Collateral Consequences Resource Center

Mnuchin defends record restrictions for SBA stimulus loans

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

We have written much in recent days about how the SBA has imposed new restrictions on participation in the Paycheck Protection Program (PPP) by small business owners with a record of arrest or conviction.  We were therefore surprised to hear Secretary Mnuchin at the White House press briefing yesterday assert that the new SBA rules are actually more favorable to this population than the old ones.  That is simply not true.

Prior to enactment of the CARES Act, the SBA’s rules for its 7(a) loan program—of which the PPP is the newest part—disqualified only people with open criminal cases.  People with past records were subject to an individual evaluation.  In launching the PPP, the SBA imposed entirely new mandatory disqualifications that were neither part of SBA’s preexisting regulations nor required by the CARES Act.  New PPP rules and policies prohibit loans to any small business owner who, in the past five years, had a felony conviction, plea, or was placed on probation, parole, or diversion, even without a conviction.

Yet at a press conference yesterday following Senate approval of additional PPP funds, Mnuchin claimed exactly the opposite.  Responding to a question about the President’s comment the day before that he would look into the issue of people with records being denied access to small business loans, the Secretary stated that he had “worked with the White House” to “specifically design” the PPP program to reflect criminal justice reform efforts led by Jared Kushner and others in the Trump Administration.  As a result, he said, the new five-year disqualification period is “significantly shorter than what had been done before . . . . There were a lot of people who wouldn’t have had access previously and we changed those regulations.”  (The clip is here, starting at 7:38; a transcript is below.)

The Secretary’s explanation is so wildly off the mark that it is hard to believe he was simply misinformed.  More likely, he was reporting on how the SBA’s 7(a) loan program has been administered in practice, unwittingly revealing an unwritten policy of categorical exclusion in spite of formal policies calling for individual review.  That peek at how a risk-averse bureaucracy actually operates out of the public eye would be no surprise to people who have experienced it.

In the run-up to the drafting of the new stimulus bill, several bipartisan coalitions and policy experts urged Congress and the SBA to ensure that  justice-involved people who have started small businesses—and their employees—can obtain stimulus funds.  But Mnuchin yesterday seemed to shut that door: “For now, we’re not going to do that.”

We strongly encourage the Secretary to take another look, and to do it quickly, before the new PPP funds are authorized and distributed.  As Marc Levin of the Texas Public Policy Foundation wrote in this space yesterday, “During this trying time, the SBA must reexamine these regulations to ensure that small businesses that made the most of one second chance don’t have it taken away through no fault of their own.”

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Second Chance Small Businesses Deserve Another Chance

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

As America prepares to get back to work, will some people be left behind? The Small Business Administration (SBA) has adopted rules for emergency COVID-19 loans that exclude otherwise eligible existing small businesses from relief solely because they are owned in part by individuals who have a criminal record. Given that at least 19 million Americans have a felony record, this overly broad exclusion threatens to unfairly deny a lifeline to deserving small businesses and their employees.

The Paycheck Protection Program (PPP) that was part of the $2 trillion relief legislation passed by Congress and signed by President Trump provides loans to small businesses that are forgivable if the business retains its employees during the period of at least eight weeks. While the legislation was vague on exclusions based on criminal background, the guidance adopted on April 2 by the SBA is overly broad, going far beyond excluding only those who have committed  offenses related to financial dishonesty such as bank fraud or extremely serious offenses such as rape and murder.

Among those excluded are small business in which an owner of 20 percent or more is currently facing charges for any offense, is currently on community supervision, or has been convicted of a felony in the last five years. For several reasons, this disqualifying language casts a much wider net than necessary.

First, simply because an individual is facing charges does not mean they are guilty. Indeed, some 20 percent of those arrested ultimately have their case dismissed or are acquitted.

Additionally, the current criteria exclude existing small businesses that are owned in part by the 4.5 million Americans on community supervision, which encompasses probation and parole. Yet initiatives like the Prison Entrepreneurship Program (PEP) have helped many Americans with a record become successful business owners.

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SBA has no excuse for excluding people with a record from stimulus relief

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

Some federal officials have claimed in recent days that the government is required to bar people with a criminal record from emergency loans under the Paycheck Protection Program (PPP) either by the CARES Act or by preexisting SBA rules.  Neither assertion is true.

There is nothing in federal law, including the CARES Act, that requires the Small Business Administration (SBA) to disqualify small businesses from applying for PPP loans based on an owner’s past arrest or conviction history.  Prior to enactment of the CARES Act, the SBA’s rules disqualified only people with open criminal cases from the 7(a) loan program of which the PPP is the newest part.  Yet in launching the PPP, the SBA inexplicably decided to impose entirely new record-related restrictions on a population that is already severely disadvantaged: the new PPP rules and accompanying application forms prohibit loans to any small business owner convicted of a felony within the past five years, or placed on probation or parole during that time, even if all court-imposed penalties have been fully satisfied.  In fact, the SBA even disqualifies people whose felony charges never led to a conviction, but instead were dismissed after completion of pretrial diversion.

Our one-pager, “At a Glance: Barriers to the Paycheck Protection Program (‘PPP’) Based on Arrest or Conviction,” available in PDF and included below, explains the new barriers to relief under the PPP as well as preexisting barriers under the 7(a) program.

The SBA’s new policy, which comes at perhaps the worst possible time for struggling small businesses, cannot be squared with recent Congressional efforts to support people with past justice involvement in their efforts to reintegrate into the community, by enabling them to compete fairly for federal employment and contracts.  Eligibility requirements for federal relief should be relaxed in these circumstances, not made more restrictive as the SBA has done.  A coalition of conservative groups today urged in a letter to Senator McConnell that Congress take steps to roll back this counterproductive SBA policy, joining advocates who wrote last week directly to the federal executive officials most directly responsible for it.  We hope Congress will curb the SBA’s authority to discriminate against small business owners with a record in its new stimulus package.

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Bipartisan coalition calls on SBA to roll back record-related restrictions in COVID-19 small business loan programs

On April 17 a diverse bipartisan group of civil rights, advocacy, and business organizations, including CCRC, sent a letter to Treasury Secretary Mnuchin and SBA Administrator Carranza expressing concern over the restrictions imposed by the SBA on people with a record of arrest or conviction under two programs recently authorized by Congress in response to the COVID-19 crisis.  The letter points out that these unwarranted restrictions on loan programs intended to aid small businesses and non-profits will have a significant and detrimental impact in communities across the country, and a particularly harsh effect on minority business owners and employees who are disproportionately affected by the criminal legal system as a result of institutional discrimination.  It urges that federal relief be made equitably accessible to all who need it.

The letter describes how the SBA’s program restrictions based on record are

  • unnecessary and confusing
  • inconsistent with Congress’ intent in enacting the CARES Act
  • overbroad and unfair
  • racially discriminatory

In conclusion, the letter urges the SBA to take the following steps:

  • At a minimum, bring the record restrictions for PPP and EIDL programs in line with those that applied to Section 7(a) and 7(b) loans under regulations adopted prior to enactment of the CARES Act.
  • Relax existing rules and policies that restrict access to PPP or EIDL financial assistance for people with a record in the urgent circumstances presented by the pandemic, in line with the purposes of the CARES Act.
  • Ensure that the application forms for SBA financial assistance accurately reflect the eligibility requirements and are written in a clear manner.

An Appendix to the letter describes how the new rules and policies governing the Payroll Protection Program are more restrictive than those governing the 7(a) program generally, and how barriers based on arrest or conviction may also disqualify people with any sort of a record from loans under the EIDL program authorized under the SBA’s existing 7(b) disaster loan program.

The letter —available in PDF and reprinted below – was sent by the following organizations:

American Civil Liberties Union
Chicago Lawyers’ Committee for Civil Rights
Collateral Consequences Resource Center
Community Legal Services of Philadelphia
Drug Policy Alliance
FreedomWorks
Georgia Justice Project
Interfaith Action for Human Rights
Jewish Council for Public Affairs
Justice & Accountability Center of Louisiana
Justice Action Network
Leadership Conference on Civil and Human Rights
National Association of Criminal Defense Lawyers
National Employment Law Project
Public Interest Law Center
Reproductive Justice Inside
Safer Foundation
Washington Lawyers’ Committee for Civil Rights and Urban Affairs
Women Against Registry

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Prosecutors’ role in deciding how long people stay in prison

A timely new article from CCRC board member Nora V. Demleitner, law professor at Washington and Lee University, considers the central role of prosecutors in determining who goes to jail and prison and how long they stay there.  Demleitner reviews—as a “case study of prosecutorial authority”—prosecutors’ actions to reduce confined populations during the COVID-19 crisis.  While prosecutors’ key role in charging and sentencing at the front end of a criminal case is well-established, in ordinary times their influence in its later stages, including in prison release decisions, is not so obvious.  Professor Demleitner shows how the pandemic “highlights the tools prosecutors have at their disposal and how they can directly impact the size of the criminal justice system.”  This in turn leads her to consider how “prosecutorial thinking” focused on public safety as opposed to public health “increasingly influences other branches of government” even in the midst of a pandemic.

Professor Demleitner’s article, “State Prosecutors at the Center of Mass Imprisonment and Criminal Justice Reform,” will be published in the April 2020 issue of the Federal Sentencing Reporter.  The abstract is included below:

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