SBA loans: priority for existing business customer
Posted By: M&M
SBA loans: priority for existing business customer - 03/31/20 01:22 PM
We are hearing that many bank are planning to only take SBA loan applications for existing business customers. For those that aren’t limiting it to only existing customers, they’re planning on prioritizing existing customers’ applications before applications for non-customers. I have two questions-
1) How can they be only accepting applications for existing customers, given that under Reg B, we cannot discourage applicants from applying?
2) Where they are prioritizing customer applications before non-customer applications, doesn’t this present a potential fair lending issue?
Thanks for your feedback on this.
Posted By: rlcarey
Re: SBA loans: priority for existing business customer - 03/31/20 01:45 PM
Been a while since I have been involved in SBA lending, but I think that they would want to review 13 CFR 120.410 Requirements for all participating Lenders fairly carefully. If you are a participating SBA lender, I don't think you get to pick and choose your clients.
Posted By: M&M
Re: SBA loans: priority for existing business customer - 03/31/20 02:19 PM
Thanks Randy. I read that provision of the SBA rules, and I don't see that it explicitly states they can't do this.
Posted By: rlcarey
Re: SBA loans: priority for existing business customer - 03/31/20 02:47 PM
I guess it depends on how you read the following:
§ 120.410 Requirements for all participating Lenders.
A Lender must:
(a) Have a continuing ability to evaluate, process, close, disburse, service, liquidate and litigate small business loans
(b) Be open to the public for the making of such loans
Refusing or delaying applications still presents the two issues that you originally brought up.
Posted By: M&M
Re: SBA loans: priority for existing business customer - 03/31/20 03:26 PM
Yep- I agree with you on that. i'm hoping the rules for the SBA loans has some clarity in there around this...
Posted By: Mel in WA
Re: SBA loans: priority for existing business customer - 04/05/20 04:11 AM
The SBA has basically indicated the program is "first come, first served". I understand we cannot refuse or delay processing applications for non-customers. However, we have considered splitting the queue into customers/non-customers to streamline the process, since customers already have information on file.
Does anyone see a fair lending issue if the queue is organized each day in order to be efficient?
What are others doing to handle the workload? It's overwhelming.
Posted By: Rocky P
Re: SBA loans: priority for existing business customer - 04/05/20 12:45 PM
You can process both simultaneously. Customers would naturally be processed faster since you have information.
Posted By: David Dickinson
Re: SBA loans: priority for existing business customer - 04/09/20 04:11 PM
You can't refuse applications from non-customers but I believe you can deny them for being a non-customer. You would owe them an AAN. If they want to open a deposit account so they can become a customer, tell them you're not opening any deposit accounts at this time. The point is that the SBA has limited these loans in dollar volume and it's a first come, first serve. I would take care of my customers first.
Posted By: David Dickinson
Re: SBA loans: priority for existing business customer - 04/09/20 04:12 PM
I want to add on: this isn't a Fair Lending issue. You're not illegally discriminating based on a protected class.
Posted By: Questions
Re: SBA loans: priority for existing business customer - 04/09/20 06:55 PM
Posted By: David Dickinson
Re: SBA loans: priority for existing business customer - 04/13/20 07:21 PM
I've read that opinion. That's all it is - an opinion. I disagree. Sad that banks are trying to help their customers and some are playing the "victim card" and suing them. Sadly, this will cause banks lots of money trying to defend themselves.
So yo have 2 options:
1) Be scared of a potential lawsuit, try to help everyone and your customers may get left out. Your customers will also be upset.
2) Do what Reg B allows and work with your customers first but run the potential risk of a frivolous lawsuit like BofA is facing.
Posted By: Rocky P
Re: SBA loans: priority for existing business customer - 04/13/20 11:47 PM
I would be concerned potentially with the “effects testâ€, or “disparate impactâ€, especially if the non customers are unbanked. Generally, a greater proportion of minorities are unbanked than non-minorities.
If the bank sets the criteria as customers, they may be challenged, especially if the ones not considered are minority businesses. IOW, although not discriminatory on its face, since it applies to all, the policy may place a greater effect or burden on protected class (businesses) since a greater proportion are generally unbanked.
Posted By: Rocky P
Re: SBA loans: priority for existing business customer - 04/13/20 11:49 PM
Sorry cannot edit from a tablet, but the above is my personal opinion
Posted By: rlcarey
Re: SBA loans: priority for existing business customer - 04/14/20 11:34 AM
ABA Newsbytes:
Judge: Banks Can Restrict PPP Applicants to Current Customers
A federal judge in Maryland yesterday declined to issue an injunction requiring Bank of America to accept PPP loan applications from applicants that do not currently have a credit relationship with the bank. The ruling comes as some banks have limited PPP applications to current customers, often due to Bank Secrecy Act requirements or limited capacity to process a massive number of loan applications.
The judge noted that the CARES Act authorizing the PPP does not expressly provide a private right of action; moreover, she said, Bank of America’s policy in this case did not “run afoul of the CARES Act. . . . Given the plain statutory language, the Court is not at liberty to impose further limitations on lenders.â€
Posted By: David Dickinson
Re: SBA loans: priority for existing business customer - 04/14/20 01:02 PM
Some common sense prevails!
Posted By: David Dickinson
Re: SBA loans: priority for existing business customer - 04/14/20 02:04 PM
I would be concerned potentially with the “effects testâ€, or “disparate impactâ€, especially if the non customers are unbanked. Generally, a greater proportion of minorities are unbanked than non-minorities.
I understand your point, but these are business applicants? I'm not familiar with one business owner that doesn't have a checking account at a bank. Are you?
Posted By: rlcarey
Re: SBA loans: priority for existing business customer - 04/14/20 02:21 PM
I agree - kind of hard to have payroll records and not have a checking account. Their bank being an SBA lender or registered for the PPP program, might be an issue.