Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. A bipartisan group of senators and the Biden administration are about to clash over the future of fintech lending. At issue in the dispute: Whether the SBA can proceed with a plan, heralded by Vice President Kamala Harris, that would let algorithm-wielding financial technology startups play a bigger role in issuing government-backed small business loans — a program that’s dominated by traditional lenders. The administration’s plan will be challenged this afternoon by the Senate Small Business Committee. The panel is expected to approve a bill by Chair Ben Cardin and ranking member Joni Ernst that would rein in the SBA changes, which also include a loosening of underwriting standards. The SBA is pushing back (more on that below). For the last several months, Biden officials have framed their SBA revamp as a way to direct more financing to entrepreneurs — including people of color — who lack access to loans. But the new rules have triggered fierce opposition from senior lawmakers. They’ve raised concerns that the SBA lending program at issue would be exposed to financial losses from riskier loans and that the SBA isn’t prepared to police nonbank fintech firms that don’t otherwise have a federal regulator. The banking lobby has been urging Congress to walk back the SBA’s plan. The legislation from Cardin and Ernst would discourage fintechs in a variety of ways. It would cap and slow their entry into the SBA’s flagship “7(a)” lending program and beef up regulatory requirements. It includes a carveout for nonbank lenders to offer smaller loans on an expedited basis, but the loans would be backed by a smaller government guarantee. It would also undo an attempt by the SBA to ease restrictions on loans to businesses affiliated with larger corporate entities. Cardin in a statement to MM described the bill as a way to ensure “adequate oversight for SBA while responsibly enlarging the [Small Business Lending Company] program, codifying sensible underwriting and affiliation standards, and incentivizing small dollar lending.” Cardin, who is retiring, said the other big element of the bill — making permanent the SBA’s Community Advantage Program — “something I have long fought for to meet the capital needs of underserved borrowers.” An Ernst spokesperson was a bit more provocative, citing accusations that some fintechs facilitated PPP loan fraud and warning that “allowing an unlimited number of fintechs into SBA programs, while at the same time loosening underwriting standards, is a recipe for disaster.” The Biden administration isn’t rolling over. An SBA spokesperson said the agency is concerned about provisions in the bill that would “weaken access to credit for small business owners by reducing lender options in the marketplace and making it more difficult to qualify for an SBA loan.” The SBA plans to keep working with lawmakers to “improve” the legislation. The SBA will likely have to face off against the banking industry, too. The Independent Community Bankers of America — which lobbies for online lenders to face regulatory scrutiny comparable to banks — said it will try to ensure the legislation “receives strong support.” Absent a last-minute inclusion in the annual defense bill, which appears unlikely, look for the fight to play out over the next several months. The leaders of the House Small Business Committee also want to pass legislation to rein in the SBA changes and are expected to have their own ideas of how to do so. “The dynamics of the Senate are quite different than that of the House,” House Small Business Chair Roger Williams told MM in a statement. “We are committed to working on policy solutions to address these concerning changes to the SBA’s flagship lending program and will independently evaluate any agreement that is made in the Senate.” It’s Wednesday — Send tips, please: Zach Warmbrodt, Sam Sutton.
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