Category: Administrative law

Collected resources on record restrictions for small business relief

*NEW POST (Jan. 21, 2021): Applying for SBA COVID-19 relief with a criminal record in 2021 On this page, we collected a variety of materials on the restrictions related to arrest or conviction imposed by the Small Business Administration (SBA) on small business owners seeking relief under the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program during 2020. Included are proposed reform legislation, lawsuits filed, academic studies, letters from legislators and major organizations, articles by us and by others, and official documents related to this issue. (For more current information, see: Applying for SBA COVID-19 relief with a criminal record in 2021.) After the first COVID-19 relief bill in March 2020, the CARES Act, the SBA imposed broad criminal history restrictions on applicants. Following the introduction of a bipartisan Senate bill, Treasury Secretary Steven Mnuchin agreed on June 10, 2020, to revise the PPP restrictions.  On June 12, 2020, SBA issued new regulations and applications forms to ease some of the barriers in the PPP.  On June 24, 2020, the SBA further relaxed its criminal history barriers for PPP assistance, this time in a far more significant fashion, and in a manner that makes the business owners who are suing the SBA now eligible to apply.  The new regulation and application form came less a week before the June 30, 2020 deadline to apply for relief. Meanwhile, two lawsuits were 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 second lawsuit also asserts that the restrictions fall hardest on minority businesses due to the impact of over-criminalization on communities of color.  On June 29, 2020, a federal judge ruled that the SBA’s criminal history restrictions on PPP, except for the June 24 policy change, were likely unlawful.  The court extended the deadline to apply, but only for the small business owners who had sued. In a dramatic finale, Congress extended the PPP application deadline to August 8, 2020 for everyone.  This extension, signed into law on July 4, gave business owners made eligible under the June 24, 2020 policy a meaningful opportunity to learn about their eligibility and complete the application process. Proposed Reform Legislation Paycheck Protection Program Second Chance Act Fair Chance for Small Business Relief Act HEROES Act Lawsuits MoveCorp, et al. v. U.S. Small Business Administration, et al., 1:20-cv-01739 (D.D.C., filed June 25, 2020) Carmen’s Corner Store, et al. v. U.S. Small Business Administration, et al., 1:20-cv-01736 (D. Md., filed June 10, 2020) Defy Ventures, Inc., et al. v. U.S. Small Business Administration, et al., 1:20-cv-01838 (D. Md., filed June 16, 2020) Academic Studies Criminal Disqualifications in the Paycheck Protection Program, University of Michigan Institute for Social Research (June 2020) Letters from Legislators Letter to the head of the SBA from Rep. Dina Titus and 15 other Members of Congress (May 19) Letter to heads of the U.S. Treasury and SBA from Senator Rob Portman and Senator Ben Cardin, Ranking Member of the Senate Small Business Committee (April 30) Letter to PA Congressional Delegation from 21 PA legislators (April 24) Letter to Congressional Leadership from Rep. Joe Kennedy III and Rep. Joyce Beatty (April 17) Letters to Congressional Leadership and heads of the U.S. Treasury and SBA from Senator Jeffrey A. Merkley (April 8) Letter to heads of the U.S. Treasury and SBA from Rep. Cedric L. Richmond and 10 other Members of Congress (April 6) Letters from Major Organizations Comment on PPP Interim Final Rule by the Collateral Consequences Resource Center and 25 other organizations (May 15) Comment on PPP Interim Final Rule by the Institute for Justice Clinic on Entrepreneurship (May 15) Comment on PPP Interim Final Rule by the National Center for Transgender Equality (May 15) Comment on PPP Interim Final Rule by Citizens for Juvenile Justice and 37 other organizations (May 15) Letter to Congressional leadership from the Ethics & Religious Liberty Commission (May 7) Comment on PPP Interim Final Rule by Americans for Prosperity Foundation (April 23) Letter to Senator Marco Rubio from leaders of nine evangelical and Catholic organizations (April 20) Letter to Congressional Leadership and heads of the U.S. Treasury and SBA from nine conservative organizations (April 20) and Letter to the President (April 21) Letter to Senate Leader Mitch McConnell from national and Kentucky-based groups (April 20) Joint Statement by the Council of State Governments Justice Center and 12 other groups (April 16) Letter to head of SBA from Florida Rights Restoration Coalition (April 10) Letter to heads of the U.S. Treasury and SBA from bipartisan group of civil rights, advocacy, and business organizations, including CCRC (April 17) and Letter to Congress (April 10; updated April 17) CCRC Articles SBA throws in the towel and Congress extends the PPP deadline (July 7) SBA rolls back many criminal history barriers just before deadline (June 24) SBA eases some criminal history barriers and faces litigation (June 16) Senate bill would deliver relief to small biz owners with a record (June 5) New efforts to channel federal relief to small business owners with a record (May 20) Is SBA denying disaster relief based only on an arrest? (May 6) Mnuchin defends record restrictions for SBA stimulus loans (April 22) Second Chance Small Businesses Deserve Another Chance (April 21) SBA has no excuse for excluding people with a record from stimulus relief (April 20) At a Glance: Barriers to the Paycheck Protection Program (‘PPP’) Based on Arrest or Conviction (April 16) SBA’s bumpy guidance on criminal history requirements for stimulus loans (April 3) Applying for an SBA loan with a criminal record (March 27) Official Documents 15 U.S.C. §§ 636(a), (b) CARES Act Paycheck Protection Program and Health Care Enhancement Act S.4116 (“A bill to extend the authority for commitments for the paycheck protection program….”) Paycheck Protection Program Additional Revision to the First Interim Final Rule Revisions to First Interim Final Rule Interim Final Rule Application Form (rev. June 24) Application Form (rev. June 12) FAQs 13 CFR 120.110 13 CFR 120.150 Standard Operating Procedures (SOP) 50 10 5(K) SBA’s Economic Injury Disaster Loan program P.L. 90-448, 1106(e), Department of Housing and Urban Development (HUD) Act of 1968 13 CFR 123.301 13 CFR 123.101 13 CFR 123.6 SOP 50 30 9 Other Articles Denied U.S. economic relief because of criminal record, Baltimore electrician challenged the system, Baltimore Sun (July 6) Court: Hagerstown shop owner, ex-con, can seek PPP loan, Daily Record (July 6) PPP Loans: What You Need to Know About the Latest Changes, WSJ (July 6) Local business owner sees PPP change just in time for $200,000 loan, WCPO (July 3) Biz Owners Barred For Criminal Past Win PPP Extension, Law 360 (June 30) Court Rules SBA PPP Loan Application Barring Eligibility from Business Owners with Criminal Records Unlawful, ACLU (June 30) NCLA Court Win Keeps SBA from Rewriting CARES Act to Exclude Small Biz Owners on Probation (June 30) Court rules that former SBA rules barring business owners with criminal records from aid were illegal, extends deadline for our client, Public Interest Law Center (June 29) New Guidance From SBA Eliminates Some Eligibility Requirements for Criminal Records, NCSL (June 29) Small Business Owners with Criminal Records Sue Over Pandemic Aid Restrictions, Route 50 (June 17) Formerly Incarcerated Businessowners Sue SBA For Denying Them COVID-19 Emergency Loans, Appeal (June 17) Trump Administration Sued for ‘Destructive’ Denial of Covid-19 Relief Loans to Small Business Owners With Criminal Records, Common Dreams (June 17) Entrepreneurs with criminal records illegally refused Cares Act relief, lawsuit says, Washington Post (June 17) SBA Sued Over Rule Barring Convicted Felons From PPP Loans, WSJ (June 16) Civil rights groups sue Small Business Administration over PPP loans, CBS (June 16) ACLU sues to stop SBA from denying PPP loans to people with criminal records, Yahoo (June 16) In face of lawsuit, SBA broadens loan program to more recent felons, Newsday (June 15) U.S. eases criminal record provision in coronavirus business loan program, AP (June 12) Criminal record shouldn’t bar small businesses from COVID-19 payroll loans, suit says, McClatchy (June 12) The Coronavirus Stimulus Discourages Aid to Small Business Owners With a Criminal Record, Intercept (June 8) Bipartisan Bill Seeks PPP Access Despite Criminal Records, Law360 (June 5) Support the Paycheck Protection Program Second Chance Act, S. 3865, FreedomWorks (June 5) Justice Action Network Applauds Bipartisan Senate Coalition Introducing “Paycheck Protection Program Second Chance Act”, Justice Action Network (June 4) Senators Stand Up for Entrepreneurs with Criminal Record During Pandemic, Prison Fellowship CSG Justice Center Backs Bill Weakening Barriers on Small Business Owners, CSG Justice Center (June 4) Don’t Bar Ex-Offenders From Coronavirus Aid Funds, New York Times (June 2) SBA Excludes Small Business Owners With Criminal Records From Relief Loans, Forbes (May 27) Number of working black business owners falls 40%, far more than other groups amid coronavirus, Washington Post (May 25) Applicants with troubled pasts can’t qualify for PPP loans. Rubio hopes to change that, Miami Herald (May 21) Federal agency denies COVID-19 loans for applicants’ past mistakes, News Channel 5 Nashville (May 20) We Have Criminal Records. Don’t Shut Us Out of the Recovery, Barron’s (May 18) Paycheck Protection Program shouldn’t exclude ex-cons who have paid their debt to society, Dallas Morning News (May 13) Does an Arrest Record Disqualify Business Owners From COVID-19 Disaster Relief? Crime Report (May 8) Some Business Owners Excluded From PPP Due To Criminal History, Newsy (May 7) Congress should include second chances in coronavirus relief bill, The Hill (May 7) Emergency Loan Program Excludes Ex-Cons Trying to Make Good, Corvallis Advocate (May 7) Is the SBA Denying Disaster Loans to Anyone Arrested in the Last 10 Years? A Leaked Powerpoint Suggests It Is, Entrepreneur (May 6) Local business owner says PPP application holds his past against him, WCPO (May 4) Nonprofit Advocates for Business Owners with Criminal Records, Biz New Orleans (May 4) Have A Criminal Record? COVID-19 Relief May Be Out Of Reach, Law 360 (May 3) Emergency Coronavirus Loans Will Cripple Some Small Businesses, National Interest (May 1) Sen. Portman says small business owners with criminal records should be allowed to apply for PPP, News 5 Cleveland (April 30) How the SBA is Stepping on Small Business Owners, R Street (April 30) Small businesses just got a $300B bailout but many who need a second chance won’t get a dime, The Star-Ledger/NJ.com (April 28) A criminal record shouldn’t be a barrier to the Paycheck Protection Program, Pennsylvania Capital-Star (April 27) By restricting PPP based on criminal record, many non-profits will suffer, Philadelphia Inquirer (April 27) Paycheck Protection Program Leaves Behind Formerly Incarcerated Business Owners, JJIE (April 24) Rep. Ayanna Pressley Calls For Racial Data On Coronavirus Business Loans, WGBH (April 24) Christian leaders demand access to COVID-19 relief loans for business owners with criminal record, The Christian Post (April 23) Former felons should not be pushed out of loans under CARES Act, USA Today (April 23) Some ex-felons excluded from small business relief in spite of Trump’s criminal justice reform platform, CNN (April 22) Criminal records shut small biz owners out of aid program, AP (April 21) A criminal past means no Paycheck Protection Program loan, CBS (April 21) Don’t deny pandemic relief loans to second-chance entrepreneurs, AEI (April 21) Formerly Incarcerated Americans Were Excluded From Federal COVID-19 Relief, The Appeal (April 20) Advocates lament exclusion of those with criminal records from business loan program, Catholic Sentinel (April 20) Paycheck Protection Program coronavirus relief: ‘They say it’s for everyone, but it’s really not’, Cincinnati.com (April 19) If You’re A Business Owner On Probation, Don’t Bother To Apply For COVID-19 Relief Loans, KCUR (April 16) Don’t Let Red Tape Limit Second Chances During Pandemic, CSG Justice Center (April 14) Not every small business owner can qualify for SBA Paycheck Protection loans, Kelo (April 13) Trump Administration Tells Some Business Owners “Do Not Apply” for Coronavirus Loans, The Marshall Project (April 8) Read more

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

New efforts to channel federal relief to small business owners with a record

*UPDATE (7/7/20):  “SBA throws in the towel and Congress extends the PPP deadline” After Congress authorized hundreds of billions of dollars in funds for small business relief during COVID-19, the Small Business Administration (SBA) imposed restrictions on applicants with an arrest or conviction history.  These barriers, neither required nor contemplated by Congress, impede access to the two major relief programs for small businesses, nonprofits, and independent contractors during the COVID-19 crisis.  The two programs are the newly created Paycheck Protection Program (PPP) and the ramped-up Economic Injury Disaster Loan (EIDL) program. Three developments within the past week signal major pushback against or the possible reversal of at least some of these burdensome restrictions, which unfairly deny relief to worthy applicants. First, at least 65 organizations submitted five public comments in opposition to the SBA’s criminal history restrictions for PPP relief.  Our organization joined 25 other groups in submitting a comment asking the SBA to rescind or modify the regulation on legal and policy grounds, citing recent court decisions that suggest the SBA may lack authority to impose record-based disqualifications at all. These comments are the most recent expression of what has become a wave of bipartisan opposition to the SBA’s exclusionary policies, and growing coverage of the issues in the press.  We have been collecting relevant documents on our small business relief resource page. Second, Treasury Secretary Steven Mnuchin signaled in a recent conversation with key Senators that he may be open to easing restrictions on PPP applicants with felony records from the last five years. Third, the HEROES Act, passed by the House on Friday, includes provisions that would significantly constrain the SBA’s authority to deny applicants based on a record of arrest or conviction in both the PPP and EIDL programs.  If enacted into law, these provisions would mark a turning point in how federal law deals with discrimination based on criminal record. We discuss these developments in detail after the jump.  Public Comments Urge SBA To Rescind its Restrictions The SBA’s Interim Final Rule for the Paycheck Protection Program has come under scrutiny during the public comment period, which concluded on Friday.  Collectively, more than 65 organization wrote five comments in opposition to the criminal history exclusions. The Interim Final Rule makes ineligible for PPP relief any individual who owns 20% or more of the equity of a business and is presently incarcerated, on probation, on parole, or subject to charges.  Additionally, the regulation as supplemented by the PPP application form makes ineligible any owner of a business if they have in the last 5 years, for a felony: 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on parole or probation. The first public comment, filed on behalf of a diverse bipartisan group of organizations, including our own, calls on SBA to rescind or modify its “needlessly restrictive and unfairly discriminatory” rules. The comment highlights that many people with a record, facing challenges in securing employment, have established their own small businesses and hired many employees with a record.  “Driving them out of business will result in a severe impact on employment of a population that is already disadvantaged in the workplace.”  The comment also points out the particularly adverse impact on business owners and employees of color, “arrested and convicted at disproportionately high rates due to institutional racism, ensuring that business owners of color will be disproportionately excluded from critical economic assistance.” Finally, the comment articulates how the SBA’s exclusions are contrary to the intent of Congress in enacting the CARES Act, which calls for relief on an emergency basis and includes a specific provision that “any business concern … shall be eligible” for relief if it has the requisite number of employees.  The comment argues that the SBA’s rules are not only at odds with the CARES ACT, but also “inexplicably depart from prior [SBA regulations] and are unsupported by any explanation.” The comment cites three recent federal court decisions to suggest that the SBA may lack statutory authority to impose the exclusions at issue: A federal court in Michigan found unlawful a different SBA rule that made certain categories of businesses ineligible for PPP—including banks, lobbying firms, certain private clubs, and sexually oriented businesses providing “prurient” products. See DV Diamond Club of Flint, LLC, et al. v. United States Small Business Administration, et al., No. 20-CV-10899, 2020 WL 2315880, at *1 (E.D. Mich. May 11, 2020).  The court held that because Congress made PPP funds available to “all” small business that satisfy the eligibility requirements in the CARES Act with respect to number of employees, the SBA’s more restrictive eligibility rules (drawn from exclusions in preexisting SBA policies) unlawfully exceed the statute.  This reasoning would seem to apply equally to the SBA’s criminal history exclusions. Two federal bankruptcy courts, one in New Mexico and one in Texas, held that the SBA’s decision to exclude bankrupt debtors, an exclusion not in the CARES Act, was arbitrary and capricious, and in excess of statutory authority. See In re: Roman Catholic Church of the Archdiocese of Santa Fe, No. 18-13027 T11, 2020 WL 2096113 (Bankr. D.N.M. May 1, 2020); In re Hidalgo County Emergency Service Foundation, Case no. 19-20497; Adv. pro. No. 20-2006, 2020 WL 2029252 (Bankr. S.D. Tex., Apr. 25, 2020). The comment urges the SBA to immediately remove the ineligibility for persons charged with a crime: “Punishing individuals who have not been convicted of wrongdoing in a court of law is fundamentally unfair and jeopardizes the economic well-being of thousands of employers and employees.”  The group urges the SBA to rescind the 5-year ineligibility period for individuals convicted of a felony, placed on pretrial diversion/probation/parole for a felony, or currently on probation or parole.  To the extent the SBA has authority to restrict eligibility for PPP beyond the criteria in the CARES Act itself, they should be limited to felony convictions for financial fraud from the past 3 years, subject to an individualized assessment and waiver. A second comment by the Institute for Justice Clinic on Entrepreneurship illustrates the real world impacts of the SBA’s rules and policies, which may “arbitrarily wipe out” all that entrepreneurs with criminal histories have built: businesses that employ workers, create wealth, and provide goods and services to their communities.  The comment articulates the importance of entrepreneurship for those with criminal histories and describes the stories of individuals who started small businesses. A third comment by Citizens for Juvenile Justice and 37 other organizations emphasizes language in the CARES Act that directs the SBA to prioritize relief for “socially and economically disadvantaged individuals,” which the comment argues includes persons with criminal records.  Excluding a class of persons simply based on involvement in the criminal justice system, or unadjudicated allegations, “is not only contrary to law, it is wrong,” and “perpetuate[s] long-standing forms of racial and ethnic discrimination.” A fourth comment by Americans for Prosperity (filed under a related regulation) argues that the SBA’s criminal history exclusion is “contrary to the text, structure, and purpose of the CARES Act,” raises due process concerns as applied to those only charged with crimes, and “is poor public policy with an overbroad sweep that harms otherwise deserving small businesses and their employees.” Finally, the National Center for Transgender Equality filed a comment asserting that the SBA’s rules are not based in the statute and should be revised to reflect only statutory eligibility requirements. Possible Administrative Change In April, Treasury Secretary Steven Mnuchin defended the SBA restrictions, stating that the Administration would not voluntarily change them.  But on May 13, the New York Times reported that Senator Cory Booker had raised with Mnuchin the issue of regulations barring some people with records from getting PPP loans.  According to a Senate aide, Mnuchin was “receptive to easing the restrictions” on applicants with felony records from the last five years. The HEROES Act Would Constrain the SBA Even if the SBA does not amend its policies, Congress may force its hand. In April, 16 members of Congress issued letters criticizing the SBA’s criminal history exclusions, including a bipartisan letter by Senators Rob Portman and Ben Cardin, a joint letter by Reps. Joyce Beatty and Joe Kennedy III, a letter by Senator Jeffrey Merkley, and a letter by Rep. Cedric Richmond and 10 other members. This past Friday, the House enacted the HEROES Act, which includes language drawing on Reps. Joyce Beatty and Joe Kennedy III’s Fair Chance for Small Business Relief Act, which would explicitly curtail the SBA’s authority to deny PPP and EIDL relief based on criminal history. As to PPP relief, the bill would allow the SBA to deny a loan if an owner of 20 percent or more equity was convicted of felony financial fraud or deception in the previous 5 years.  However, other criminal history would not disqualify an applicant unless such an owner is currently incarcerated.  See H.R 6800, Sec. 90001(j).  This provision would significantly roll back the PPP exclusions discussed above, and analyzed in greater detail in previous postings collected on our small business relief resource page. As to EIDL relief, the HEROES Act would require that the SBA’s application forms include a statement making clear that an applicant for these disaster advances and loans is not ineligible “solely because of the applicant’s involvement in the criminal justice system.”  See H.R 6800, Sec. 90009.  Currently, it appears that the SBA is denying COVID-19-related EIDL relief to applicants who have ever been arrested for a felony or who have been arrested for a misdemeanor in the last 10 years.  We read the HEROES Act provision to prohibit the SBA from denying disaster relief to any otherwise eligible person based upon their criminal record, an even broader restriction than would apply to the PPP program. While the HEROES Act in its entirety is unlikely to become law in its current form, if these two provisions make it through the next round of negotiations in the Senate, they would dramatically expand access to critical relief for many small business owners, nonprofits, and independent contractors that the SBA has unfairly been excluding in the past.  They would mark a breakthrough in the federal government’s approach to securing fair treatment for people with a record.  While last year’s Fair Chance Act was an important step in opening doors to federal agency and contractor employment by limiting background inquiries in the early stages of hiring, this would be the first time in decades that Congress has directly prohibited record-based discrimination in a major government benefit program.  We will have more to say on that subject if and when the law is enacted with these provisions in it. Read more

Is SBA denying disaster relief based only on an arrest?

*UPDATE (7/7/20):  “SBA throws in the towel and Congress extends the PPP deadline” In response to COVID-19, Congress created the Paycheck Protection Program (PPP) and expanded the Economic Injury Disaster Loan (EIDL) program, appropriating hundreds of billions of dollars across these programs to assist small businesses affected by the pandemic and economic crisis.  As we have been pointing out in this space over the past five weeks, the Small Business Administration (SBA), which administers both programs, has imposed broad restrictions on access to relief based on arrest or conviction history, restrictions that were neither required nor contemplated by Congress.[1] Until now, attention has been focused on small business owners unfairly denied PPP relief based on their record.  Members of Congress and major organizations have written in opposition to PPP regulations and policies that impose barriers based on a record, and dozens of media outlets have covered the issue.  But the EIDL disaster relief program has largely gone under the radar, in part because the SBA has not published guidance about how it is treating EIDL applicants with a record. In a new development, documents posted anonymously on Reddit last week, and published by Law360 on May 3, purport to be internal SBA guidance for reviewing EIDL applications.  The documents instruct agency staff to deny relief to applicants if they have ever been arrested, unless the arrest was for a misdemeanor and occurred more than 10 years ago.  These leaked documents, also covered in detail by Entrepreneur this morning, would suggest that behind the scenes the SBA is imposing even greater record-related restrictions on COVID-19-related disaster relief than on PPP loans. Upon review, we believe that this new information about the record-related standards being applied by the SBA to EIDL loans is likely correct.  We have heard from readers who were denied EIDL relief after SBA staff asked them questions over email about their arrest history, questions that correspond exactly to those in the leaked documents.  An SBA spokesperson, given an opportunity to correct the record if it needed correcting, declined to confirm or deny the information. We have never see a government program in the United States with such broad and arbitrary restrictions based on criminal history.  The purported EIDL guidance is devoid of nuance: it instructs staff to deny relief based on arrest history regardless of offense and regardless of whether the arrest resulted in prosecution, much less conviction.  The look-back period is limitless for felony arrests and a full decade for misdemeanor arrests.  The guidance inevitably produces unwarranted disparities: a person with a decades-old felony arrest that was never charged, or whose arrest resulted in an acquittal, is treated more severely than someone with a more recent misdemeanor conviction.  Finally, the guidance cannot be squared with existing published SBA policies, as discussed below. In normal times, a sweeping and secretive restriction on disaster relief would be problematic.  In this global public health and economic crisis, it is inexcusable. The standards in the leaked SBA guidance are inconsistent with applicable laws, regulations, and agency policies.  Existing statutes and regulations governing the 7(b) disaster loan program, of which EIDL is a part, only require the SBA to deny disaster loans if an otherwise eligible applicant has been convicted in the past year of a felony related to a riot, civil disorder, or other declared disaster. However, a close look at the SBA’s policy statement on disaster loans suggests that the leaked documents may represent a shortcut through an existing vetting process during the present exigency. The published EIDL policy statement (§ 3.6) requires disqualification if the “applicant or principal owner is presently on parole or probation following conviction of a serious criminal offense.”  Further, because “[i]t is not in the public interest for SBA to extend financial assistance to persons who are not of good character,” the agency will make a “character determination” in the event “any adverse information develops concerning the character or background of a disaster loan applicant.”  This adverse information might develop from a three-part question about criminal history in the SBA disaster loan application forms, including for COVID-19-related EIDL relief, a question requiring a “yes” or “no” answer to the entire section: a. Are you presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction? b. Have you been arrested in the past six months for any criminal offense? c. For any criminal offense – other than a minor vehicle violation – have you ever been convicted, plead guilty, plead nolo contendere, been placed on pretrial diversion, or been placed on any form of parole or probation (including probation before judgment)? The policy statement provides if an applicant answers “yes” to this wide-ranging criminal history question, they must disclose the details of their record on a Form 912: Statement of Personal History.  Based on that information, the SBA will determine if a fingerprint sample is required.  The policy mandates fingerprints only if the person had a felony conviction more than a year ago in connection with a riot, civil disorder, or disaster, but it permits them in other cases.  If the record disclosed “is both minor in nature and was committed more than 10 years ago, fingerprints may not be required to continue processing.”  After all necessary information is collected, the SBA “completes its character evaluation” and finds the person eligible or ineligible.  The criteria applied for this final decision are not disclosed. Presumably, this policy statement is still legally applicable to EIDL, but the SBA seems to be skipping steps in the process to simply deny relief to anyone who might be subject to a fingerprint sample in ordinary times, instead of fashioning a rule appropriate to these extraordinary circumstances.  To anyone familiar with the widespread recent efforts to encourage reintegration, it is a bit shocking to see the inner workings of a federal agency pulling in the opposite direction. [1] The only statutory record-related restriction for these programs is a half-century old exclusion from EIDL of persons convicted in the last year of a felony “during and in connection with a riot or civil disorder.”  See Department of Housing and Urban Development (HUD) Act of 1968, P.L. 90-448 § 1106(e). Read more

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.” Transcript of Secretary Mnuchin’s comments (the clip is here, starting at 7:38): Question:  Yesterday the President said he’d look into the issue of people with criminal convictions not getting access to some of these programs.  Can you give us an update on that. Mnuchin:  Of course Yes. We worked with the White House on this.  There were actually much more onerous restrictions in the SBA program.  There were people who had misdemeanors that weren’t allowed to access the program, it was much longer than five years.  Because of the criminal reform legislation that was passed and the work that’s been done in the White House by Jared and others, we specifically designed the program and the five years was significantly shorter than what had been done before.  So we’d already taken that into account. [Question garbled] Mnuchin:  For now, we’re not going to do that.  But I do want to emphasize we did take this into account.  There were a lot of people who wouldn’t have had access previously and we changed those regulations. Read more