Sens. Cardin, Ernst urge SBA to rework proposed loan underwriting rules

U.S. Sens. Ben Cardin (D-MD) and Joni Ernst (R-IA) are urging the Small Business Administration (SBA) to rework proposed changes to its loan underwriting program that would allow financial technology companies to participate as lenders.

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The lawmakers were both opposed to two proposed SBA rules: The Affiliation and Lending Criteria for the SBA Business Loan Programs, 87 FR 64724, and Small Business Lending Company (SBLC) Moratorium Rescission and Removal of the Requirement for a Loan Authorization, 87 FR 66963. The senators said these proposed rules would loosen key 7(a) program requirements and remove critical safeguards designed to prevent fraud and abuse.

Specifically, they said it would allow an unlimited number of non-bank financial technology companies, or fintechs, to participate as lenders. The lawmakers contend that many of the fintechs were among those responsible for issuing billions of dollars in what turned out to be Paycheck Protection Program (PPP) fraud.

“The proposed rules establish broad and sweeping changes that do not reflect congressional input or authorization. In particular, changes to the current underwriting standards have the potential to make the program vulnerable to predatory lending practices,” the senators wrote in a letter to SBA Administrator Isabella Casillas Guzman.

Cardin is the chair of the Senate Small Business Committee, while Ernst is the ranking member.

“The sweeping changes contained in these two rules would substantially overhaul SBA’s lending programs by permitting new program participants and changing the current guardrails of the programs, something that comes dangerously close to authorizing through the regulatory process,” they added. “Let us be clear, Congress has not authorized any loosening of prudent underwriting or affiliation standards.”

The senators urged the SBA to work with Congress on a solution.

“We urge diligence and restraint from the agency. SBA must strongly consider prudent guardrails that can be demonstrated to be successful, before making changes that could impact the fiscal integrity of overall SBA lending programs. We urge the SBA to work closely with congressional committees. The SBA should address these concerns before publishing final rules,’ the senators wrote.