ABA Comment Letter re: SBA Proposed Rules to Lift Moratorium on 7(a) Nondepository Lenders and Make Other Changes

Dear Administrator Guzman:

The American Bankers Association (ABA) appreciates the opportunity to comment on the Small Business Administration’s (SBA) proposal to lift the moratorium on the number of nondepository institutions that may make loans under SBA’s Section 7(a) program (Moratorium Proposed Rule) and SBA’s separate proposal to amend various regulations governing the agency’s 7(a) and 504 loan programs (Affiliation Proposed Rule). The 7(a) program and 504 loan program (collectively, the 7(a) Program) are loan guarantee programs designed to encourage lenders to provide loans to small businesses that might not otherwise have access to financing. Due to the interconnectivity of the issues presented by these proposals, ABA is filing one comment letter that responds to both proposals.

I. Summary of Comment

ABA supports the mission of the 7(a) Program to encourage lenders to provide loans to underserved small businesses. As currently structured, the 7(a) Program is meeting the lending needs of small businesses. Over the past several years, demand for 7(a) loans has frequently met or exceeded the amount of funds appropriated for the program.

However, ABA opposes SBA’s proposal to lift the moratorium on the number of non-depository – i.e., fintech – lenders in the 7(a) Program without ensuring that new 7(a) lenders maintain robust compliance programs and without demonstrating that SBA has the staff and resources to supervise these new lenders. New fintech entrants to the program are not subject to Federal prudential supervision, and therefore, are not required to comply with Bank Secrecy Act and Anti-Money Laundering requirements, concentration caps, safety and soundness parameters, stress test parameters, and other regulations that promote prudent lending. Individuals with views as diverse as ABA’s CEO, Rob Nichols, and Dennis Kelleher, president and CEO of the left-leaning nonprofit Better Markets, agree that “nonbanks pose a significant and increasing risk to our financial system that needs to be better understood and regulated.” Yet, recent reports by SBA’s Office of Inspector General found that SBA has provided “limited . . . oversight” of non-depository lenders in the agency’s programs.

We are particularly concerned that SBA proposes to lift the moratorium while simultaneously proposing, in the Affiliation Proposed Rule, to loosen lending standards for 7(a) loans. This may negatively impact the performance of loans made under the 7(a) Program, threaten the integrity of the program, and lead to increased borrower and lender fees. As Senator Benjamin Cardin (DMD) recently stated, existing “[g]uardrails are essential,” in that they “protect borrowers, the lenders and the integrity of the [7(a)] program.”8 We urge SBA to maintain the existing ninefactor lending criteria for underwriting 7(a) loans.