The Consumer Bankers Association (CBA) is urging the U.S. Small Business Administration (SBA) not to lift the moratorium on the number of non-federally regulated depository institutions that can make loans under the agency’s signature 7(a) lending program.
The SBA issued a proposal late last year to lift the moratorium, which would allow nonbank fintechs to make loans through the program. The idea is to expand access to credit for underserved communities, but CBA argues that the proposal would hinder those efforts.
“We believe [the proposal] will not actually help minority and underserved communities and could unintentionally harm the very borrowers that SBA is trying to aid. The SBA would be better served to work with Congress to adjust overburdensome lending requirements and low guarantee levels to existing programs, ensuring more low-dollar loans to those small business borrowers in need,” CBA officials wrote to the SBA leadership.
CBA points out that through the proposed rule, SBA would serve as primary regulator to a possibly unlimited number of additional lenders who are not held to the same federal oversight standards as traditional banks. This would create added risks, CBA said.
“While SBA does review and monitor lenders’ SBA loan practices and performance, it does not attempt to replicate the extensive supervisory framework that […] governs all federally regulated lender behavior. […] A complete absence of any federal regulatory standards for new unregulated entities is deeply worrisome and out of line with prudent lending safeguards,” CBA General Counsel David Pommerehn wrote.
Pommerehn adds that some fintechs and other nonbank lenders have been subject to increased federal scrutiny.
“Pressing pause on allowing these types of entities into the SBA’s flagship loan program is more than reasonable. This deferment would allow Congress and SBA to better understand the impact of these criminal investigations and reports on fintech’s damaging and concerning behavior,” CBA’s general counsel wrote.