Tag: criminal record

SBA eases some criminal history barriers and faces litigation

*UPDATE (7/7/20):  “SBA throws in the towel and Congress extends the PPP deadline” After Congress authorized hundreds of billions of dollars for small business relief during COVID-19, the Small Business Administration (SBA) imposed restrictions on applicants with an arrest or conviction history.  We have written much in recent weeks about how these barriers, neither required nor contemplated by Congress, impede access to the two major relief programs for small businesses, nonprofits, and independent contractors: the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. Following the introduction of a bipartisan Senate bill to roll back most of these barriers, Treasury Secretary Steven Mnuchin agreed on June 10 to revise the PPP restrictions.  On Friday, June 12, SBA issued new regulations and application forms to ease some of the barriers in the PPP.  The changes are more limited than the proposed Senate bill, and continue to reflect an SBA overreach in its approach to loan applicants with criminal records, at a time when we are nearing the June 30 closing date to apply for this much-needed assistance. Meanwhile, two lawsuits have been filed against the SBA in federal court in Maryland, asserting that the SBA’s criminal history restrictions are beyond the agency’s authority, arbitrary and capricious, and contrary to the text of the CARES Act.  The first lawsuit, filed on June 10, is brought by The New Civil Liberties Alliance on behalf of a corner store in Hagerstown, Maryland, which was denied PPP assistance based on its owner’s 2004 felony conviction, for which he is on parole.  The second lawsuit, filed on June 16 by the ACLU, Public Interest Law Center, and Washington Lawyers’ Committee for Civil Rights and Urban Affairs, also asserts that the restrictions fall hardest on minority businesses due to the impact of over-criminalization on communities of color.  The suit is on behalf of the owner of an electrical contracting business on parole for a 2012 drug conviction, a graphic designer with pending misdemeanor charges, and a nonprofit that provides job and entrepreneurial training for currently and formerly incarcerated individuals.  None of the business owner plaintiffs in these two lawsuits would be eligible under the SBA’s new policies, which we analyze below.  (Further information on the lawsuits is also below.) The new SBA policies announced last week reduce the range of past felony records that are disqualifying.  The original policies (reflected in an April 15 Interim Final Rule and the original PPP application form) disqualified “any owner” of an applicant who had, in the last five years, for any felony, been convicted, pled guilty or nolo contendere, or who had been placed on pretrial diversion or any form of parole or probation, including probation before judgement. The new policies exclude a smaller set of past felony records, with additional focus on offenses that are arguably more relevant to federal financial assistance.  Per the new regulation, an applicant is now disqualified based on a past felony record, if, within the last 5 years, “an owner of 20 percent or more of the equity of the applicant,” has been convicted of any felony involving “fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance,” or within the last year, convicted of any other felony.  But the PPP application form, revised on June 12, again goes further than the rule, extending exclusion to applicants with “any owner” who, for the above offenses during the specified time periods, “1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; or 4) been placed on any form of parole or probation (including probation before judgment).”  Further, the new application form leaves in place the existing disqualification of applicants with an owner of 20% or more of the equity who is “currently subject to criminal charges, incarceration, probation, or parole.” These new policies purport to rescind the previous disqualification of people who were placed in “pretrial diversion,” based on a commitment to do so made by Sec. Mnuchin to Senator Cory Booker.  An SBA bulletin states: “The application also eliminates pretrial diversion status as a criterion affecting eligibility.”  In fact, on June 11, the SBA had already struck the words “pre-trial diversion” from the previous application form.  But, evidently inconsistent with the Secretary’s commitment, the SBA will continue to disqualify people for felony records associated with bare guilty pleas and probation before judgment, which are often elements of pretrial diversion programs.  Further, the catch-all exclusion of anyone “currently subject” to charges or supervision certainly includes many people participating in pre-trial diversion programs, including for misdemeanor charges.  And it appears to extend to the business owner plaintiffs in the two Maryland lawsuits. Finally, it is not clear if the above changes will apply to EIDL disaster loans, which have been subject to undisclosed and seemingly arbitrary and evolving criminal history restrictions. The SBA’s easing of some restrictions to the Paycheck Protection Program appears to be a modest improvement in the agency’s treatment of applicants with a record, but efforts in Congress would go considerably further.  We hope that those legislative efforts will be pursued, since even as modified the SBA’s policies fall considerably short of compliance with the CARES Act. *** The ACLU’s press release announcing its suit can be found here: https://www.aclu.org/press-releases/aclu-civil-rights-organizations-sue-small-business-administration-excluding-business The complaint can be found here: https://www.aclu.org/legal-document/defy-ventures-et-al-v-united-states-small-business-administration A video on the filing can be found here: https://www.youtube.com/watch?v=dwnqEv7__mc&feature=youtu.be The NCLA’s press release announcing its suit can be found here: https://nclalegal.org/2020/06/ncla-sues-small-business-administration-for-denying-ppp-loans-to-applicants-with-criminal-histories/ The complaint can be found here: https://nclalegal.org/wp-content/uploads/2020/06/NCLA-Complaint-Carmens-Corner-Store-v.-SBA-1.pdf Read more

“Preventing Background Screeners from Reporting Expunged Criminal Cases”

In an article published this week by the Shriver Center, Preventing Background Screeners from Reporting Expunged Criminal Cases, Sharon Dietrich offers helpful advice for advocates on to how to combat the problem posed by the reporting of expunged and sealed criminal records by private commercial background screening services. Her advice is based partly on her own organization’s participation in litigation under the federal Fair Credit Reporting Act (“FCRA”) against one of the country’s larger background screeners — an experience that she recounts in detail. Dietrich identifies the problem of improper private reporting of expunged records as one that “threatens to undermine the whole strategy of broadening expungement as a remedy for the harm of collateral consequences.” She describes the underlying issue as follows:  [T]he commercial background-screening industry, which runs the lion’s share of the background checks obtained by employers and landlords, sometimes reports those expunged cases long after they have been removed from the public record. Companies in the background-screening industry typically maintain their own privately held databases of criminal cases from which they generate background checks. When updating their data from public sources (often state courts), these screeners often do not use methods to determine whether cases that were reported by their sources have been removed (i.e., expunged or sealed), and they continue to report them. Dietrich encourages advocates and their clients to be proactive about keeping their expunged records out of public hands by obtaining copies of their files from the larger background screeners (they are required to share them by law) and by reporting expungements directly to screeners. She also encourages advocates to pressure entities that sell criminal records, like the courts, to regularly provide buyers with expungment data and to require buyers to regularly remove expunged records from their databases. If expunged records are still being reported or have already been reported, Dietrich encourages considering litigation under the Fair Credit Reporting Act, which requires background screeners to follow “reasonable procedures” to ensure the accuracy of the records they report (“strict procedures” in the employment context). For a client who has sustained lost wages or other damages because of the reporting of an expunged or sealed case, litigation under the Fair Credit Reporting Act should bring relief. Individual cases are not overly complicated and have some deterrent effect if the client recovers a monetary award. Dietrich’s recounting of the litigation in Giddiens v. LexisNexis — in which her own organization, Community Legal Services of Philadelphia, brought a class action suit against LexisNexis under FCRA after it was discovered that one of CLS’s expungement clients had been denied employment based on a record that was expunged nearly 2 years earlier — offers a practical perspective on the choices, challenges, and outcomes that may be expected in large-scale FCRA litigation, as well as a look at how criminal data is obtained and shared by commercial providers. The case eventually settled and LexisNexis agreed to change its practices and to make cash payments to 300 identified class members. Dietrich’s reflection of the pros and cons of the litigation strategy and its outcome are particularly insightful. Sharon Dietrich’s full article is available at this link.  Registration with the Shriver Center website is required to view the article, but it is fast and free. NOTE: Last month, Community Legal Services filed a similar class action FCRA lawsuit in the Eastern District of Pennsylvania against commercial screener Realpage, Inc., alleging improper reporting of expunged convictions to landlords.  The complaint in that case can be viewed here. Read more