Note: We are very pleased to publish a summary of the several significant record reforms enacted by Virginia in 2025, prepared by Rob Poggenklass. Rob is executive director of Justice Forward Virginia, a public defender-led criminal justice policy advocacy organization. He was deputy director of CCRC in 2022. 

The Commonwealth of Virginia has continued to make significant progress toward reducing the collateral consequences of criminal conviction, although a closely divided government has meant that reforms have been more incremental in recent years. Here are the several new laws that Virginia enacted during the 2025 legislative session:

• Occupational licensing reforms;
• Expansion of vacatur eligibility for victims of human trafficking;
• Two bills easing employment restrictions for people convicted of “barrier crimes”; and
• Technical updates and policy changes to the major 2021 record sealing law, which will take effect July 1, 2026;

In addition, the General Assembly took the first step toward amending the Virginia Constitution to ensure that a felony conviction results in loss of the right to vote (and potentially other civil rights) only during actual incarceration.

These six major new authorities are described below. I expect that the Virginia General Assembly’s exemplary performance in enacting these important new provisions will be in for recognition in CCRC’s annual round-up of new record reforms.

Occupational licensing. SB826 follows reforms in other states like Colorado in prohibiting regulatory boards from using vague terms like “good moral character” or “moral turpitude” to refuse a license, certificate, or registration. The law also requires a regulatory board, when issuing a denial, to specify in writing which conviction or convictions on the person’s record contributed to the denial, and to explain how that criminal history “directly relates” to the license sought and how the board weighed rehabilitative factors in its decision.

The new law also establishes a “predetermination” process for licensing eligibility, so that a person can obtain, prior to investing in training or education, a binding written determination as to whether their criminal history would disqualify them from obtaining a license, certificate, registration or other authority.

Human trafficking. A 2021 law authorized vacatur and expungement for victims of sex trafficking, but limited eligibility to those victims who had been convicted of prostitution-related offenses. HB2393 / SB1460 expands eligibility to include victims who were convicted of felony drug possession or a variety of misdemeanor offenses, including larceny offenses, trespass, destruction of property, using a false ID, identity theft, driving without a license, driving on a suspended license, or disorderly conduct.

The law also makes three other significant changes. First, it adds a definition of “labor trafficking” and makes labor trafficking victims eligible for vacatur and expungement under the law. Second, it specifies the requirements for what to include when filing a petition for relief. Third, the law adds a provision stating there is no requirement that a human trafficking victim must have cooperated with a law enforcement investigation or prosecution to meet the requirements for record relief.

Barrier crimes. Two new laws are intended to offer new employment opportunities for people convicted under Virginia’s barrier crimes regime. A conviction for an offense listed in the barrier crimes law expressly prohibits people from working in most jobs that involve caring for children, the elderly, or the disabled. The first new law, HB1924, gives school boards the option to hire a person convicted of a barrier crime if their offense conduct did not involve specified sex crimes involving a child, the person’s civil rights have been restored, 20 years have passed since the person completed their sentence, and the school board has determined the person has the requisite character to serve in the position. This law also applies to the awarding of contracts by school boards.

The second law, HB1877, eliminates several requirements for individuals serving as peer recovery specialists. The law reenacts previous requirements that a person serving as a peer recovery specialist must be free of probation or parole for at least five years, but provides that a person can work as a peer recovery specialist even if they have not paid all fines, court costs, or restitution from all previous convictions.

Record sealing. Virginia passed transformative record sealing legislation back in 2021, which we previously discussed here. The 2021 law, with minor amendments in 2023, established a system of automatic record sealing for a handful of misdemeanor convictions, as well as automatic sealing for certain non-conviction records. The law also established broad eligibility for petition-based sealing of most misdemeanor convictions and low-level felony convictions. The law set a delayed enactment of July 1, 2025, giving stakeholders such as the Virginia State Police four years to overhaul their computer systems to prepare for the new law.

Since 2021, however, stakeholders have identified numerous technical issues with the 2021 law, as well as some important substantive issues, requiring the General Assembly to enact revisions before it takes effect. SB1466 / HB2723, which passed the Democratic-controlled General Assembly with large bipartisan support and was signed into law by Republican Gov. Glenn Youngkin, makes a series of technical changes to the 2021 law.

• Ensures that all marijuana possession records will be sealed. Virginia decriminalized adult marijuana possession in 2020 and legalized it in 2021. Expungement of marijuana offenses was originally included in the marijuana legalization bill with a delayed enactment date, but as challenges emerged with the process, those provisions were removed from the legalization bill and put into the record sealing legislation. Because most marijuana possession charges were not reported to the state repository, which is where Virginia’s automatic record sealing process will begin, the 2021 legislation would not have sealed most marijuana possession court records.
• Creates a petition process for sealing offenses that should be sealed automatically, but erroneously were not.
• Limits automatic sealing at the conclusion of a criminal case to acquittals and dismissals with prejudice, rather than charges resolved by nolle prosequi. This change removes prosecutorial and judicial discretion and ensures these records will be sealed unless the subject of the record objects. Other non-conviction records can be expunged by petition using the existing expungement law.
• Provides that no offenses before January 1, 1986 will be eligible for sealing. This was a major concern of the circuit court clerks, who did not want to go digging through boxes of records—many of which are stored at off-site locations—whenever a petition to seal a very old record was filed.
• Provides for other technical amendments requested by the Virginia State Police and other stakeholders.

The delayed effective date of the 2021 law also gave the legislature an opportunity to reconsider the breadth of petition-based sealing authorized by the 2021 law, so that many serious felonies that were eligible for sealing by petition under the earlier law will no longer be eligible under the 2025 law, such as (but not limited to) enumerated violent offenses, sex crimes, hate crimes, and election fraud. About 90% of all misdemeanors and nearly two-thirds of all Class 5 and Class 6 felonies, plus all larceny felonies, are eligible for sealing under the new law. (A complete list of ineligible offenses is available on Justice Forward Virginia Foundation’s expungement and record sealing resource page.)

At the same time, the 2025 law provides for the sealing of ancillary offenses (e.g., probation violations, failures to appear, and bond appeals) when the underlying conviction is sealed, and removes all filing fees and service of process costs for expungement and record sealing by petition. The 2025 law also removes a provision that established a right to counsel for indigent record sealing petitioners. The administration of that part of the law was considered unworkable.

The substantial changes to sealing eligibility also prompted the General Assembly to delay enactment of all the changes made to both record sealing and expungement during the 2021, 2023 and 2025 legislative sessions by one year, to July 1, 2026. Nonetheless, on that date, Virginia will finally join the ranks of states that provide for sealing of criminal convictions, including automatic sealing for less serious misdemeanors and many non-conviction records.

Restoration of rights. Virginia is one of four states that still require executive clemency to restore the civil rights of a person convicted of a felony, including the right to vote. While other recent governors have routinely restored civil rights en masse, Gov. Glenn Youngkin has taken a more restrictive approach, prompting several lawsuits and forcing Virginia’s Jim Crow-era voting restrictions back into the spotlight.

During the 2025 legislative session, the General Assembly took the first step toward amending the Virginia Constitution to provide that those convicted of felonies lose the right to vote only during a period of actual incarceration. (SJ248 / HJ2). Those who are not sentenced to prison will not lose the right to vote at all. (It is not clear whether this constitutional amendment is intended to affect the other basic civil rights that must now be restored by the Virginia governor, notably eligibility for jury service and public office.)

This resolution must pass the General Assembly again in 2026, after voters choose all 100 members of the House of Delegates—and a new governor—in November 2025. If the resolution passes a second time in 2026, it must then go to a referendum, most likely in November 2026. The General Assembly previously passed such a resolution in 2021, but it was shelved after Republicans retook the House of Delegates in that fall’s elections. Democrats regained a one-seat majority in 2023, and are hoping to expand it this fall.

 

 

 

 

 

 

At the beginning of each year since 2016, CCRC has issued a report on legislative enactments in the year just ended, describing and evaluating new laws aimed at reducing the barriers faced by people with a criminal record in the workplace, at the ballot box, and in many other areas of daily life. This year’s report, “Advancing Second Chances: Clean Slate and Other Record Reforms in 2023,” is now available.

Our annual legislative reports have documented the steady progress of what we characterized three years ago as “a full-fledged law reform movement” aimed at restoring rights and dignity to individuals who have successfully navigated the criminal law system. Between 2018 and 2022, more than 500 new record reforms were enacted by all but two states.  

Last year we reported that the legislative momentum had slowed somewhat, and this year it has slowed still further.  Only a handful of states enacted significant new record reforms in 2023, most in the form of new record-clearing schemes. We attribute this slowdown in part to how much has been accomplished in legislatures across the country in the past seven years. For example, more than half the states now allow people with a felony conviction to vote unless they are actually incarcerated, a number that has doubled since 2016.  In addition, most states have also taken steps to limit public access to some criminal records, and to ensure that employers and licensing agencies do not discriminate against people with a criminal history. Many have extended diversionary dispositions well beyond the class of first offenders who were uniquely eligible for non-conviction relief a decade ago. 

In 2023, 20 states, the District of Columbia, and the federal government enacted 36 separate pieces of legislation and took executive action to restore rights and opportunities to people with an arrest or conviction history.

As in past years, more than half of the new laws in 2023 involved individual record clearing. Because of the significant progress on this front in recent years, many of the laws enacted in 2022 represent measured changes to existing record relief schemes rather than radical new reforms. Nonetheless, three states enacted major new automatic “clean slate” record schemes while others expanded eligibility for petition-based sealing. A handful of states continued to remove marijuana convictions from public view, and still other states trimmed barriers to relief by automating the application process, reducing waiting periods, or eliminating obstacles represented by outstanding court debt (fines and fees).

In addition, many of the new laws limited consideration of criminal records in economic settings, regulating employment and occupational licensing, or removing barriers to restoring a driver’s license.  The U.S. Small Business Administration took important steps toward eliminating restrictions in federally guaranteed loans.

Our sixth annual legislative report card (Reintegration Awards for 2023, reprinted below) recognizes the most productive legislatures in 2023, and notes that there are now only two states that have enacted no record reforms since our reporting began in 2016. As in the past, the state legislatures that have enacted the most significant reforms span the political spectrum, from Minnesota and New York to Louisiana and South Carolina.

Detailed analysis of most of these new laws is available in the state profiles from CCRC’s Restoration of Rights Project, with a national overview in our 50-state comparison charts on various types of record relief.

Reintegration Awards for 2023

While half a dozen states enacted noteworthy laws in 2023, one state stands out for the quantity and quality of its legislation: Minnesota is our 2023 Reintegration Champion for its passage of three major pieces of record reform legislation, and several other less significant yet still noteworthy laws.

• Minnesota – Enacted four separate laws, one of which was an omnibus criminal justice bill that accomplished several entirely independent major record reforms. The omnibus bill enacted a significant expansion of the state’s statutory expungement scheme and made most of it automatic. It also accomplished a complete overhaul of the state’s pardon process to facilitate more grants. As part of a bill that legalized marijuana, it authorized automatic expungement of misdemeanor convictions and created a new board to review nonviolent felony convictions for potential expungement. If more were necessary, it limited felony disenfranchisement to a period of actual incarceration, capped sentences for gross misdemeanors to avoid immigration consequences, extended ban-the-box to multimember agencies, and further eased the drug felony ban on SNAP and TANF benefits.

Another six states and the District of Columbia earned an Honorable Mention for their enactment of at least one significant new record reform:

• District of Columbia: DC replaced one of the most complex and restrictive record-clearing schemes in the country with an expansive one that makes all but the most serious felonies eligible for relief, and includes some automatic relief. Its major shortcoming is that it is presently not scheduled to take effect for several more years.
• Maryland: Cut in half what were among the longest waiting periods in the country for record-clearing, from 10 years after completion of sentence to five years for misdemeanors and from 15 years to 7 years for felonies. Maryland also provided that any unpaid court fees or costs will not bar expungement, and made expungement of non-conviction records automatic.
• New York: The Clean Slate Act substantially expanded sealing eligibility from a rather stingy maximum of two convictions (only one of which could be a felony) to all misdemeanors and all but the most serious felonies, without numerical limits, making New York’s automatic record-clearing law the broadest in the Nation by far. It also reduced some waiting periods.
• New Mexico – Limited felony disenfranchisement to actual incarceration and encouraged registration during reentry; limited suspension of driver’s license due to unpaid court debt and allowed discharge of court debt through community service; and, extended automatic expungement of marijuana convictions to juvenile adjudications.
• Ohio – Extended eligibility for sealing to additional categories of felonies, shortened waiting periods, authorized prosecutor-initiated sealing, and created a new authority for expungement after an additional waiting period. The law also authorized courts to seal the record of pardoned cases on the same basis as non-conviction records.
• South Carolina – Significantly limited the discretion of the state’s licensing boards to deny licensure to people with criminal records. The law added new procedural protections for applicants with a record and prohibited boards from using arbitrary character determinations, non-conviction records, and convictions that do not “directly relate” to the license at hand, as a basis to disqualify applicants.

Low marks go once again to two of the states that enacted no record reform laws at all in 2023. While there are many other states in this category this year, the legislatures of Alaska and Wisconsin have earned their place at the bottom of the heap for having been equally unproductive since 2018, a period in which almost every other state passed at least some law limiting access to and use of criminal records.  Wisconsin’s one saving grace is the extraordinary record of pardoning by its governor:  Barely into his second term,Tony Evers has pardoned more than 1100 individuals, 833 in the last two years alone.

Looking ahead

Looking ahead to 2024, we are cautiously optimistic that even in a presidential election year there will be a continuing expansion of eligibility for record clearing, and reduction of access barriers like lengthy waiting periods, outstanding court debt and application-related costs. We also predict efforts to improve records management to accommodate automation of record clearance. We look for further facilitation of occupational licensing, an area where bipartisan reforms have benefitted from helpful model laws, and for efforts to support entrepreneurship by people with a criminal history. We have come a long way just in the past five years, but there is still a long way to go.

In a year that saw fewer criminal record reforms enacted than in the recent past, six states plus the District of Columbia took significant steps to expand their sealing and expungement laws.

Minnesota, New York, and the District of Columbia enacted the most ambitious record-clearing schemes, expanding eligibility for relief while also making some relief automatic for the first time. Louisiana continued to resist a full “clean slate” approach, but established an automated application system that should make it easier for individuals to seek expungement once the legislature reduces the sky-high statutory application fee. Like Louisiana, Maryland significantly improved its record relief system even without changing eligibility criteria, including by cutting waiting periods in half. Ohio and Pennsylvania expanded eligibility for petition-based sealing and reduced waiting periods, with Pennsylvania also extending automatic relief to some drug felonies.

These seven reforms are described in greater detail below, in approximate order of importance.  Further analysis of each state’s new law can be found in the relevant state profile from the Restoration of Rights Project.  All in all, considering the relatively few record reforms in other categories enacted in 2023, they make for a surprisingly productive year for record clearing.

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As the first post of 2024, we are highlighting a great article by Matt Stout of the Boston Globe about how Massachusetts Governor Healey and other governors across the country are reviving their pardon power after years of neglect: “Clemency was a political third rail for decades. Healey and other governors are starting to embrace it.”

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FOR IMMEDIATE RELEASE

December 6, 2023

Media Contact:
Nick Sibilla

nick@ccresourcecenter.org

David Hebert
dhebert@arnoldventures.org

Many States Still Deny SNAP and TANF Benefits to People with a Drug Felony, According to a New Report

Washington, D.C. — Almost half the states still exclude thousands of Americans with a drug felony in their past from receiving essential public benefits, according to a new nationwide study released today by the Collateral Consequences Resource Center (CCRC) with support from Arnold Ventures.

A provision in President Bill Clinton’s 1996 welfare reform law imposed a lifetime ban on eligibility for the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps) and Temporary Assistance for Needy Families (TANF) for anyone convicted of a drug felony. However, the federal law permitted states to opt out of one or both bans or to modify them with their own conditions.

CCRC’s report, “Accessing SNAP and TANF Benefits after a Drug Conviction: A Survey of State Laws,” offers a comprehensive and up-to-date picture of the differing ways states have responded to this federal ban, including relevant sections of statutory text to facilitate analysis and comparison.

Today, 25 states, plus the District of Columbia, have opted out of both bans on SNAP and TANF. But a surprising number of states remain committed in some fashion to this outdated artifact of the War on Drugs.

CCRC’s report focuses on those states that have modified the federal ban by enacting their own conditions on access to benefits – 18 states for TANF and 20 states for SNAP.  In many cases these so-called “modified opt-outs” require applicants for benefits to participate in drug treatment programs and frequent drug-testing independent of any conditions imposed by the sentencing court and regardless of individual need.

“Research has found that conditions on benefits that require compliance with state-imposed behavioral requirements are counterproductive, and hardly less punitive than an outright ban,” said Margaret Love, CCRC’s Executive Director and the report’s co-author.

Some states limit the kinds of drug convictions that qualify for benefits, so that lifetime bars remain in place for drug trafficking convictions no matter how dated. Other states require waiting periods before benefits begin that frequently run from release from prison, a time when a person’s need for support is greatest.

“There is strong evidence that bans and restrictive conditions on public benefits do not improve community safety and, to the contrary, may increase crime and harm school achievement and wellbeing outcomes for children of impacted people with records,” said Juliene James, vice president of criminal justice at Arnold Ventures. “This report is a great resource for advocates and lawmakers who are interested in reforming this ineffective practice.”

The report also found that in just in the last four years eight states have taken steps to move from full or modified bans to a full opt out for both types of benefits. Pennsylvania is the only state during this period that moved the other way, from full opt out back to modified bans for both SNAP and TANF that are among the toughest in the country. In Congress, Sens. Cory Booker and Raphael Warnock have introduced a bill to repeal the SNAP ban, but there has been no similar effort in Congress to jettison the ban on TANF.

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ABOUT CCRC

The Collateral Consequences Resource Center is a non-profit organization that researches laws and policies relating to restoration of rights and criminal record relief throughout the country, whose work makes it possible to see national patterns and emerging trends in efforts to mitigate the adverse impact of a criminal record. For more information visit https://ccresourcecenter.org/.   

ABOUT ARNOLD VENTURES

Arnold Ventures is a philanthropy dedicated to tackling some of the most pressing problems in the United States. Driven by a mission to maximize opportunity and minimize injustice, it invests in sustainable change, building it from the ground up based on research, deep thinking, and a strong foundation of evidence. Arnold Ventures is headquartered in Houston, with offices in Washington, D.C., and New York City. For more information about Arnold Ventures, visit www.arnoldventures.org. 

 

We are pleased to present a new report, “Accessing SNAP and TANF Benefits after a Drug Conviction: A Survey of State Laws.” This report offers a comprehensive and up-to-date picture of the differing ways states have responded to the 1996 federal ban on access to SNAP and TANF benefits for those with a felony drug conviction, either by opting out of the ban or by modifying it, and includes illustrative maps and relevant sections of statutory text to facilitate analysis and comparison.

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The 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) imposed a lifetime ban on federal food assistance benefits (SNAP) and Temporary Assistance for Needy Families (TANF) for anyone with a drug felony conviction obtained after passage of the Act.¹ PRWORA allowed states to opt out of the ban or to modify it, and over the years all but one state has opted out of the ban or modified it for at least one of the two benefit programs. That said, fully half the states remain committed in some fashion to this outdated artifact of the War on Drugs.

Over the years there have been numerous reports critical of the policy underpinnings of the categorical ban on public welfare benefits imposed by PRWORA, and researchers have generally concluded that the ban is counterproductive even in modified form, including in criminal justice terms.² Indeed, a recent empirical study of modified versions of the SNAP/TANF bans concluded that by “introducing greater state scrutiny of recipients’ conformity to state-sanctioned behavioral norms,” modified bans are “not inherently less punitive” than full bans.³

We do not intend to dwell on the policy arguments against the PRWORA ban in this report. Rather, our purpose here is the more modest one of providing a detailed description of state laws that currently modify participation in the SNAP/TANF bans, for use by policymakers and advocates seeking further reforms.

Surprisingly, this has not been done in the more than 25 years since PRWORA’s enactment. Two recent private sector studies have identified the extent of state participation in one or both of the PRWORA bans, but their conclusions are not consistent with one another or, in all cases, with our own research.⁴ Notably, neither of these studies documents the specific features of modified bans, which can vary widely from state to state in scope and effect.

Significantly, no previous report on the SNAP/TANF bans has included statutory text that would permit analysis of the ways various states have modified them, and comparisons between and among states. Our report attempts to remedy this shortcoming.

We illustrate the national landscape of participation in the SNAP/TANF bans through a set of maps: one map shows the national landscape of participation in the PRWORA ban for all 50 states, and two additional maps show how states have modified the ban for each of the two benefit programs. A 30-page Appendix includes the text and an analysis of each state’s relevant law(s), providing additional detail about how access to benefits may be controlled differently even within the same general category of modification.

We hope that advocates in states that have not yet fully opted out of both the PRWORA bans will find this unique collection of research tools helpful as they work to complete this important law reform project. 

Preparation of “Access to SNAP and TANF Benefits after a Drug Conviction: A Survey of State Laws” was made possible by a generous grant from Arnold Ventures.

Citation: Margaret Love & Nick Sibilla, Access to SNAP and TANF Benefits after a Drug Conviction: A Survey of State Laws, Collateral Consequences Res. Ctr. (December 2023)

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On November 14, CCRC filed comments on the SBA’s proposal to roll back criminal history restrictions in its federally guaranteed business and disaster loan programs. (The SBA’s proposal is described in our post on September 15.)  We were joined with the Washington Lawyers Committee on Civil Rights and Urban Affairs and the National Community Reinvestment Coalition, and with more than sixty other organizations concerned with fair chance lending for justice-impacted entrepreneurs. A preliminary summary of comments posted is at the end of this post, and a fuller summary will be published next week.

Our comments are generally supportive of the SBA’s proposal. Their salient points are these:

• The SBA has concluded, based on existing empirical research, that there is no defensible justification for continuing to inquire into a loan applicant’s criminal history. Specifically, there is “no evidence of a negative impact on repayment for qualified individuals with criminal history records in any American business loan program.” Accordingly, the existing regulations “reflect an outdated, inaccurate structural bias against individuals with criminal history records.” The Consumer Financial Protection Bureau has reached a similar conclusion. 
• The proposed changes in the rules will be particularly beneficial for communities of color that have been adversely affected by the current rules because of systemic racism embedded in the criminal law system. A history of discrimination against Black and Hispanic business owners demonstrates the importance of ensuring that there are not unnecessary restrictions barring justice-impacted individuals from accessing capital and ultimately building wealth for themselves and their communities.
• Reducing barriers to successful entrepreneurship is aligned with the SBA’s mission of strengthening the economy. As the SBA noted, “entrepreneurship provid[es] an important and distinct avenue for economic stability” for justice-impacted individuals given the “persistent stigma from employers who may decline to hire people with criminal history records.”
• The SBA has proposed not only to revise its formal rules, but also to omit from application forms inquiries about business owners’ criminal history.  Last spring, it revised its Standard Operating Procedures to discontinue the requirement that applicants reporting a prior felony conviction submit to an FBI background check and undergo a “character determination” by the SBA. Statistics cited by the SBA in its proposed rule appear to show that the unexpected prospect of referral to the FBI for investigation may have discouraged many justice-impacted business owners from completing the application process.  

While generally commending the SBA’s proposal, we also urge the agency to reconsider its decision to continue categorical ineligibility for a business if any one of several owners is incarcerated, even if other owners are fully able to managing the business successfully:  

We understand that this remaining criminal history restriction is based on an assumption that a confined person will likely “lack the ability to manage and execute day-to-day business operations,” and therefore be unable to satisfy the statutory requirement that SBA-guaranteed loans be “of such sound value or so secured as reasonably to assure repayment.” While this assumption may have some validity in the case of sole proprietors who are incarcerated, the collateral consequence that the SBA proposes to retain applies to any 20% owner of a business. Thus, a business owned and operated by several individuals could be disqualified based on one owner’s imprisonment, even if the other owners were fully able “to manage and execute day-to-day business operations.” 

For example, we can imagine a situation where a family-owned business could be effectively managed by four family members who were not incarcerated, even if the fifth family member owner was.  Accordingly, we question whether it makes sense, in terms of the statutory concern for “sound value,” to retain this consequence as a categorical basis for ineligibility. To disqualify an entire business because of the circumstances of one of its several owners appears unnecessary and punitive.

We propose that the SBA consider loosening the categorical exclusion to allow case-by-case decisions when some owners of the business who are not in prison are fully capable of managing the business and securing the value of the loan, even though one owner may be serving a prison sentence. If the disqualifying circumstances of one owner can disqualify the entire business without regard to practicalities, this consequence appears rooted in unwarranted assumptions about an individual’s “just deserts” as opposed a concern for the “sound value” of the loan.

Finally, while we recognize that the proposed rules revisions are a significant change, we urge the government to go further and to encourage private lenders to follow suit. We believe that the SBA’s regulations can set the standard for private lenders, noting that “some financial institutions look to SBA’s rules in forming their own internal policies on lending to business applicants with criminal histories.” Accordingly, we urge the SBA to do more to explicitly and directly encourage intermediary lenders not to discriminate against those with criminal records. The commentary to the proposed regulation states that the SBA does not intend to affect a lender’s ability to conduct criminal history background checks according to their own policies, as long as a policy complies with the Equal Credit Opportunity Act and other applicable laws. However, we think that the SBA would do better to encourage lenders to revisit their own practices regarding the use of criminal history in light of SBA’s finding that “there is no evidence of a negative impact on repayment for qualified individuals with criminal history records in any American business loan program.” That is, we believe that the SBA should encourage lending institutions to limit disqualification based on criminal history to cases where an applicant is unable to provide assurances of sound value because they are incarcerated.

Preliminary summary of comments posted:

Almost all of the 18 published comments – including seven that were not signed – supported the SBA’s effort to open access to federally guaranteed loans to entrepreneurs with a criminal history.

One commenter joined our recommendation that incarceration of an owner – including one of several owners – should not be grounds for automatic disqualification.

Several commenters, noting the SBA’s specific recognition that lending institutions could continue to apply their own record-based disqualification standards in deciding who would qualify for a federally guaranteed loan, urged the SBA to provide additional guidance and standards to ensure its new policy posture would influence if not prevail in the marketplace.

For example, a comment filed by the Small Business Majority, which CCRC joined, specifically urged the SBA for additional clarity on the impact of lifting these restrictions as they flow down to lending institutions, in the hope that “the proposed rule will create a domino-effect among banks and other lending institutions to reevaluate their underwriting standards to reflect our 21st century economy:”

Since the banking system has historically discriminated against marginalized communities, we encourage the SBA to work with and uplift institutions that are willing to reassess their underwriting standards (or already have) to mirror the changes in this proposed rule. This would enhance the impact of this rule on the small business ecosystem.  

We expect to publish a summary of the comments received shortly after Thanksgiving, and hope to organize a conference in the spring to discuss how lending institutions can implement the SBA’s new policy on considering an owner’s criminal history.

On September 15, the SBA published for comment a series of rule changes eliminating criminal record restrictions in all of its various federally guaranteed business and disaster loan programs, including rules making business owners ineligible for loans if they are on parole or probation or under indictment.  Application forms and procedures will no longer inquire about a business owner’s criminal history, with one exception: Owners and principal employees who are “actually incarcerated” will remain ineligible. Comments on the proposed rule must be filed by November 14, 2023.

The proposed new rule follows the agency’s removal last spring of “character” as a loan criterion in the 7(a) and 504 programs, and its amendment of the applicable Standard Operating Procedures (SOP) to eliminate the “character determination” through which business owners with a felony record had been denied access to federally guaranteed loans.  These earlier changes were described in our post of September 7.

The comments accompanying the proposed rule revision explain that it is “narrowly tailored to reduce barriers to access for qualified justice-impacted small business owners.” While the SBA will no longer verify an applicant’s criminal history (other than the fact of current incarceration) the rules changes do affect a lending institution’s ability to do so, “in accordance with their own policies, provided they do so in a manner that complies with the Equal Credit Opportunity Act and other relevant laws.”

Significantly, in proposing these new and important regulatory changes, the SBA relies upon empirical research to emphasize that criminal history has not been shown to have any negative impact on creditworthiness:

Importantly, SBA reviewed the relevant research and found no evidence of a negative impact on repayment for qualified individuals with criminal history records in any American business loan program. This lack of data demonstrates that continuing to rely on this restriction for that purpose would contradict the available evidence and although the restrictions may have been originally put in place with the goal of protecting program performance, the lack of data suggests continuing to rely on this restriction would reflect an outdated, inaccurate structural bias against individuals with criminal history records.

 

The SBA again relies upon research in stressing the policy benefits of its regulatory changes:

Specifically, research demonstrates that employment increases success during reentry and decreases the risk of recidivism, with entrepreneurship providing an important and distinct avenue for economic stability given persistent stigma from employers who may decline to hire people with criminal history records.

It is refreshing to see this federal policy grounded in factual research instead of unfounded assumptions about the risk of extending opportunities to justice-affected individuals, as so many other federal policies are.

At the same time, we remain concerned that, without the SBA acting in a screening capacity, lending institutions will themselves conduct background investigations of loan applicants, and apply record-related restrictions that mirror those previously applied by the SBA, or perhaps ones even more restrictive.  We noted in a post last spring, in connection with the SBA’s deletion of “character” as a loan criterion:

[T]he good news is that it appears the SBA will no longer bar banks from making loans to otherwise qualified applicants based on their criminal history. The less good news is that the agency seems to expect banks and other lending institutions to step into the void and apply their own restrictions on loans based on an applicant’s criminal history.

 

We expect to post further analysis of these important proposed SBA actions.