Category: Diversion/deferred dispositions

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 April 17, 2020  The Honorable Steven Mnuchin                                 The Honorable Jovita Carranza Secretary                                                                Administrator U.S. Department of Treasury                                     U.S. Small Business Administration Washington, D.C. 20220                                           Washington, D.C. 20416 Dear Secretary Mnuchin and Administrator Carranza, As a bipartisan and diverse group of organizations working to ensure fair treatment of people with a record of arrest or conviction, we write to express our deep concern over the restrictions imposed by the Small Business Administration on this population’s eligibility for benefits under the two programs authorized and funded by the CARES Act (see Appendix).  With one in three Americans having a record, and people with records experiencing an unemployment rate five times higher than the average, these restrictions will have a significant and detrimental impact on individuals, families, and communities across the United States. The restrictions will have 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. Specifically, these restrictions are: Unnecessary and confusing: There are no statutes requiring the SBA to categorically disqualify individuals from its loan programs based on an arrest or conviction record; the authority to perform a background check does not translate into authority to exclude. SBA’s Paycheck Protection Program (PPP) Interim Final Rule, and the PPP’s even more restrictive application form, are far more exclusionary than the preexisting rule on record restrictions for small business loans under the 7(a) program, which only excludes those with active criminal cases. SBA’s new rule excludes anyone convicted of any felony within the last 5 years, and its application form additionally disqualifies anyone who pleaded guilty or no contest, or was placed on pretrial diversion, probation, or parole during that period (see Appendix). The lack of new policy guidance for Economic Injury Disaster Loans (EIDL) for people with a record, especially regarding the new advances, also leads to additional exclusion. The new restrictions constitute unnecessary overreach that interferes with the ability of small businesses to operate and pay their employees. The PPP Interim Final Rule, policy guidance, and application form are confusing and likely to have a chilling effect that will discourage many eligible business owners from applying; and, they may lead to applicants inadvertently answering the records questions incorrectly. The policy guidance and application form for Economic Injury Disaster Loans (EIDL) advances are similarly confusing and are likely to have the same chilling effect. Inconsistent with Congress’ intent:  The intention of the emergency relief programs authorized by the CARES Act is to sustain small businesses that are trying to save the economy by keeping people employed. Eligibility requirements should be relaxed in these circumstances, not heightened. SBA’s new restrictions on eligibility for its loan programs, which already operate to exclude many people with a record, contravene the intent of the CARES Act, and are inconsistent with SBA’s more general mandate of encouraging entrepreneurship and expanding access to employment, including for people with a record of arrest or conviction. A significant number of people with an arrest or conviction history have established their own small businesses, since it is frequently difficult for them to secure employment with others. Moreover, these businesses also tend to be more willing to hire employees with a record. Driving them out of business will result in a severe impact on employment of a population that already is disadvantaged in the workplace. A large percentage of small businesses are owned by single owners or a limited number of co-owners, so that any disqualification affecting 20%+ equity owners will have a significant impact on small business owners generally. A policy that excludes from loan eligibility small businesses that are owned in whole or in part by people with arrest or conviction history is not only inconsistent with the CARES Act and the mandate of SBA’s own authorizing statutes, it also frustrates federal and state efforts to encourage the reintegration of individuals involved in the criminal legal system. Overbroad and unfair: The PPP’s categorical bars based on certain arrest or conviction records mean that there is no opportunity for an individual determination that considers factors such as rehabilitation, the circumstances of the conviction/disposition, or whether the nature of the underlying crime might adversely affect the ability to properly utilize the loan. The EIDL program restrictions go even further by asking about any involvement with the criminal legal system at any time, which could potentially exclude applicants with any arrest or conviction record. The PPP and EIDL restrictions extend to individuals that the criminal legal system has specifically determined should not be convicted of a crime, including those that participate in diversionary programs or obtain deferred adjudications – the very kinds of dispositions that are supposed to help protect people involved in the criminal legal system from harsh economic collateral consequences. The SBA’s requirement that people disclose sealed and expunged records circumvents protections in state law for these cleared records and is contrary to the intent and purpose of those laws. Racially discriminatory: The SBA’s restrictions will have a disparate impact on minority business owners and employees, who are disproportionately affected by the criminal legal system as a result of institutional discrimination. People with a record are already subject to myriad disadvantages in seeking to reintegrate into society, notably in bank lending, but also in housing, employment, licensing, education, voting, and other areas. The SBA must act now to: 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. As the COVID-19 crisis continues to devastate communities across this country, federal relief must be made equitably accessible to all who need it. Sincerely,   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     APPENDIX: PROGRAM REQUIREMENTS (Prepared by CCRC, last revised 4/17/20) Paycheck Protection Program (PPP) The CARES Act authorizes the PPP, which provides small business loans under the SBA’s 7(a) loan program, with provisions for expanded eligibility, allowable uses, and forgiveness.[1] Barriers based on arrest or conviction for 7(a) loans in general: By statute: The SBA “may verify the applicant’s criminal background, or lack thereof,” prior to approval, including through an FBI background check.[2] By regulation: “Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible.[3] By policy statement: SBA interprets its regulation to also make ineligible an Associate under deferred prosecution, conditional discharge, order of protection, or a sex offender registry, or currently facing any charges in any jurisdiction.[4] SBA also states that various principals of a business “must be of good character,” which is determined through a character evaluation, requiring disclosure of any: 1) current charges; 2) arrests in the past 6 months; and 3) time the person has been convicted, pled guilty or no contest, or been placed on pretrial diversion or any form of parole or probation—other than for a minor vehicle violation. Expunged and sealed records must be disclosed, with no exceptions. A person will generally be approved if they provide documentation that they have satisfied all sentencing conditions (presumably including payment of costs and restitution) and do not have a felony conviction, misdemeanor conviction for a crime against a minor, recent misdemeanor conviction, or recent charges. Otherwise, they are subject to a fingerprint-based FBI background check and an opaque individual determination by the SBA.[5] Barriers based on arrest or conviction specific to PPP loans: By statute: The CARES Act does not specifically authorize much less require barriers based on arrest or conviction for PPP loans. To be consistent with its purposes, the CARES Act should be read to say at the least that new barriers based on arrest or conviction should not be applied to PPP assistance.[6] By regulation: SBA Interim Final Rule (Apr. 15): “You are ineligible for a PPP loan if….iii. An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years.” By application form: Borrower Application (Apr. 3): asks two questions; a “yes” to either is disqualifying: 1) “Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or on probation or parole?” 2) “Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?” (Note: this is far broader than the Interim Final Rule: the second question includes “any owner” and covers dispositions other than conviction.) Economic Injury Disaster Loans (EIDL) EIDL loans are authorized under the SBA’s existing 7(b) disaster loan program. The Coronavirus Preparedness and Response Supplemental Appropriations Act (Phase 1) appropriated additional funds and deemed coronavirus a disaster.[7] Pursuant to the CARES Act, SBA is also allowing business owners in all states, D.C., and territories to apply for an EIDL advance of up to $10,000, which “will be made available within days of a successful application, and this loan advance will not have to be repaid.”[8] Barriers based on arrest or conviction for EIDL: By statute: Individuals convicted during the past year of a felony during and in connection with a riot or civil disorder or other declared disaster are ineligible.[9] By regulation: “Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible.[10] By policy statement: The SBA policy statement provides: “It is not in the public interest…to extend financial assistance to persons who are not of good character. If any adverse information develops concerning the character or background of a disaster loan applicant or principal owner [on forms], SBA must make a determination as to the applicant’s character before a loan can be approved.”[11] Thus, the SBA will not approve a loan “if the applicant or principal owner is presently on parole or probation following conviction of a serious criminal offense. However, [it] will consider approving an application submitted by partnerships, corporations, and LLEs, where the apparent bar to eligibility was committed independently of any official act for the business and the individual will divest all direct and indirect interest in the business.” By application form: Forms, including the COVID-19 EIDL portal, include the usual EIDL three-part question, which requires a “yes” or “no” to the entire question: “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 SBA has not provided guidance on whether applicants who answer “yes” to this question can obtain an EIDL advance. Under pre-existing policy, if this question is answered “yes,” the SBA requires the applicant to provide a Form 912 with an explanation of the offense(s), and in some cases a fingerprint sample, before the SBA will make a character determination.[12]   [1] CARES Act (H.R. 748), secs. 1102-1105; 15 U.S.C. 636(a). [2] 15 U.S.C. 636(a)(1)(B). [3] 13 C.F.R. § 120.110(n). An “Associate” includes officers, directors, owners of 20% or more of the equity, key employees, and other specified entities. See 13 C.F.R. § 120.10. [4] See SBA Standard Operating Procedure (SOP) 50 10 5(K)(B)(2)(III)(A)(13) (eff. April 1, 2019). [5] The good character requirement applies to every proprietor, general partner, officer, director, managing member of an LLC, owner of 20% or more of the equity, trustor, or person who runs day-to-day operations.” See id. [6] See CARES Act (H.R. 748), sec. 1102. [7] Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6074), tit. 2. [8] CARES Act (H.R. 748), sec. 1110; https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance. [9] See P. L. 90 448, 1106(e), HUD Act of l968, and 13 CFR §123.101(a). [10] 13 C.F.R. § 120.110(n). An “Associate” includes officers, directors, owners of 20% or more of the equity, key employees, and other specified entities. See 13 C.F.R. § 120.10. [11] SBA SOP 50 30 9(3.6) (effective May 31, 2018) at p. 32. [12] Id. Read more

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: State prosecutors around the country have played a crucial role in mass imprisonment. Little supervision and virtually unsurpassed decision making power have provided them with unrivaled influence over the size, growth, and composition of our criminal justice system. They decide which cases to prosecute, whether to divert a case, whether to offer a plea, and what sentence to recommend. Their impact does not stop at sentencing. They weigh in on alternative dockets, supervision violations, parole release, and even clemency requests. But they are also part of a larger system that constrains them. Funding, judicial limits on their power, and legislative grants of authority to other players in the criminal justice system all serve to limit the freedom of prosecutors. The public health threat COVID-19 presents to those detained in jails and prisons has turned into a case study of prosecutorial authority. It powerfully displays the sway political ideology, divergent purposes of punishment, and public safety considerations hold over release decisions. The prosecutors most successful in decreasing inmate population numbers quickly have been not only proactive but also able to build effective coalitions with other criminal justice actors. Whether COVID-19 will in the long run lead to smaller jail populations and shorter prison terms remains an open question. Yet, it further reinforces and strengthens the role of prosecutors whose expansive reach into our communities—with an eye to incarceration or decarceration—continues to be a powerful feature of the American criminal justice system. Read the article here. Read more

Organizations call on Congress to remove record-related barriers to small business relief

A bipartisan group of civil rights, advocacy, and business organizations, including CCRC, are calling on Congress to take immediate action to remove barriers based on arrest or conviction history for small business owners seeking COVID-19 federal relief.  This is an issue we have been covering in depth in recent posts.  This call to action—available in PDF and reprinted below—is issued by the following organizations (with additional sign-ons welcome; contact us here): American Civil Liberties Union Chicago Lawyers’ Committee for Civil Rights Collateral Consequences Resource Center College & Community Fellowship Community Legal Services of Philadelphia #cut50 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 Main Street Alliance National Association of Criminal Defense Lawyers National Employment Law Project Out For Justice Public Interest Law Center Reproductive Justice Inside Root & Rebound Safer Foundation Washington Lawyers’ Committee for Civil Rights and Urban Affairs Women Against Registry *Note: the letter was originally issued on April 10 and was last updated on April 17. April 17, 2020 Congress Must Act Now to Remove Barriers Based on Arrest or Conviction History for Small Business Owners Seeking COVID-19 Federal Relief We oppose the restrictions based on arrest or conviction placed by the Small Business Administration (SBA) on the two small business programs authorized and funded by the CARES Act (see Appendix). With one in three Americans having some sort of record, and people with records experiencing an unemployment rate five times higher than the average rate, these restrictions will have a significant and detrimental impact on individuals, families, and communities across the United States. The restrictions will have 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. Specifically, these restrictions are: • Unnecessary and confusing: There are no statutes requiring SBA to categorically disqualify individuals from its loan programs based on an arrest or conviction record; the authority to perform a background check does not translate into authority to exclude. SBA’s Interim Final Rule and policy guidance for the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) are far more exclusionary than its own existing regulations on record restrictions for small business loans, which only exclude those with active cases. The new restrictions constitute unnecessary overreach that interferes with the ability of small businesses to operate and pay their employees. The PPP interim rule and policy guidance, including its application form, are confusing and likely to have a chilling effect that will discourage many eligible applicants. The EIDL guidance and application form are similarly confusing and are likely to have the same effect. • Inconsistent with Congress’ intent: The intention of the emergency relief programs authorized by the CARES Act is to sustain small businesses that are trying to save the economy by keeping people employed. Eligibility requirements should be relaxed in these circumstances, not heightened as SBA proposes. SBA’s proposed new restrictions on eligibility for its loan programs, which already operate to exclude many people with a record, contravene the intent of the CARES Act, and are inconsistent with SBA’s more general mandate of encouraging entrepreneurship and expanding access to employment. A significant number of people with arrest or conviction history have established their own small businesses, since it is frequently difficult for them to secure employment with others. Moreover, these businesses also tend to be more willing to hire employees with a record. Driving them out of business will result in a severe impact on employment of a population that already is disadvantaged in the workplace. A large percentage of small businesses are owned by single owners or a limited number of co-owners, so that any disqualification affecting 20%+ equity owners will have a significant impact on small business owners generally. A policy that excludes from loan eligibility small businesses that are owned in whole or in part by people with arrest or conviction history is not only inconsistent with the CARES Act and the mandate of SBA’s own authorizing statutes, it also frustrates federal and state efforts to encourage the reintegration of individuals involved in the criminal legal system. • Overbroad and unfair: The PPP’s categorical bar based on certain arrest or conviction records means that there is no opportunity for an individual determination that considers factors such as rehabilitation, the circumstances of the conviction/disposition, or whether the nature of the underlying crime might adversely affect the ability to properly utilize the loan. The EIDL program restrictions go even further by asking about any involvement with the criminal legal system at any time, and potentially exclude most applicants with any arrest or conviction record from the EIDL (the SBA has not provided guidance on this). The PPP and EIDL restrictions extend to individuals that the criminal legal system has specifically determined should not be convicted of a crime, including those that participate in diversionary programs or obtain deferred adjudications – the very kinds of dispositions that are supposed to help protect people involved in the criminal legal system from harsh economic collateral consequences. The SBA’s requirement that people disclose sealed and expunged records circumvents protections in state law for these cleared records and is contrary to the intent and purpose of those laws. • Racially discriminatory: The SBA’s restrictions will have a disparate impact on minority business owners and employees, who are disproportionately affected by the criminal legal system as a result of institutional discrimination. People with a record are already subject to a myriad of disadvantages in seeking to reintegrate into society, notably in bank lending policies but also in housing, employment, licensing, education, voting, and other areas. Congress must act now to: Direct the SBA to eliminate new record restrictions introduced by the PPP interim rule and application form, and clarify the record-related eligibility policy for EIDL applicants. Direct the SBA to relax the record restrictions that are applied to Section 7(a) and 7(b) loans under existing rules and policies. Direct the SBA to ensure that the application forms for SBA financial assistance accurately reflect the eligibility requirements. As the COVID-19 crisis continues to devastate communities across this country, federal relief must be made equitably accessible to all who need it. Sincerely, American Civil Liberties Union Chicago Lawyers’ Committee for Civil Rights Collateral Consequences Resource Center College & Community Fellowship Community Legal Services of Philadelphia #cut50 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 Main Street Alliance National Association of Criminal Defense Lawyers National Employment Law Project Out For Justice Public Interest Law Center Reproductive Justice Inside Root & Rebound Safer Foundation Washington Lawyers’ Committee for Civil Rights and Urban Affairs Women Against Registry APPENDIX: PROGRAM REQUIREMENTS (Prepared by CCRC) Paycheck Protection Program (PPP) The CARES Act authorizes the PPP, which provides small business loans under the SBA’s 7(a) loan program, with provisions for expanded eligibility, allowable uses, and forgiveness.[i] Barriers based on arrest or conviction for 7(a) loans in general: By statute: The SBA “may verify the applicant’s criminal background, or lack thereof,” prior to approval, including through an FBI background check.[ii] By regulation: “Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible.[iii] By policy statement: SBA interprets its regulation to also make ineligible an Associate under deferred prosecution, conditional discharge, order of protection, or a sex offender registry, or currently facing any charges in any jurisdiction.[iv] SBA also states that various principals of a business “must be of good character,” which is determined through a character evaluation, requiring disclosure of any: 1) current charges; 2) arrests in the past 6 months; and 3) time the person has been convicted, pled guilty or no contest, or been placed on pretrial diversion or any form of parole or probation—other than for a minor vehicle violation. Expunged and sealed records must be disclosed, with no exceptions. A person will generally be approved if they provide documentation that they have satisfied all sentencing conditions (presumably including payment of costs and restitution) and do not have a felony conviction, misdemeanor conviction for a crime against a minor, recent misdemeanor conviction, or recent charges. Otherwise, they are subject to a fingerprint-based FBI background check and an opaque individual determination by the SBA.[v] Barriers based on arrest or conviction specific to PPP loans: By statute: The CARES Act does not specifically authorize much less require barriers based on arrest or conviction for PPP loans. To be consistent with its purposes, the CARES Act should at the least be read to say that new barriers based on arrest or conviction should not be applied to PPP assistance.[vi] By regulation: SBA Interim Final Rule (Apr. 15): “You are ineligible for a PPP loan if….iii. An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years.” By application form: Borrower Application (Apr. 3): asks two questions; a “yes” to either is disqualifying: 1) “Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or on probation or parole?” 2) “Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?” (Note: this is far broader than the Interim Final Rule: the second question includes “any owner” and covers dispositions other than conviction.) Economic Injury Disaster Loans (EIDL) EIDL loans are authorized under the SBA’s existing 7(b) disaster loan program. The Coronavirus Preparedness and Response Supplemental Appropriations Act (Phase 1) appropriated additional funds and deemed coronavirus a disaster.[vii] Pursuant to the CARES Act, SBA is also allowing business owners in all states, D.C., and territories to apply for an EIDL advance of up to $10,000, which “will be made available within days of a successful application, and this loan advance will not have to be repaid.”[viii] Barriers based on arrest or conviction for EIDL: By statute and regulation: Individuals convicted during the past year of a felony during and in connection with a riot or civil disorder or other declared disaster are ineligible.[ix] By policy statement: The SBA policy statement provides: “It is not in the public interest…to extend financial assistance to persons who are not of good character. If any adverse information develops concerning the character or background of a disaster loan applicant or principal owner [on forms], SBA must make a determination as to the applicant’s character before a loan can be approved.”[x]  Thus, the SBA will not approve a loan “if the applicant or principal owner is presently on parole or probation following conviction of a serious criminal offense. However, [it] will consider approving an application submitted by partnerships, corporations, and LLEs, where the apparent bar to eligibility was committed independently of any official act for the business and the individual will divest all direct and indirect interest in the business.” By application form: Forms, including the COVID-19 EIDL portal, include the usual EIDL three-part question, which requires a “yes” or “no” to the entire question: “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)?” Under pre-existing policy, if this question is answered “yes,” the SBA requires the applicant to provide a Form 912 with an explanation of the offense(s), and in some cases a fingerprint sample, before the SBA will make a character determination.[xi] The SBA has not provided guidance on whether applicants who answer “yes” to this question can obtain an EIDL advance, or whether they will be subject to the usual character evaluation. [i] CARES Act (H.R. 748), secs. 1102-1105; 15 U.S.C. 636(a). [ii] 15 U.S.C. 636(a)(1)(B). [iii] 13 C.F.R. § 120.110(n). An “Associate” includes officers, directors, owners of 20% or more of the equity, key employees, and other specified entities. See 13 C.F.R. § 120.10. [iv] See SBA Standard Operating Procedure (SOP) 50 10 5(K)(B)(2)(III)(A)(13) (eff. April 1, 2019). [v] The good character requirement applies to every proprietor, general partner, officer, director, managing member of an LLC, owner of 20% or more of the equity, trustor, or person who runs day-to-day operations.” See id. [vi] See CARES Act (H.R. 748), sec. 1102. [vii] Coronavirus Preparedness and Response Supplemental Appropriations Act (H.R. 6074), tit. 2. [viii] CARES Act (H.R. 748), sec. 1110; https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance. [ix] See P. L. 90 448, 1106(e), HUD Act of l968, and 13 CFR §§ 123.301, 123.101.   [x] SBA SOP 50 30 9(3.6) (effective May 31, 2018) at p. 32. [xi] Id. Read more

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. Stimulus Package Last Friday, the President signed into law the CARES Act, a $2+ trillion stimulus package, which included more than $300 billion in funding for new SBA loans, now called the “Paycheck Protection Program.”  These Paycheck Protection Program loans are authorized under SBA’s primary loan program, the 7(a) loan program, but the stimulus bill increases eligibility, extends allowable uses for the loans, and allows for loan forgiveness, among other provisions.  (See H.R. 748, sec. 1102; 15 U.S.C. 636(a); our previous post). The SBA’s preexisting regulations and policies for the 7(a) loan program make a small business ineligible if the business has a principal who is incarcerated, under supervision, or facing charges; in addition, such persons “must be of good character,” determined through a character evaluation process that examines some or all of an applicant’s criminal record.  In our previous post, “Applying for an SBA loan with a criminal record,” we discussed in detail these preexisting criminal history requirements, but also indicated that the text of the stimulus bill could be read to say that these preexisting  requirements would not be applied with respect to the Paycheck Protection Program loans.  See H.R. 748, sec. 1102.  In the past week, the SBA has issued three different sets of guidance which would apply some of the preexisting requirements, and impose new grounds for disqualifying people with a past criminal record.  The most recent guidance, issued today (April 3), would even disqualify people who have been arrested but never convicted. March 31 Guidance  On March 31, the SBA released a sample application form for Paycheck Protection Program loans, which included questions regarding criminal history, to be answered by small business owners with greater than 20% ownership stakes.  A “Yes” answer to either question would be disqualifying: Are you presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, on probation or parole?” Within the last 7 years, for any felony or misdemeanor for a crime against a minor, have you: 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)? In describing this guidance, the Washington Post appeared to interpret the latter question to call for responses only about crimes against a minor, whether misdemeanor or felony.  However, another plausible interpretation of this ambiguously-worded question is that it called for responses concerning either 1) any felony; or 2) a misdemeanor crime against a minor.  However the first phrase was interpreted, this guidance proposed to disqualify not only based upon conviction, but also based on a non-conviction record such as a guilty plea or placement on pretrial diversion. April 2 Guidance On April 2, the SBA posted on its website an Interim Final Rule for the Paycheck Protection Program.  (This rule not yet been published in the Federal Register.)  This interim final rule states (p. 7): You are ineligible for a PPP loan if, for example: i. You are engaged in any activity that is illegal under federal, state, or local law …. iii. An owner of 20 percent or more of the equity of the applicant is incarcerated, on probation, on parole; presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of a felony within the last five years; Thus, the Interim Final Rule makes two changes to the guidance provided by the March 31 sample application form.  First, this rule changes the second disqualification discussed above (“Within the last 7 years, for any felony or misdemeanor for a crime against a minor…?”) to a disqualification if a person “has been convicted of a felony within the last five years.”  Second, the new rule applies to owners of 20% or more of the business (as opposed to greater than 20% in the sample form). April 3 Guidance On April 3, the same day that Paycheck Protection Program went live, the SBA published a new Paycheck Protection Program borrower application form which described the grounds for criminal history-based disqualification even more broadly than the Interim Final Rule.  Specifically, the new application form asks two questions regarding criminal history, with a “Yes” answer to either one resulting in disqualification: Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, or on probation or parole? Within the last 5 years, for any felony, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)? While the Interim Final Rule would disqualify an “owner of 20 percent or more of the equity” who has been “convicted of a felony within the last five years,” the application form dramatically expands this to disqualify “any owner” who has, in the last five years, for any felony, been convicted, pled guilty or nolo contendere, or been placed on pretrial diversion or any form of parole or probation, including probation before judgement. This second more sweeping disqualification surely must be a mistake, since it imposes a stricter rule on “any owner” (disqualified for any conviction or many non-conviction dispositions) than on an owner of 20% or more (disqualified only if currently serving a sentence).  Moreover, a decision to disqualify owners based on their having ever been placed in a diversion program is especially troubling: it doubles down on OPM’s widely-criticized proposal earlier this year, which was later withdrawn, to simply ask—and not necessarily disqualify—federal job seekers and contractors if they have been placed on diversion in the last 7 years.  SBA’s decision to disqualify someone who has been discharged from probation or parole, but was placed on it within the last 5 years, is also head-scratching. Since the Paycheck Protection Program is already live, we hope the SBA will clarify matters as soon as possible, and that it will at the very least return to the standard under the existing 7(a) program that disqualifies only those currently serving a sentence or facing charges. Disaster loans [5/6/20: For more current information, see our new article about a purported leak of the SBA’s internal guidance for denying disaster loan (EIDL) relief based on a record.] In addition to the Paycheck Protection Program, the SBA is also offering COVID-19 Economic Injury Disaster Loans for qualifying small businesses that have suffered substantial economic injury and are located in a Coronavirus (COVID-19) declared disaster area; and pursuant to the CARES Act, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for a Economic Injury Disaster Loan advance of up to $10,000.  See H.R. 748, sec. 1110. There is a new online portal for COVID-19 Economic Injury Disaster Loans, but this portal does not allow non-applicants to see what the SBA asks about criminal history.  On April 4, a reader informed us that the criminal history inquiry for disaster loans is even more restrictive than that for the Paycheck Protection Protection: it is a three-part question, which requires a “yes” or “no” to the entire section (not question by question): 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)? It is not clear if a “yes” answer to this question is disqualifying, or if there will be an individual character evaluation, as under preexisting policies.  See SOP 50 30 9(3.6) (effective May 31, 2018) at p. 32.  If a “yes” answer is disqualifying, it is astounding that the SBA would completely disqualify anyone who has ever been convicted, pleaded guilty or nolo contendere, been placed on pretrial diversion, or been placed on any form of parole or probation, for ANY type of offense other than a minor vehicle violation.  We have never seen such a sweeping mandatory disqualification based on a criminal record, in any area of the law, if that is the case here.  It also bears noting that in many jurisdictions “pretrial diversion” is something that the prosecutor determines without any input from a court, and does not require any admission of guilt.  See MPC: Sentencing (2017), which distinguishes between §6.04 Deferred Adjudication (requires some admission of facts) and §6.03 Deferred Prosecution (no admission required). By statute and rule, SBA is barred from making 7(b) loans to persons who have been “convicted, during the past year, of a felony during and in connection with a riot or civil disorder or other declared disaster.”  But its policy on disaster loans disqualifies an applicant if the “applicant or principal owner is presently on parole or probation following conviction of a serious criminal offense.  However, [the government] will consider approving an application submitted by partnerships, corporations, and LLEs, where the apparent bar to eligibility was committed independently of any official act for the business and the individual will divest all direct and indirect interest in the business.”  SOP 50 30 9(3.6) (effective May 31, 2018) at p. 32. In addition, the policy calls for the SBA to make an individual character determination, stating that “[i]t is not in the public interest for SBA to extend financial assistance to persons who are not of good character,” and “[i]f any adverse information develops concerning the character or background of a disaster loan applicant or principal owner, as disclosed on SBA Form 912, ‘Statement of Personal History’, or from any other source (e.g. SBA application), SBA must make a determination as to the applicant’s character before a loan can be approved.”  Id.  If a person answers yes to the criminal history question, a “Form 912: Statement of Personal History” is required.  Id.  Based on that form, the SBA will determine if a fingerprint sample is required.  Id.  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.”  Id.  Fingerprints are required if the person had a felony conviction from more than a year ago in connection with a riot, civil disorder, or declared disaster.  Id.  Finally, the SBA makes a character evaluation and decision.  Id. *Note: This post was updated on April 28, 2020. 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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. For background, Section 19 of the Federal Deposit Insurance Act prohibits people who have been convicted of a “crime of dishonesty, breach of trust, or money laundering” or other specified financial crimes from working in a bank or other “insured depository institution” without the “prior written consent” of the FDIC.  12 U.S.C. § 1829(a).  The requirement of FDIC approval extends not only to convicted persons, but also to any person who has “agreed to enter into a pretrial diversion or similar program in connection with the prosecution for such offense.”  § 1829(a)(1)(A)(i). Since the 1990’s, the FDIC has by policy defined very broadly the category of crimes requiring it to issue a waiver (even anomalously including illegal sale of drugs in this category).  It has extended its waiver requirement to pre-trial diversion or similar diversionary dispositions (as the statute itself appears to require), as well as to convictions that have been pardoned, set-aside, or sealed.  It has also narrowly defined the category of “de minimis” offenses that it excepts from the waiver requirement, and even as to these offenses it requires a five-year waiting period before a waiver may be sought.  The FDIC also excepts convictions that have been “completely expunged,” but its definition of offenses falling into this category (that they may not be used by the state for any purpose, including even in subsequent prosecutions) excludes many if not most state expungements. Moreover, the FDIC has not made it easy to obtain a waiver, effectively limiting waivers to situations where a bank itself is willing to go to bat for a potential employee.  In the past 12 years, only about 1200 waiver applications have even been filed, and only about half of these were approved.  While any individual interested in working for a bank may in theory apply to the FDIC for a waiver, almost the only waivers granted are to applicants who are sponsored by a bank.  In practice, this means that a recent MBA recipient being recruited as a loan officer trainee in a bank’s mortgage department may succeed in getting a waiver, but a person seeking employment as a teller or receptionist may not.  Avoiding the need to secure a waiver from a distant federal bureaucracy in order to qualify for bank employment is therefore of paramount importance to anyone interested in an entry-level professional or non-professional bank job, because they cannot ordinarily count on the bank’s running interference for them with the FDIC. Therefore, the organizations’ letter urges the FDIC to narrow the category of criminal records that preclude bank employment without FDIC permission, and to streamline the waiver process both for banks and individuals, in several ways.  Notably, the letter addresses at length two issues on which the FDIC specifically sought comment.  First, as to whether the agency should impose time limits for considering various types of convictions, the letter recommends excluding from the waiver requirement cases where  at least 7 years have elapsed since conviction, or 5 years since release from incarceration—and sooner for offenses committed at age 21 or younger.  Second, as to whether the agency should modify its “complete expungement” policy, the letter recommends that the agency recognize all expungements and sealings, as well as convictions that have been set aside or dismissed.  The letter also urges the FDIC to more narrowly define “dishonesty” offenses requiring a waiver, expand the exception for drug offenses, and limit consideration of diversionary dispositions, among other recommendations. Over the years since the FDIC originally issued its policy in 1998, it has repeatedly declined to make any significant changes.  The history of the FDIC’s successive revisions to the policy, which is rehearsed in its present proposal, shows the agency stubbornly resisting calls from the banking industry itself for relaxation of its employment bars and waiver rules.  For example, in 2018 the FDIC declined to abandon the five-year waiting period for those convicted of de minimis crimes (itself a vanishingly small category), and refused to relax its grip on pretrial diversionary dispositions specifically intended by states to avoid collateral consequences.  The FDIC has also turned a deaf ear to calls to incorporate relief mechanisms provided by state law, and has defined both of its exceptions (for de minimis crimes and expunged convictions) in such a narrow way that very few can take advantage of them. One may hope that this time will be different, and that the range of convictions requiring a waiver will be significantly reduced.  Expansion of the de minimis category and incorporation of a “look-back” or “wash-out” period for older convictions seem the two most likely changes, though the inclusion of drug sales in the category of crimes of dishonesty also seems ripe for reconsideration.  While the FDIC may be unwilling to back away from its policy on diversionary dispositions since the statute itself appears to specifically cover them, or expand the narrow definition of expungement that is subscribed to by so many other federal agencies, the letter helpfully points out why Congress should amend these aspects of the law, which so clearly run against the present tide of bipartisan reforms. NOTE:  The FDIC’s definition of “complete expungement,” discussed above, so completely ignores the actual effect of state record relief laws that it has encouraged us to take a look at the way different federal laws and regulations incorporate state relief mechanisms like expungement and pardon.  This has not been a subject of close examination by Congress for more than thirty years, since its 1986 amendment of the Federal Firearms Act to recognize state relief in the wake of the Supreme Court’s 1983 decision in Dickerson v. New Banner Institute, 460 U.S. 103 (1983), which upheld a federal “felon in possession” conviction based on a guilty plea that had been expunged under Iowa law.  Despite Congress’ specific intent to give effect to state relief in firearms prosecutions (or perhaps because of it), since then federal agencies have gone their separate ways in recognizing state relief, with some giving effect to pardon but not expungement (HUD, ICE), some going in the opposite direction (U.S. Sentencing Commission, FDIC), and some recognizing both (TSA).  Even where federal agencies recognize expungement, they define it so narrowly that most state laws would not qualify. We believe that the confusing and inconsistent approach by federal agencies to state record relief merits a closer analysis, which we plan to undertake in the future, if only to clarify terminology.  In the meantime, we have revised the Federal profile in the Restoration of Rights Project to include a detailed discussion of the various ways that federal law recognizes state relief, from firearms dispossession to deportation. Read more