Category: Policy

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

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

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

New Jersey steps out as Reintegration Champion of 2019

Editors’ note: CCRC recently released its report on 2019 criminal record reforms, which recognized New Jersey as the “Reintegration Champion” of 2019, for having the most consequential legislative record of any state in the past year.  The following comment describes New Jersey’s laws enacted in 2019.  New Jersey’s various restoration of rights laws are further described in the state’s profile in the CCRC Restoration of Rights Project. In December 2019, Governor Phil Murphy signed into law S4154, now L.2019, c.269, as part of his Second Chance Agenda.  The law is a strong step towards criminal justice reform, and places New Jersey on the map as a leader in expungement policy.  Along with easing access to the existing expungement process,  it creates a new “clean slate” system that provides for expungement of all but the most serious violent offenses after ten years. It additionally sets in motion a process aiming to automate all clean slate expungements.  The substantive provisions of the law are set to go into effect on June 15, 2020, and we anticipate a large increase in expungements following its implementation. The law’s improvements include increased eligibility for expungement and reduced barriers to access (though certain violent offenses, such as murder, robbery, and sexual assault, will remain ineligible.)  Changes include: The waiting period required between the most recent conviction and expungement eligibility as a matter of course is reduced from six to five years. (The waiting period begins, as under old law, with completion of the most recent sentence, including payment of any court-ordered financial assessments.) Where the applicant can show “compelling reasons” to begin the expungement process early, the waiting period is reduced from five to four years. The number of disorderly persons offenses that can be expunged in a lifetime is increased from four to five. All non-convictions, including dismissals and acquittals, will be automatically expunged at the time of disposition, eliminating a requirement that a defendant file a petition with the court.  (This provision does not appear to apply retroactively.) Prior convictions for indictable offenses (felonies) will no longer bar relief, as long as the conviction for which expungement is sought is an eligible offense. Only the most recent conviction may be expunged in these cases, which may yield inconsistent results based on the order of convictions; but the relaxation of the bar on expungements for those with prior indictable offenses will nonetheless have a positive result compared to previous law. In addition to changes in eligibility, the new law allows more individuals access to expungement by eliminating expungement filing fees.  It also directs the Administrative Office of the Courts to develop an e-filing system within 12 months, which will accomplish automatically all of the document production and service requirements in connection with the petition-based expungement process, thus eliminating another substantial barrier to access. By far the most notable innovation of the law, however, is the creation of a “clean slate” system.  Under this system, individuals who are ineligible for expungement solely because of the limits in existing law on the number of allowable offenses, will be eligible for expungement of all eligible offenses after a ten-year conviction-free waiting period.  In addition, a prior expungement will no longer defeat eligibility. Though this clean slate process will be put into effect in June with the rest of the statute’s substantive provisions, allowing individuals to petition the courts for relief immediately, the law additionally requires the creation of an automated system to streamline the clean slate process.  A task force was created at the end of last year in order to bring the automated provision of the law into effect, and its comprehensive report is due in June.  The automated process for expunging convictions will be only the fourth like it in the country to be authorized, following Pennsylvania, Utah, and, just last fall, California. In addition to the ten-year full expungement, certain drug offenses relating to possession or distribution of marijuana or hashish will be considered disorderly persons offenses for expungement purposes, and the court will have discretion to grant an expungement on application immediately after completion of sentence.  Further, within three months of the law’s effective date, the Administrative Office of the Courts must create a system for automatically “sealing” such records at the time of disposition, eliminating the need for application for expungement of such offenses at all. The new law’s enactment was the result of collaboration and continued efforts from Governor Murphy and key legislative leaders including Senator Sandra Cunningham, who spearheaded the bill from its inception.  It is part of a larger effort on the part of the Murphy administration and legislative advocates to improve criminal justice in the state, and it comes amid a number of similar bills that will significantly reduce the collateral consequences of conviction. Other new 2019 laws promoting reintegration are S1080, eliminating automatic driver’s license suspensions for certain non-moving violations, and a voting rights restoration act, both also signed in December 2019.  In passing the voting rights law, which restores the right to vote to more than 80,000 New Jersey residents on parole and probation, New Jersey joins 16 other states and the District of Columbia in restoring voting rights following incarceration.  Continuing in the same vein, the Earn Your Way Out Act, just signed last month by Governor Murphy, ensures that the Department of Corrections develops reentry plans for all inmates prior to release, and accelerates  parole release for people convicted of certain nonviolent crimes.. Last fall, the New Jersey Reentry Services Commission, co-chaired by former Governor Jim McGreevey and facilitated by the New Jersey Reentry Corporation (NJRC), published a report summarizing 100 policies aimed at improving the reentry process for individuals returning from incarceration.  Many of these recommendations have been adopted or are being considered for this coming year, signaling further moves in the right direction for the state. Read more

CCRC reports on criminal record reforms in 2019

We are pleased to publish our annual report on criminal record reforms enacted during the past calendar year.  This is the fourth in a series of reports since 2016 on new laws aimed at avoiding or mitigating the collateral consequences of arrest and conviction.  This year we have included for the first time a Report Card grading the progress of the most (and least) productive state legislatures in 2019.  The press release accompanying the report is reprinted below: Report finds record-breaking number of criminal record reforms enacted in 2019 February 17, 2020 Washington, D.C. — The Collateral Consequences Resource Center (CCRC) has released a new report documenting the astonishing number of laws passed in 2019 aimed at promoting reintegration for individuals with a criminal record.  Last year, 43 states, the District of Columbia, and the federal government enacted an extraordinary 153 laws to provide criminal record relief or to alleviate the collateral consequences of arrest and conviction, consequences that may otherwise last a lifetime and frequently have little or no public safety rationale.  The year 2019 was the most productive legislative year since a wave of “fair chance” reforms began in 2013, a period CCRC has documented in a series of legislative reports (2013-2016, 2017, and 2018).  CCRC’s 2019 report, titled “Pathways to Reintegration: Criminal Record Reforms in 2019,” is available here. “This report is our first to include a Report Card on how state legislatures performed during the year in advancing the goals of reintegration,” said CCRC Executive Director Margaret Love. “We wanted to recognize New Jersey as Reintegration Champion for having the most consequential legislative record in 2019, including three important new laws authorizing ‘clean slate’ record relief, restoring voting rights, and curbing driver’s license suspensions.” “In New Jersey, we are blessed to have a broad coalition of elected officials, nonprofits, and activists who are committed to meaningful criminal justice reform,” said James McGreevey, Executive Director of New Jersey Reentry Corporation and former New Jersey governor. “This recognition from the Collateral Consequences Resource Center is a testament to the leadership of Governor Murphy, Senate President Sweeney, and Speaker Coughlin, and to what is possible when officials from both branches of government unite behind a cause.” Colorado is the runner-up Reintegration Champion for enacting ten laws reforming criminal record relief, diversion, employment, immigration consequences, and voting rights.  Honorable mention for enacting several important record reforms goes to Illinois, Mississippi, Nevada, New Mexico, North Dakota, and West Virginia. Alaska, Georgia, and Michigan are singled out for their unproductive legislative records in the past few years. Lawmakers in 2019 took significant steps to restore voting and other civil rights, authorize expungement and other forms of record relief, expand diversion programs, limit the use of criminal records in occupational licensing, employment, and housing, alleviate immigration consequences, and curb driver’s license suspensions: • On voting, 11 states took steps to restore the right to vote to previously disenfranchised individuals and to expand awareness of voting eligibility.   • On record relief, 31 states and D.C. enacted 67 bills creating, expanding, or streamlining expungement, sealing or vacatur.  Twenty-seven states and D.C. made certain classes of convictions newly eligible relief, five states enacting their first general authority for expunging or sealing convictions. Three states authorized automated relief for a range of conviction and non-conviction records, and six others focused automated relief on specific offenses or dispositions.  Seven jurisdictions authorized relief for victims of human trafficking.  Seven states—all of which have legalized or decriminalized marijuana—authorized record relief for certain marijuana offenses, including two automated measures. Thirteen states streamlined and/or made more effective procedures for obtaining relief. • On diversion, 17 states enacted 25 laws creating, expanding, reorganizing, or otherwise supporting diversionary and deferred dispositions • On occupational licensing and employment, 26 states and the federal government enacted 42 laws limiting consideration of criminal record in either employment or occupational licensing, or both (30 laws cover licensing and 14 address employment).   • On immigration, four states enabled non-citizens charged with offenses to avoid deportation based on sentence or guilty plea and two states regulated the questioning of criminal defendants or detained individuals about their immigration status. • Other relief measures addressed jury service, public office, firearms, driver’s license suspension, housing, pardon procedure, sex offender registration, and access to adoption. These various criminal record reforms and the trends they embody are described in greater detail in CCRC’s report.   The reform trajectory established in 2019 makes us optimistic that 2020 will be an even more productive year in the progress toward reintegration of people with a criminal record. *Note: this press release and the report were updated on March 24, 2020 to include a negligent hiring law enacted by Iowa in 2019. For more information, please contact Margaret Love at 202-547-0453, margaretlove@pardonlaw.com. The Collateral Consequences Resource Center is a non-profit organization established in 2014 to promote public engagement on the myriad issues raised by the collateral consequences of arrest or conviction.  Collateral consequences are the legal restrictions and societal stigma that burden people with a criminal record long after their criminal case is closed.  The Center provides news and commentary about this dynamic area of the law, and a variety of research and practice materials aimed at legal and policy advocates, courts, scholars, lawmakers, and those most directly affected by criminal justice involvement. The Center has drafted reports on new legislative developments and participated in court cases challenging specific collateral consequences. www.ccresourcecenter.org Read more