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NAFCU warns Senate Small Biz Committee about consequences of SBA’s changes to 7(a) loan program
NAFCU Vice President of Legislative Affairs Brad Thaler wrote to the Senate Small Business Committee Tuesday ahead of its Small Business Administration (SBA) oversight hearing today, detailing concerns about the administration’s final rules to expand its lending networks.
“As champions of financial inclusion, credit unions have been at the forefront of efforts to increase access to personal and small business financial services for underserved communities,” wrote Thaler. “At the same time, NAFCU has worked tirelessly to ensure that non-depository financial institutions such as fintechs operate on a level playing field with credit unions to protect consumers and small businesses by instituting appropriate financial safeguards and compliance processes.
“Unfortunately, we are concerned that two recent actions by the SBA may end up running counter to both of these efforts by opening the programs to more underregulated competition,” he added.
The SBA in April issued two final rules: the first to change regulations governing its 7(a) and 504 loan programs related to lending criteria, loan conditions, affiliation standards, and more, and the second to amend its loan program regulations to lift the moratorium on licensing new small business lending companies (SBLCs) and add a new type of entity, called a “Community Advantage SBLC.”
“While these are two separate rules, they would have the combined effect of loosening 7(a) lending standards at the same time as opening that program to entities already proven to be more susceptible to fraud than traditional depository institutions overseen by federal prudential regulators,” wrote Thaler.
Though NAFCU offered support for provisions of the proposed rule that would reduce costs and burdens on credit union SBA lenders, the association raised concerns about loosening guardrails for non-depository lenders that lack a prudential regulator – potentially increasing risks to the loan programs and creating an uneven playing field between credit unions and fintechs.
NAFCU previously asked the agency to pause both rulemakings to allow for a better understanding of the rules' separate and collective impacts. The SBA responded to these concerns by noting that SBA Supervised Lenders such as SBLCs that do not make non-SBA guaranteed commercial loans will need to submit their credit policies, including credit scoring models, for review by SBA prior to approval to participate in the program.
Of note, the House Small Business Committee wrote to the SBA Office of Capital Access to raise concerns over the administrations changes to the 7(a) lending program.
NAFCU will monitor today’s hearing and continue to advocate to ensure the safety and soundness of credit unions’ ability to provide access to capital for Main Street small businesses.