House committee ‘gravely concerned’ with expanded nondepository 7(a) program participation

House Small Business Committee Chairman Roger Williams (R-Texas)—joined by subcommittee chairmen—said Wednesday they were “gravely concerned” with the Small Business Administration’s ability to handle its expanded responsibility to oversee the 7(a) program in light of the agency’s “failures under the COVID lending programs.”

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 since 1982, but in two final rules issued earlier this month, SBA removed both the cap and the nine-factor underwriting standard for 7(a) loans found in existing regulations. In a letter to the agency, the lawmakers asked SBA several questions about its internal controls to provide effective oversight to new nondepository lenders, including whether it is planning on improving an existing data analytics program. They also noted that in response to questions at an April 19 hearing, SBA’s inspector general expressed concerns about nondepository lenders lacking internal control structures or proper oversight and monitoring mechanisms.

In its response to the rule changes, the American Bankers Association urged 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.