Category: Administrative law

Justice moves toward relieving record-based gun restrictions

On March 20th the U.S. Department of Justice published a rule it described as “a first step” toward reviving a long-dormant program for relieving federal firearms restrictions based on criminal record.  This rule could lead to a dramatic increase in opportunities to regain firearms rights by people convicted of felonies and misdemeanor domestic violence under state and federal law, and a reduction in collateral consequences that have long been criticized as having little or no public safety purpose.

The interim final rule entitled “Withdrawing the Attorney General’s Delegation of Authority” begins implementation of President Trump’s Executive Order 14206 of February 6, 2025 (“Protecting Second Amendment Rights”), which directed the Attorney General to study ways that the federal government could better reduce burdens on individuals’ Second Amendment. (The executive order did not mention firearms dispossession laws as among those burdens.)

According to the rule commentary, the Justice Department proposes to study how to help people with criminal records avoid the restrictions in federal firearms laws. It begins this process by withdrawing the Attorney General’s delegation to ATF to administer the restoration program under 18 U.S.C. 925(c), as well as “the moribund regulations governing individual applications to ATF.”  The rule commentary describes how ATF has been barred by Congress since 1992 from using any agency funds to administer the 925(c) restoration program. Without this statutory form of relief, people with federal convictions have had no way to regain their firearms rights except to obtain a presidential pardon, an elusive and unreliable form of relief in the best of times.

At the same time, the rule commentary promises to revive the 925(c) program, since the Attorney General has concluded that it “reflects an appropriate avenue to restore firearm rights to certain individuals who no longer warrant such disability based on a combination of the nature of their past criminal activity and their subsequent and current law-abiding behavior while screening out others for whom full restoration of firearm rights would not be appropriate.”

Withdrawing the delegation to ATF, as well as its dated implementing procedures, gives the Justice Department

a clean slate on which to build a new approach to implementing 18 U.S.C. 925(c) without the baggage of no-longer-necessary procedures— e.g., a requirement to file an application “in triplicate,” 27 CFR 478.144(b). With such a clean slate, the Department anticipates future actions, including rulemaking consistent with applicable law, to give full effect to 18 U.S.C. 925(c) while simultaneously ensuring that violent or dangerous individuals remain disabled from lawfully acquiring firearms.

The Justice Department’s intention to revive the 925(c) program was foreshadowed several weeks ago in connection with its interest in restoring firearm rights to Mel Gibson, an interest that may have played a part in the dismissal of the official in charge of the pardon program in Justice.

Reviving the 925(c) program could give people with federal convictions a statutory mechanism for regaining their firearms rights for the first time in 30 years, thus lightening the burdens placed on the president’s pardon power. Of course, unlike a pardon, statutory relief from federal firearms restrictions would not necessarily avoid state law restrictions independently placed on those with a criminal record. However, at least a dozen states have incorporated the 925(c) process into their restoration laws, so that a revived 925(c) program could help people with both state and federal convictions regain their firearms rights under both sets of laws.

The March 20 rule took immediate effect, but DOJ will accept comments on the measure until June 18. (The level of intense public interest is evidenced by the fact that, after less than a week, 4544 comments had already been posted at the Federal Register website, most of them favorable to the Justice Department’s plans to expand firearms relief.)

We look forward to seeing what next steps the Justice Department may take over the next months to implement a new 925(c) process, and otherwise implement the goals of the president’s executive order. A redelegation to ATF is suggested as a possibility, except that Congress would have to be persuaded to withdraw its restrictions on use of ATF funds. Delegating to some other part of the Justice Department is also a possibility, although in either case steps would have to be taken to manage the likely overwhelming volume of business, including from the thousands of federal offenders who have been waiting years to obtain a presidential pardon so they could once again go hunting. One possibility is simply to restore rights automatically to anyone convicted of nonviolent crimes after a suitable waiting period, and to consider those convicted of violent offenses on a case by case basis under specific objective standards.

Meanwhile, CCRC expects to publish next month a comprehensive analytical inventory and report on state firearms restrictions based on criminal history. We hope that this report will provide important legal and policy guideposts, both for the states and for the federal government, as they consider what additional steps might appropriately be taken to reduce record-based firearm consequences that are neither fair nor efficient.

SBA modifies criminal history restrictions in its loan programs

We have written at length about the broad criminal history restrictions imposed by the U.S. Small Business Administration in its business loan and disaster assistance programs. These restrictions, which first came to the public’s attention during the pandemic, have limited the availability of federally guaranteed bank loans to small businesses in developing communities, and stymied efforts to close the racial wealth gap through minority entrepreneurship. The SBA’s restrictive lending policies have never been justified by empirical evidence linking criminal history and creditworthiness, and may raise issues under the federal Equal Credit Opportunity Act.  It now appears that those policies are under review within the agency.

Several weeks ago we reported on the SBA’s proposal to amend its rules on lending criteria to eliminate language that the agency has relied on for many years to support policies restricting federally guaranteed loans based on a business owner’s criminal history. In commenting on the proposed rule, we expressed the hope that this rule change would augur and end to the SBA’s consideration of  criminal history as an independent basis for denying credit.

The SBA’s proposed amendment became final on April 10. While we remain guardedly optimistic that the new rule will have the hoped-for effect where the SBA’s own policy and practice is concerned, at the same time the agency’s comments accompanying the final rule seem to signal an expectation that banks will still consider a loan applicant’s criminal history in deciding whether to make a loan even if the agency does not. It appears that we will have to wait for the agency to issue implementing procedures and revised application forms before the full effect of this rule change can be assessed. [See the note at the end of this comment for subsequent SBA changes in its operating procedures.]

The final SBA rule covers a variety of subjects related to its guaranteed loan programs — notably expanding the range of financial institutions that will be authorized to make SBA loans.  But its key provision from CCRC’s perspective is its omission of the words “character” and “reputation” from the lending criteria specified in 13 CFR 120.150(a). It is this language that has been relied on in SBA operating policies to limit eligibility for both business loans and disaster assistance to business owners who have a criminal history.  This is because the SBA’s operating procedures have in past years required loan applicants to have “good character,” defined exclusively in terms of an applicant’s criminal history.  (The SBA imposes similar criminal history restrictions in its federal contract preference program, where they are similarly justified in terms of an applicant’s necessary “good character.”)

In comments describing the new rule, the SBA explains why it relies on a “good character” standard: “For SBA, ‘character’ is used to determine whether an individual may have past criminal history or activities that may pose a risk to repayment ability.” 88 Fed. Reg. 21077. This is not the first time that the SBA has proposed that “past criminal history” may present an independent credit risk. See Defy Ventures v. U.S. Small Bus. Admin., 469 F. Supp. 3d 459, 476 (D. Md. 2020)(“The SBA explained that the criminal history exclusions were based on ability to repay . . . and potential for misuse of funds.”).

While the SBA’s comments express a preference for “objective measures” in assessing credit risk that result in “less variability” than criteria like character and reputation that are “subject to individual interpretation,” at the same time they propose that “SBA Lenders may continue to make their own credit decisions based on the criminal background of an applicant and its associates.” 88 Fed. Reg. 21077.

Stepping back to assess the effect of the new rule, the good news is that it appears the SBA will no longer bar banks from making loans to otherwise qualified applicants based on their criminal history. The less good news is that the agency seems to expect banks and other lending institutions to step into the void and apply their own restrictions on loans based on an applicant’s criminal history.

We do not know whether, left to their own devices, private lenders would disqualify loan applicants based on criminal history alone, or what standards lenders will apply without the guidance and protection afforded by the SBA “good character” policies.  There does not appear to be any industry-wide standard to guide banks and other financial institutions in their business lending policies, though we hope they are beginning to consider these issues.

The SBA also took the opportunity in these comments seemingly to reaffirm its existing rule making a business ineligible for a federally guaranteed loan if any 20% owner is on probation or parole, in prison, or has unresolved criminal charges.  Id., citing 13 C.F.R. 120.110(n).

It remains to be seen if the SBA will take further actions to facilitate borrowing by justice-affected entrepreneurs, notably what guidance will offer to its approved lenders in their “credit decisions based on the criminal background of an applicant.”  At present, the SBA’s operating procedures now include broad inquiries about loan applicants’ past criminal history and mandatory FBI background investigations, but no formal standards for its “good character” determinations. Until we see whether and how the SBA plans to amend the administrative mechanisms through which it has historically enforced its own criminal history restrictions, we cannot determine the full implications of its elimination of “character” as a formally applicable loan criterion, including what standards banks will be encouraged to apply in considering criminal history as an independent measure of creditworthiness.

NOTE, 7/25/23: Since this analysis was published in April, the SBA issued revised operating procedures (SOPs) governing its 7(a) and 504 loan programs that omit the “character determination” that has in the past acted to winnow out many otherwise qualified loan applicants. This new SOP is to be effective August 1, 2023.

In addition, shortly after the “affiliation” file became final, the SBA indicated an intention to propose yet another rule governing its small business loans, to eliminate most inquiries about criminal history on the application form, instead asking “a straightforward question on incarceration and verifying the response using a third-party database check.” The SBA described this change in policy as “continu[ing] to allow SBA lenders to follow their own policies on criminal background checks.” As of July 25, 2023, the SBA had not issued this proposed additional rule, and the application forms for 7(a) loans containing extensive inquiries about criminal history had not been amended.

On May 16, 2023, the chairs and ranking members of small business committees in the House and Senate wrote to the Administrator of the SBA asking her to “pause” the new rule until a new head of the SBA’s office responsible for implementing the new rule could be appointed. We understand that as of July 25 no response to this letter had been received.

Pending federal reforms promise support for justice-affected entrepreneurs

Word is getting around about pending reforms that would make federal support for small businesses more widely available to entrepreneurs with a criminal history. Notably, the U.S. Small Business Administration has recently taken steps to reduce or remove entirely criminal record-related restrictions in its loan and contracting programs.  These are steps that CCRC has been urging ever since the SBA’s restrictive policies first came to public attention during the pandemic.

An article by Michael Friedrich published today by Arnold Ventures (AV) describes a number of reforms recently proposed or adopted by the SBA that will eliminate arbitrary program barriers based on criminal history that are unrelated to any established risk. These reforms should encourage more justice-affected business owners to seek SBA support for their entrepreneurial ventures in the form of federally guaranteed loans or federal contract set-asides for “socially and economically disadvantaged” businesses.

The AV article points out that the near-exclusion from these programs based on criminal history “frustrate[s] federal efforts to contribute to economic development in disadvantaged communities, often the same low-income communities of color that have suffered the most during the era of mass incarceration and tough-on-crime policies.”    

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SBA reduces criminal history restrictions in one of its business development programs

We are very pleased to see that the U.S. Small Business Administration has taken a significant step toward ending discrimination against justice-affected small business owners in the programs it administers. In a new rule governing certification of veteran-owned businesses for preferential treatment in the award of VA contracts, the SBA has omitted a requirement that business owners must have “good character” to be certified.  This is a step we recommended in commenting on the rule when it was proposed last summer, and we are gratified that the SBA accepted our recommendation.

CCRC’s study of the SBA’s record-based restrictions has identified the “good character” requirement as that agency’s long-established way of weeding out people with a criminal history from the programs it administers, including business loans, disaster assistance, and federal contracting opportunities like the one at issue here. Typically, SBA operating procedures give agency staff broad discretion to deny assistance to justice-affected business owners based solely on untested assumptions about perceived risk and desert embodied in the “good character” requirement. Broad inquiries into criminal history on application forms deter many from even applying.

It was therefore a matter of concern to see a “good character” criterion included when the SBA proposed its veteran-owned business rule last summer. The good news was that this offered a first chance for public comment on how this criterion limits opportunities for justice-affected business owners. And it appears that it has led to a very favorable outcome that augurs well for future SBA criminal record reforms.

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SBA proposes rules affecting businesses owned by veterans with a record

Over the past two years, CCRC has been studying the restrictions imposed by the U.S. Small Business Administration on loans to small businesses owned by justice-affected individuals. Many of those same restrictions, which are grounded in an operating policy that recipients of federal assistance have “good character,” also apply by formal rule in the SBA’s business development program under 8(a) of the Small Business Act.

For more than half a century, the so-called “8(a) program” has earmarked federal contracts for businesses owned by socially or economically disadvantaged individuals, and it has been a key driver of community development in urban areas. But the program’s “good character” test has historically excluded from participation many if not most business owned or managed by individuals with a criminal history. The 8(a) program also has satellite programs, including ones offering preferential treatment to businesses owned by women and veterans, though it is less clear whether these programs have similar criminal history restrictions.

Recently, Congress returned responsibility for certifying program eligibility for veteran-owned business from the VA to the SBA, and the SBA has now published proposed certification rules for public comment. These proposed rules offer a first chance to speak to the SBA’s “good character” requirement.

CCRC worked with the Washington Lawyer’s Committee for Civil Rights to draft comments on the proposed rule that are critical of the SBA’s vague and open-ended test of business owners’ “character” that results in disqualification of many deserving individuals from this and other federal programs administered by the SBA. Those comments, which are joined by 24 other organizations, were filed on August 5 and are available here.

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CFPB documents the financial burdens imposed on justice-involved individuals

The Consumer Financial Protection Bureau has just issued an extraordinary new report on the financial challenges faced by justice-involved individuals in navigating each stage of the criminal justice system. The report, which describes itself as “the first of its kind done by the CFPB,” paints a devastating picture of how the criminal law enforcement system conspires at every step to exacerbate the financially precarious situation in which many entering the justice system already find themselves.

“Justice-Involved Individuals and the Consumer Financial Marketplace” documents in clear and compelling prose how the financial products and services marketed to individuals and families entangled in the criminal justice system “too often contain exploitative terms and features, offer little or no consumer choice, and can have long-term negative consequences for the individuals and families affected.” What the CFPB researchers found “raises serious questions about the transparency, fairness, and availability of consumer choice in markets associated with the justice system, as well as demonstrating the pervasive reach of predatory practices targeted at justice-involved individuals.”

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VIDEO: Governmental Barriers to Small Business Financing for People with a Criminal History

On November 18, the Georgetown Center for Business & Public Policy hosted an informative and provocative forum on “Understanding Governmental Barriers to Small Business Financing for People With a Criminal History.”

A video recording of the program is now available on YouTube.

This event marks the first public discussion of our organization’s new initiative aimed at illuminating and reducing barriers to small business financing based on criminal history. The panelists were Sekwan Merritt, owner of an electrical contracting business in Baltimore, David Schlussel of CCRC, Awesta Sarkash of the Small Business Majority, and Chris Pilkerton, a former SBA general counsel and acting SBA administrator.

Sekwan Merritt, who has built a thriving business and employs several people who also have a record, illuminated the challenges he faces as a justice-affected entrepreneur in gaining access to business capital. Merritt, a graduate of the Georgetown Pivot Program, was one of the plaintiffs in the litigation that led to the SBA’s rollback of its PPP restrictions after he was denied this emergency COVID-19 federal relief. He explained that because he is still on parole he is ineligible for the SBA’s general loan programs and that the kinds of questions asked on SBA application forms frequently deter people from even applying. Merritt also described the need for a holistic assessment as part of an overall credit evaluation, recognizing achievements such as educational attainment, rather than a frequently-disqualifying early inquiry into criminal record.

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Forum on governmental barriers to small business financing for people with a criminal history

We are delighted to announce a program where a panel of experts will discuss the barriers faced by small business owners and managers with a criminal history in obtaining government-sponsored loans.

This virtual program will take place on November 18 from 12:00-1:15pm (EST), and is sponsored by the Georgetown Center for Business and Public Policy as part of its Georgetown on the Hill series. Register for the event here.

The program–which we helped organize along with Georgetown’s PIVOT Program–will focus on the broad criminal history restrictions in rules and policies of the U.S. Small Business Administration. These policies came to the public’s attention in the early days of the pandemic, when thousands of small businesses were denied PPP and other relief authorized by the CARES Act. While many of these restrictions were eventually rolled back in response to widespread criticism, similar restrictions in the SBA’s general lending programs remain, restrictions that influence state and private lending as well. The program on November 18 will explore the origins, scope, and justification for these restrictions.

Panelists include a former high-ranking SBA official, a small business owner who successfully challenged the PPP restrictions in court, a scholar who has argued that the SBA restrictions contravene civil rights law, and the CCRC’s Deputy Director David Schlussel, who contributed to the bipartisan campaign in the spring of 2020 that led the SBA to abandon many of its exclusionary policies.

We hope that everyone interested in collateral consequences, notably those related to access to business capital, will register for the program. The Georgetown announcement describing the program is reproduced below.

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CCRC files congressional testimony on fair chance lending

The Collateral Consequences Resources Center submitted a statement for the record ahead of tomorrow’s hearing before the Subcommittee on Diversity & Inclusion of the House Committee on Financial Services: “Access Denied: Eliminating Barriers and Increasing Economic Opportunity for Justice-Involved Individuals.” The CCRC statement recommends that Congress conduct oversight on criminal history restrictions in federally sponsored small business lending policies, and facilitate access to these resources for small businesses owned by justice-impacted individuals.

CCRC’s statement describes some of its research about the the U.S. Small Business Association’s (SBA) criminal history policies and identifies the following concerns:

  • The SBA’s extensive criminal history restrictions are not provided by statute.
  • Many of the SBA’s criminal history restrictions are also not included in its published regulations.
  • The SBA’s criminal history restrictions are overbroad and lack specific justification.
  • The SBA’s criminal history restrictions have racially disparate impacts.

You can read the statement here.

“The Future of the President’s Pardon Power”

A blue textured circle overlaps a red circle with white and red text overlay that reads The Future of the President's Pardon Power, 2021 Clemency Panel Series

The Collateral Consequences Resource Center is pleased to announce a series of online panels on successive Tuesdays in September, starting on September 14, that will explore in depth the use of the pardon power by President Donald Trump, and how it both reflects recent trends in pardoning and is likely to influence pardoning in the future.

The first panel, on September 14, will discuss Trump’s abandonment of the bureaucratic tradition in pardoning and what this reveals both about his concept of office and about the nature of the constitutional power.  The second panel, on September 21, will consider whether Trump’s pardons may prompt much-needed reforms in sentencing law and practice.  The third panel, on September 28, will consider possible changes in how the pardon power is administered resulting from its idiosyncratic use by President Trump, and whether the Justice Department should remain responsible for advising the president in pardon matters.

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