ABA disappointed in decision to lift 7(a) lender moratorium

In a statement today, American Bankers Association President and CEO Rob Nichols said the association was disappointed with the Small Business Administration’s decision to lift the moratorium on the number of nondepository lenders in the 7(a) program without ensuring that those new participants will have to meet the same high regulatory compliance and underwriting requirements as banks.

Banks and other lenders provide loans to underserved small businesses through the 7(a) program. The number of nondepository institutions in the program has been capped at 14 institutions for decades, but in two final rules issued this week, SBA removed both the cap and the nine-factor underwriting standard for 7(a) loans found in existing regulations. Nichols noted banks of all sizes have played a significant role in helping the program exceed its lending goals year after year. It is not clear that SBA has the staff and resources to supervise these new lenders, he said.

“Unlike banks, new fintech entrants to the program are not subject to federal prudential supervision, and are not required to comply with Bank Secrecy Act and anti-money laundering rules, safety and soundness requirements, stress testing and other regulations that promote prudent lending,” Nichols said. “We urge Congress to closely examine SBA’s decision, particularly in light of recent reports that found limited SBA oversight of nondepository lenders in the agency’s existing programs and significant fraud linked to loans originated by fintech firms during the SBA’s Paycheck Protection Program.”