The National Association of Federally-Insured Credit Unions (NAFCU) is urging the Small Business Administration to pause or rescind a recent proposed rule change related to one of its loan programs.
In a letter to the SBA, NAFCU Regulatory Affairs Counsel James Akin asked the agency to rescind or pause rulemaking related to the 7(a) Loan Program until its impact in relation to Small Business Lending Companies (SBLCs) is better understood.
While Akin said NAFCU supports certain portions of the proposed rule, particularly that it “reduces burdens and costs on credit union SBA lenders.” However, NAFCU officials are concerned with the timing of the proposal.
Akin noted in his letter that shortly after issuing this proposal, “the SBA published a notice of proposed rulemaking to lift the moratorium on licensing new SBLCs and add a new type of entity called a Mission-Based SBLC (SBLC Proposed Rule).”
The proposed rescission of the moratorium on the licensing of new SBLCs would allow non-depository institutions, including fintechs, to apply to participate in the SBA’s 7(a) lending program. Thus, NAFCU is requesting that the SBA delay a final rule for both proposals until “it has had time to fully consider the impacts of each rule upon the other, and their combined impacts.
Akin also touched on the portion of the proposal that details a new underwriting standard, wherein “lenders must underwrite SBA loans using the same appropriate and prudent, generally acceptable commercial credit analysis processes and procedures used for their similarly-sized, non-SBA guaranteed commercial loans where they bear all risk of loss in the case of loan default.”
In response, Akin noted that non-depository lenders are not subject to the same level of underwriting requirements as credit unions, which raises concerns due to the uneven playing field between credit unions and fintechs.
In addition, NAFCU’s general counsel expressed NAFCU’s concern with involving the SBA Administrator in the process, as the proposal would give the Administrator “the ability to make final reconsideration of denial of a loan application or loan modification request.”
Ultimately, Akin wrote that the proposal should not be evaluated in a vacuum and should be considered along with the SBA’s proposal to lift the moratorium on licensing new SBLCs.