Senate legislation seeks to curb the Small Business Administration's fintech lending initiative
In a move aimed at addressing concerns over the potential weakening of guardrails in the Small Business Administration's (SBA) 7(a) program, the Senate Small Business and Entrepreneurship Committee has passed a bill on Wednesday.
The bill, sponsored by Small Business Committee Chairman Sen. Ben Cardin and the panel's ranking member Sen. Joni Ernst, seeks to rein in the Biden administration's efforts to grant fintechs access to a government-backed small-business loan program.
Vice President Kamala Harris has touted the expansion as increasing lending in underserved markets. However, lawmakers and bank trade groups have raised concerns that the new rule could weaken the 7(a) program's guardrails. Sen. Joni Ernst, in particular, has compared the Biden administration's revamp of the SBA program to the 2008 mortgage crisis and the student loan crisis, stating they left borrowers 'buried in debt they cannot afford.'
Bank trade groups criticize the decision to open the program to new Small Business Lending Companies (SBLCs), citing reports linking fintechs to Paycheck Protection Program fraud. Ernst expresses concern that allowing an unlimited number of fintechs into the SBA's small-business lending company program could lead to a disaster for lenders, taxpayers, and small businesses.
The bill also enhances oversight of the program's nonbank participants and aims to limit the number of new nonbank entrants allowed into the 7(a) lending program. The compromise negotiated by Sen. Ernst and Sen. Ben Cardin includes the provision to purchase licensing rights.
The SBA defends its decision to open the program to new SBLCs, stating it conducted in-depth assessments to ensure it has the capacity to provide oversight and servicing to its entire portfolio of lenders, including any potential additional SBLCs. Ernst is proud of the compromise she negotiated with Sen. Ben Cardin, which restores prudent underwriting, prohibits a massive expansion of the SBLC program, and implements anti-money laundering and know-your-customer requirements.
The bill further focuses on Commercial, Regulations & Policy, Risk, and Fintech, reflecting a balanced approach to the issue. The move allows fintechs and other nondepository lenders to apply for a Small Business Lending Company license, but with strict regulations in place to protect the integrity of the program.
The bill drafted by Sen. Tim Scott, when he was committee chair, also limited Fintechs' access to the SBA small business lending system. The compromise reached by the senators is a significant step towards maintaining the stability and security of the 7(a) program while still encouraging lending in underserved markets.
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