SBA Sued Over Rule Excluding Felons From Loan Program

Summary

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Podcast Summary: WSJ Your Money Briefing

Episode: SBA Sued Over Rule Excluding Felons From Loan Program
Date: June 17, 2020
Host: J.R. Whalen
Featured Guest: Yuka Hayashi, Wall Street Journal Reporter

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Episode Overview

This episode delves into the controversy surrounding the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) rules, specifically the exclusion of business owners with felony convictions from pandemic relief funds. The discussion centers on a recent lawsuit filed by the ACLU and other civil rights organizations against the SBA, the broader impact of these restrictions, recent changes to eligibility rules, and the reopening of other aid programs.

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Key Discussion Points & Insights

1. Who is Being Excluded?

• Eligibility Changes and Scope of Exclusion:
  • The SBA's current rule excludes:
    • Individuals with felony convictions within the past year.
    • People currently on probation.
    • Those charged with, but not yet convicted of, a criminal offense—including relatively minor offenses.
  • “It excludes people who have felony convictions that were made within the past year, also possibly affecting a lot more people. It excludes people who are on probation and also people who are charged with criminal offense but have not been convicted as they wait for their day in court.” (Yuka Hayashi, 01:47)

2. Civil Rights Lawsuit and Its Significance

• Purpose of the Lawsuit:
  • The civil rights groups are not seeking monetary damages.
  • Their main concern is the disproportionate impact on business owners from underserved communities, particularly Black and Latino entrepreneurs.
  • “They have been particularly concerned about the exclusion of people with certain criminal records because they disproportionately affect business owners in underserved communities, particularly black and Latino business owners.” (Yuka Hayashi, 01:00 & 02:30)

3. Rationale and Origin of the Rule

• How Did These Restrictions Emerge?
  • The exclusion draws from pre-existing SBA programs and rules, which were carried over to the PPP.
  • Additional restrictions were layered onto PPP.
  • Controversy exists over whether the SBA had the Congressional authority to impose these restrictions on PPP, as the establishing law did not explicitly permit them.
  • “Part of the rule was part of the SBA loan program that preceded the PPP, but was used as a basis for PPP. Then other restrictions were added later. And some members of Congress have complained that the law that established the PPP did not allow the SBA to impose those types of restrictions.” (Yuka Hayashi, 02:49)

4. Recent Rule Changes

• Easing of Eligibility Restrictions:
  • Last week, the SBA shortened the exclusion period for applicants with felony convictions due to advocacy from business groups and lawmakers.
  • The changes are part of a broader effort to improve access to relief funds for underserved communities.
  • “They made a change to the rule shortening the exclusion period for those with past felony convictions. And this happened on Friday, last week amid concerns voiced by business advocates and lawmakers that that kind of rule affected disproportionately small business owners in underserved communities, including a number of people of color.” (Yuka Hayashi, 03:21)

5. Reopening of SBA Aid Programs

• Economic Injury Disaster Loan Program (EIDL):
  • In addition to PPP, the SBA operates EIDL, which had been closed due to overwhelming demand but was recently reopened to new applicants.
  • EIDL differs from PPP by offering unique features.
  • “This one is a smaller, but it has some features that are not part of PPP. So this program has turned out to be pretty popular. And because there was so much demand, the SBA ran out of money and had the program closed for weeks. And finally they said that they're going to reopen it.” (Yuka Hayashi, 04:10)

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Notable Quotes & Memorable Moments

• On Disproportionate Impact:

  • “They have been particularly concerned about the exclusion of people with certain criminal records because they disproportionately affect business owners in underserved communities, particularly black and Latino business owners.”
    — Yuka Hayashi, (01:00 & 02:30)

• On SBA’s Rule Origin and Congressional Authority:

  • “Some members of Congress have complained that the law that established the PPP did not allow the SBA to impose those types of restrictions.”
    — Yuka Hayashi, (02:49)

• On SBA’s Recent Rule Change:

  • “They made a change to the rule shortening the exclusion period for those with past felony convictions. And this happened on Friday, last week amid concerns voiced by business advocates and lawmakers…”
    — Yuka Hayashi, (03:21)

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Timestamps for Key Segments

• 00:35 — Episode introduction and main issue framed
• 01:47 — Specifics on who the SBA excludes under current rules
• 02:30 — Significance of the civil rights lawsuit and affected groups
• 02:49 — Discussion on why the rule is in place and Congressional concerns
• 03:21 — Details on recent changes made to the rules
• 04:10 — Update on Economic Injury Disaster Loan Program reopening

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Conclusion

This succinct episode spotlights a major controversy in the federal pandemic aid response: the exclusion of people with criminal records from crucial small business relief programs. Reporter Yuka Hayashi brings clarity to the rules, the legal and legislative concerns, recent eligibility changes, and the broader impact on Black and Latino business owners. The episode highlights the tension between risk management by the SBA and calls for equitable access to desperately needed pandemic relief.

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Transcript

[A]

Still running global payroll like a relay race. Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.

[B]

Here's your money briefing for Wednesday, June 17th. I'm J.R. whalen for the Wall Street Journal. Ever since the Small Business Administration rolled out its paycheck protection program, it's been making changes to ensure that loans are getting to the places that need them. But there's one group that's still left out, business owners with felony convictions. This week, the ACLU and other civil rights groups sued the SBA over the matter.

[C]

They have been particularly concerned about the exclusion of people with certain criminal records because they disproportionately affect business owners in underserved communities, particularly black and Latino business owners.

[B]

That's our reporter Yuka Hayashi coming up. She'll tell us what Congress has to say about the exclusions and what the SBA has done to address the issue. This week, civil rights groups sued the Small Business Administration over its decision to exclude business owners with criminal records from getting pandemic relief funds. Our reporter Yuka Hayashi is with us with details. So, Yuka, who is specifically excluded from accessing funds under the rule?

[C]

The SBA recently made a change to its rule, and under the latest rule, it excludes people who have felony convictions that were made within the past year, also possibly affecting a lot more people. It excludes people who are on probation and also people who are charged with criminal offense but have not been convicted as they wait for their day in court. And this could affect people who are charged with relatively minor offense as well.

[B]

Now, the civil rights groups aren't seeking monetary damages here, but what's the significance of this lawsuit?

[C]

They have been particularly concerned about the exclusion of people with certain criminal records because they disproportionately affect business owners in underserved communities, particularly black and Latino business owners.

[B]

Is there any indication as to why this rule is in place?

[C]

Part of the rule was part of the SBA loan program that preceded the ppp, but was used used as a basis for ppp. Then other restrictions were added later. And some members of Congress have complained that the law that established the PPP did not allow the SBA to impose those types of restrictions.

[B]

But the SBA did ease some eligibility restrictions for applicants with past felony convictions, right?

[C]

Yes, that's right. They made a change to the rule shortening the exclusion period for for those with past felony convictions. And this happened on Friday, last week amid concerns voiced by business advocates and lawmakers that that kind of rule affected disproportionately small business owners in underserved communities, including a number of people of color. It was actually part of the administration's broader effort to give better access their rescue funds for people in underserved communities.

[B]

And this week, the SBA reopened another small business aid program to new applicants.

[C]

So the SBA has two large programs aimed at helping small businesses weather the impact from the coronavirus crisis. One is the ppp, which is a much larger program. The other one is called the Economic Injury Disaster Loan Program. This one is a smaller, but it has some features that are not part of ppp. So this program has turned out to be pretty popular. And because there was so much demand, the SBA ran out of money and had the program closed for weeks. And finally they said that they're going to reopen it.

[B]

All right. That's Wall Street Journal reporter Yuka Hayashi. Yuka, thanks for coming on the show.

[C]

Oh, thanks for inviting me.

[B]

And that's your money briefing. I'm J.R. whelan for the Wall Street Journal.

[A]

Deal replaces fragmented payroll vendors with one Global system. No third parties. Hire, manage and pay teams in 150 plus countries. Operate like a local everywhere. Visit del.com WSJ.