Financial technology companies expressing concern over the proposed Senate Small Business Administration bill
The Senate Small Business and Entrepreneurship Committee recently passed the Community Advantage Loan Program Act of 2023, a bill aimed at enhancing oversight of nonbank participants in the Small Business Administration's (SBA) lending program.
The bill, sponsored by Small Business Committee Chairman Sen. Ben Cardin and the panel's ranking member Sen. Joni Ernst, has sparked concerns among fintech advocacy groups. They argue that the legislation could limit competition in the market and impose unfair and overly burdensome regulations on participating nonbanks.
The SBA's recent decision to end a 40-year moratorium on admitting new nonbank entrants to its flagship 7(a) loan program has been praised by fintechs and touted by Vice President Kamala Harris as a step to increase lending in underserved markets. However, the Community Advantage Loan Program Act of 2023, if passed, would limit the number of new nonbank entrants allowed into the program.
The bill would enhance oversight of the program's nonbank participants, which are categorised as Small Business Lending Companies (SBLCs). SBLCs are already subject to stringent supervision by the SBA, including safety and soundness exams at the time of application and at least once every two years. The bill, however, imposes a restriction on only three new SBLC licensees, limiting the speed and efficiency in which they can process loans, while exempting the other 2,200 lenders in the program.
The bill also includes a provision for 'stress testing', a costly and unnecessary regulatory requirement on only SBLCs, while exempting the other 2,200 lenders in the program. This has led to concerns about the potential for uneven regulation within the SBA's lending program.
The SBA has defended its decision to expand the program, stating that 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. Fintechs that engage in small business lending are subject to licensing and registration requirements, and for those offering services through partner banks, they are overseen by their bank partners and are subject to third-party risk management guidance issued by federal banking agencies.
A letter was sent to Sen. Ernst and Cardin by the Electronic Transactions Association, Financial Technology Association, Innovative Lending Platform Association, and Small Business Finance Association, urging them to amend the legislation to address these concerns. The fintech advocacy groups that addressed an open letter to Senators Cardin and Ernst are not specified in the provided search results.
Some lawmakers and bank trade groups argue that the revamp of the program would weaken its guardrails by allowing less-regulated fintech lenders to issue the government-backed loans. State regulators conduct examinations, impose capital and liquidity requirements, define permissible investments, and enforce customer protection laws, providing a crucial layer of protection in the lending industry. The fintech industry's rapid growth and increasing involvement in small business lending highlight the need for careful consideration and balanced regulation.
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