history requirements for stimulus loans

*UPDATE (7/7/20):  “SBA throws in the towel and Congress extends the PPP deadline”

The U.S. Small Business Administration (SBA) oversees an array of government-backed loans that are key resources for small businesses fighting to survive during this pandemic.  The recently-enacted stimulus bill authorized more than $300 billion in new SBA loans, many of which are eligible for forgiveness.  We published a post about this on March 27: “Applying for an SBA loan with a criminal record.”  But in the past week, the SBA has issued confusing and frequently changing guidance regarding stimulus loan eligibility for people with a criminal record, a group that includes as many as one in three adults.  In the last week, the SBA has issued criminal history guidance for the Paycheck Protection Program on three separate occasions, each time with more restrictive eligibility rules, and it is not clear when guidance will be finalized.

The most recent guidance, issued just today, disqualifies from financial assistance a business with: 1) an owner of 20% or more of the equity who is currently subject to criminal charges, incarceration, probation, or parole; or 2) “any owner” who has, in the last five years, been convicted of any felony, or pled guilty or nolo contendere to felony charges, or been placed on pretrial diversion or any form of parole or probation, including probation before judgement, based on felony charges.

These developments are troubling given the urgent need for relief and the considerable barriers that people with records already face in the economy even in the best of times.  In this post we discuss the past week’s developments on this issue.  We also provide information about COVID-19 disaster loans.

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11th Circuit declines to rehear decision upholding felony voting rights

Yesterday, the full U.S. Court of Appeals for the Eleventh Circuit denied Florida’s petition to rehear en banc a decision from a three-judge panel, which held on Feb. 19 that Florida may not deny the vote to people with felony convictions who have otherwise served their sentences, but may have outstanding court debt that they are unable to pay.

The panel decision concerns Florida’s 2018 ballot initiative Amendment 4, which restored the vote to state residents with felony convictions who have completed the terms of their sentence (murder and sex offense convictions are excluded).  The Florida Supreme Court held earlier this year that this required payment of fines, fees, and restitution.  The Eleventh Circuit panel, affirming a district court preliminary injunction, not only held that Florida may not deny the vote to those who can demonstrate that they are genuinely unable to pay outstanding court debt, but it also called into question the very requirement that legal financial obligations must be satisfied in order to regain the vote.  Our full discussion of that decision is included below.

Absent intervention by the Supreme Court, Florida will be now be required to 1) implement the lower court’s preliminary injunction (which affected only the 17 plaintiffs named in the lawsuit); and 2) return to the district court for further litigation to address the rights of all other similarly situated Floridians, in accordance with the seeming broader directive of the appeals court.

Yesterday’s decision sends a strong signal to the states that currently impose similar financial barriers to restoring the franchise to those who have otherwise served their sentences.  But it also suggests that states should reconsider the many other troublesome barriers that governments impose on people who have otherwise served their sentences and are looking to fully participate in society, but still carry outstanding court debt.  In this vein, we have recently written about the denial of small business loans and ineligibility for expungement of non-conviction records because of outstanding fines and fees.

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Applying for an SBA loan with a criminal record

*NEW: Applying for SBA COVID-19 relief with a criminal record in 2021 (March 8, 2021)

Loans from the U.S. Small Business Administration (SBA) are a key resource for small businesses fighting to survive during this pandemic.  SBA loans are generally loans provided by private lenders and guaranteed by the federal government.  The $2+ trillion stimulus package (the CARES Act) signed into law today, includes more than $300 billion in funding for new SBA loans called the “Paycheck Protection Program,” some of which are eligible for forgiveness.

These loans are to be provided under SBA’s primary loan program, the 7(a) loan program, but they increase eligibility for 7(a) loans, extend their allowable uses, and allow for loan forgiveness, among other provisions.  (See H.R. 748, sec. 1102; 15 U.S.C. 636(a)).  Notably, a Paycheck Protection Loan may be used—in addition to already-allowable uses under 7(a)—for payroll support (including paid sick, medical, or family leave, and group health care benefit costs during leave), employee salaries, mortgage payments, rent, utilities, and any other debt incurred before February 15, 2020.  See H.R. 748, sec. 1102.  Further, for all 7(a) loans made between February 15, 2020 and June 30, 2020, loaned funds would be eligible for forgiveness if used for payroll costs (with a couple of exceptions), and certain other expenses to maintain “payroll continuity” during a four-month period.  A business must submit certain documents to apply for forgiveness, and the forgiveness amount is reduced if the number of employees or their compensation has been reduced.  Se H.R. 748, sec. 1106.

In this post, we explore considerations for people with a criminal record who wish to apply for a 7(a) small business loan, including the “Paycheck Protection Program” loans that will be funded through the CARES Act.  We also discuss disaster loans for small businesses in areas severely impacted by the Coronavirus (COVID-19), which the SBA is already making available.

After reviewing existing SBA loan eligibility rules and vetting policies for 7(a) applicants, we have questions about the extent to which these new loans will be available to people with a criminal record.  Generally, the SBA excludes any business with a principal who is on probation, parole, or similar form of supervision; or who is currently facing any charges.  And while a closed criminal case is not automatically disqualifying, SBA requires that every 7(a) applicant’s principals be “of good character,” and conducts a character evaluation that for people with a felony conviction, certain misdemeanor convictions, or a recent case, requires a full FBI background check before loan funds may be approved.  This evaluation specifically requires disclosure of expunged convictions and certain non-conviction records.  Moreover, if a person has not completely satisfied a sentence “and other conditions of the court,” they are ineligible for a loan.  Certain broad language in the CARES Act suggests that the SBA might not impose eligibility requirements that would apply to 7(a) loans in normal times, including ineligibility due to an open criminal matter or lack of “good character.”  We hope that would be the case, given the urgent need for relief and the considerable barriers that people with records already face in the economy even in the best of times.  We will look for guidance from the SBA as to how it will interpret this language.  [See the updates at the top of this post.]

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Will restrictions on banking jobs be relaxed for people with a record?

More than two dozen organizations dedicated to improving employment opportunities for people with a criminal record have written to the FDIC urging that it give regulated financial institutions greater latitude to hire qualified people without having to ask the FDIC’s permission.  The occasion is the FDIC’s proposal to reduce to a formal rule its longstanding policy on employment of convicted individuals by banks, a proposal that suggests the FDIC may be open to giving banks more hiring autonomy by relaxing several controversial provisions.  For 20 years, the FDIC has kept a tight grip on banks, requiring them to obtain a waiver before they may hire anyone with a record even in an entry-level non-professional position.  In operation, this policy has been an effective bar to bank employment for most people with a conviction record (and even for some who have never been convicted).

The letter, organized by the National Employment Law Project and the Leadership Conference on Civil and Human Rights, points out that FDIC’s exclusionary policy is not required by its enabling statute, and urges the agency to bring its policy on hiring waivers into line with national efforts to further reintegration, in several different ways, some of which are discussed below.  The letter cites the bipartisan federal Fair Chance Act and corresponding reforms in states across the country (as reported by CCRC), as well as many letters from bank industry leaders urging the FDIC to relax its rigid policy that has frustrated efforts to diversify the financial sector’s work force.

The comment below provides some background for the FDIC’s proposal, and comments on where some relaxation of its present policy is likely.  It concludes with a note about the generally confusing and inconsistent treatment of state relief mechanisms like expungement and pardon in federal laws and regulations, suggesting that this is an area sorely in need of further study and proposals for reform.

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COVID-19: State-by-state resources on how to use the pardon power

At this time of pandemic, we have been following the discussions of how jail, prison, and immigration detention conditions are highly concerning, including the very useful collection of links provided by Professor Doug Berman, the demands published by advocacy organizations, and the collection of policy responses by the Prison Policy Initiative.  We agree that every available legal mechanism must be enlisted to secure the release of prisoners and detainees who pose little or no threat to public safety, and whose health and safety are themselves severely threatened by their enforced captivity.  This includes the great constitutional powers given to governors and pardon boards.  We therefore commend our newly revised pardon resources to advocates and policy makers to support their advocacy and action.

While our pardon-related research focuses primarily on how the power is used to restore rights and status to those who are no longer in prison, much of our information about how the pardon process is structured and operates is relevant to how the power might be used (or is already being used) to commute prison sentences during the pandemic.  Our revised pardon resources are part of a major revision of the CCRC Restoration of Rights Project, not only to make sure its information is current in light of the many recent changes in the law, but also reorganizing and revising its resources for clarity and easier access.  In the process, we have updated and revamped our state-by-state material on how the pardon process operates in each jurisdiction, noting that the process has become more regular and productive in a few states in the past several years.

Our 50-state pardon comparison is organized into four sections:

  • Section 1 provides a chart comparing pardon policy and practice across jurisdictions.
  • Section 2 lists jurisdictions by frequency and regularity of their pardon grants.
  • Section 3 sorts jurisdictions by how the administration of the power is structured.
  • Section 4 provides state-by-state summaries of pardon policy and practice, with links to more detailed analysis and legal citations.

We hope this information will be helpful to advocates across the country as we work to keep all people safe and healthy, including those in our prisons and jails.

Legalizing marijuana and expunging records across the country

*NEW: Marijuana legalization and expungement in early 2021

As the legalization or decriminalization of marijuana has now reached a majority of the states, the expungement of criminal records has finally attained a prominent role in the marijuana reform agenda.  Laws to facilitate marijuana expungement and other forms of record relief, such as sealing and set-aside, have now been enacted in more than a dozen states.  Most of these laws cover only very minor offenses involving small amounts of marijuana, and require individuals to file petitions in court to obtain relief.  But a handful of states have authorized streamlined record reforms that will do away with petition requirements and cover more offenses.  In the 2020 presidential race, Democratic candidates have called for wide-ranging and automatic relief for marijuana records.

Given these important developments that we expect will continue in the present legislative season, we have put together a chart providing a 50-state snapshot of:

(1) laws legalizing and decriminalizing marijuana;

(2) laws that specifically provide relief for past marijuana arrests and convictions, including but not limited to conduct that has been legalized or decriminalized; and

(3) pardon programs specific to marijuana offenses.

We hope this tool will help people assess the current state of marijuana reform and work to develop more expansive, accessible, and effective record relief.

As of this writing, 26 states, D.C., and one territory have legalized or decriminalized marijuana to some degree.  Eleven states and D.C. have done both.  Seventeen states and D.C. have enacted expungement, sealing, or set-aside laws specifically for marijuana, or targeted more generally to decriminalized or legalized conduct.  Four states have pardon programs for marijuana offenses.  Our 50-state chart documenting these laws is available here.  We will update this chart to cover new legislative developments as they occur.  For example, just this week both chambers of the Virginia legislature passed a bill that would decriminalize possession of small amounts of marijuana and limit access to records of such offenses.

This comment describes some of the history of marijuana decriminalization, legalization, and expungement reforms, recent trends, and the current state of the law in this area.  It attempts to provide evidence for what Professor Douglas A. Berman recently described as the “linking and leveraging” of the marijuana reform and expungement movements.

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Automatic expungement falls short in Canada

The John Howard Society of Canada has a new post about a failed piece of Canadian legislation that would have provided automatic expungement of criminal records in that country.  The post describes the effort to remedy the shortcomings of the current “one-at-a-time” record-clearing system, which it says is expensive (more than $600 to apply), bureaucratic, and “systematically works against poor and marginalized people.”  As an example, it documents Canada’s serious “takeup” problem with its recent efforts to clear cannabis possession convictions: “despite the government’s claims of an enhanced process to grant pardons for cannabis possession now that it is legal, only a handful of the 250,000 or so Canadians with such records have received pardons so far.”

The post also discusses our report documenting U.S. expungement reforms in 2019, noting that while the problem of criminal records in this country is “much greater” than it is in Canada, we seem to be making better progress in dealing with it.

We reprint the introduction to the post below, and link to the piece.

Expunging criminal records

February 26, 2020

Last year Senator Kim Pate introduced a bill that would provide automatic expungement of criminal records in Canada.  Under this bill, criminal records would automatically be sealed after a certain amount of time had elapsed following a criminal sentence unless there had meanwhile been a new criminal charge or conviction.

Expungement of criminal records is important because a criminal record has many harmful effects for a person’s entire lifetime, even decades after the end of their sentence.  It is important to keep in mind that 3-4 million Canadian adults, or about 1 in 8, has a criminal record of some kind.  Wherever you live in Canada, you likely have neighbours with a record.  But, as another post on this blog showed, most people never commit a second crime, and this likelihood declines with every year that passes.

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New Jersey steps out as Reintegration Champion of 2019

Editors’ note: CCRC recently released its report on 2019 criminal record reforms, which recognized New Jersey as the “Reintegration Champion” of 2019, for having the most consequential legislative record of any state in the past year.  The following comment describes New Jersey’s laws enacted in 2019.  New Jersey’s various restoration of rights laws are further described in the state’s profile in the CCRC Restoration of Rights Project.

In December 2019, Governor Phil Murphy signed into law S4154, now L.2019, c.269, as part of his Second Chance Agenda.  The law is a strong step towards criminal justice reform, and places New Jersey on the map as a leader in expungement policy.  Along with easing access to the existing expungement process,  it creates a new “clean slate” system that provides for expungement of all but the most serious violent offenses after ten years. It additionally sets in motion a process aiming to automate all clean slate expungements.  The substantive provisions of the law are set to go into effect on June 15, 2020, and we anticipate a large increase in expungements following its implementation.

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Report Card: Grading states on 2019 record reforms

The following is an excerpt from our recent annual report on legislative reforms, Pathways to Reintegration: Criminal Record Reforms in 2019.

Report Card

For the first time this year we have prepared a “Report Card” on how state legislatures performed in 2019 in advancing the goals of reintegration.  We have not covered all states, only those we thought most and least productive.  We hope this new feature of our annual reports will provide an incentive to legislatures across the nation, and a tool for legislative advocates.

New Jersey gets the top mark as Reintegration Champion of 2019 for the most consequential legislative record of any state last year.

In this inaugural year, New Jersey gets the top mark as Reintegration Champion of 2019 for the most consequential legislative record of any state last year.  New Jersey’s “Clean Slate” law authorized an automated record-clearing process for many thousands of misdemeanor and felony convictions going back decades, and extended eligibility and improved procedures for petition-based discretionary expungement  relief.  New Jersey enacted two other important laws promoting reintegration.  One limited felony disenfranchisement to people in prison, immediately restoring the vote to about 80,000 people still completing their sentences in the community.  Unlike the executive orders that have this effect in New York and Kentucky, New Jersey’s law will not be easily retracted when the statehouse changes hands.  Another new law repealed provisions mandating suspension of driver’s licenses for conviction of drug and other non-driving crimes, for failure to pay court debt, and for failure to pay child support.

In commending New Jersey’s legislative accomplishments, we would be remiss not to recognize the key role played by Governor Phil Murphy in making criminal record reform the cornerstone of his legislative agenda, and by key legislative leaders, who together persuaded the legislature to enact in a single year a bolder set of reintegration laws than any other in the country to the present time.[i]

As runner-up, Colorado enacted 10 laws on criminal records, voting rights, ban-the-box, and immigration.

Colorado is runner up for our new Reintegration Champion award, based on a prolific legislative record that is a close second to New Jersey’s.  In 2019 Colorado enacted ten record reform laws, among them an ambitious rewriting of its code chapter on criminal records, a law restoring voting rights to parolees and one extending ban-the-box to private employers, and two new measures to avoid deportation as a consequence of conviction. Colorado’s productive 2019 followed an almost equally productive 2018, when its legislature regulated occupational licensing agencies and gave its courts authority to remove mandatory collateral penalties.

Honorable mention goes to 6 states (IL, MS, NV, NM, ND, WV) for productive legislative seasons, while 5 other states (AR, DE, CA, NY, UT) were recognized for a specific notable new law.    

Honorable mention for a productive legislative season goes to six states: Illinois and Nevada (with nine and eight laws, respectively, some significant); New Mexico and North Dakota (for their comprehensive first-ever record-sealing schemes, and ban-the-box bills);  Mississippi (for its extensive regulation of occupational licensing, management of diversion courts, and repeal of mandatory driver’s license penalties for drug and other non-driving crimes); and West Virginia (for two significant laws, on record relief and occupational licensing, as well as a diversion bill).  Five additional states deserve recognition for notable enactments:  Arkansas for a major revision of its occupational licensing law; California and Utah for their automated record relief laws (though Utah’s scheme is not as far-reaching as New Jersey’s, and California’s is prospective only); New York for two measures to limit access to undisposed (pending) cases; and Delaware for its first comprehensive expungement scheme.

Low marks go to three of the seven states that enacted no record reform laws at all in 2019: the legislatures of Alaska, Georgia, and Michigan have been the least productive in the land in recent years where restoration of rights and status is concerned.  Kansas, Massachusetts, Wisconsin, and Pennsylvania also produced no new laws in 2019, but all four states enacted major record reforms in 2018 so we give them a pass.

We conclude by noting that many of the states not mentioned in this inaugural Report Card made progress last year in limiting access to and use of criminal records, and we were hard-pressed not to single a few more of them out for credit.  It is clear to us that almost every state sees criminal record reform as an important and challenging legislative agenda.  We anticipate that in 2020 states that have been comparatively cautious in their recent law-making will be inspired to take larger steps as they see what more ambitious jurisdictions have already been able to accomplish.

Note: In response to this report, New Jersey Governor Phil Murphy tweeted:

Read the full report here.

[i] See, e.g., Governor Murphy’s statement accompanying his “conditional veto” in August 2019 of an early version of the bill that would become the Clean Slate law that he signed on December 19, 2019.  In that statement, after applauding the legislature’s extension of eligibility for petition-based expungement, he noted the example set by Pennsylvania’s own Clean Slate law the year before:

“Only those individuals who actually apply for an expungement, meaning those who are aware of this potential remedy and have the wherewithal to navigate the legal process or afford an attorney to assist them, would be able to seek the relief afforded by the expungement process. This method is not the most efficient means for clean slate expungement, nor will it deliver relief to all eligible individuals who need it. To avoid this shortcoming, we should follow the lead of Pennsylvania and undertake the necessary steps to establish an automated, computerized expungement system that would allow people with multiple convictions for less serious, non-violent crimes who maintain a clean record for ten years to clear their criminal histories without having to hire a lawyer or wade through a paperwork-intensive process. Our system is not set up to do this now, and undertaking this task will require buy-in and commitment from all three branches of government. On behalf of the executive branch, that is a commitment I am more than willing to make.”

See https://www.state.nj.us/governor/news/news/562019/docs/S3205CV.pdf.  Senator Sandra Cunningham, Senate President Sweeney and Speaker Coughlin were particularly effective partners in the negotiations that resulted in the bill that was approved by the legislature in December.

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