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Civil rights groups sue Small Business Administration over PPP loans

Business owners struggle with PPP program
Business owner says PPP loan program created "unfair situation" 02:33

A federal loan program designed to keep small businesses afloat during the coronavirus pandemic is wrongfully excluding business owners with a criminal past, a lawsuit filed Tuesday by the American Civil Liberties Union and other legal rights groups contends. 

The Small Business Administration's Paycheck Protection Program excludes business owners with a criminal record from applying for a low-interest loan. That unfairly denies them crucial government assistance, according to the lawsuit, which noted that the policy particularly disadvantages African Americans and Hispanics given that they make up a disproportionate share of those with a conviction. 

In court documents, business owners with previous convictions asked a Maryland judge to eliminate the criminal exclusion

"Formerly incarcerated individuals who have paid their debt to society deserve a fair chance to succeed," Defy Ventures CEO Andrew Glazier, whose nonprofit trains ex-convicts to run a business, said in a statement. "The SBA's role is to support the success of small businesses, not to impose rules based on uninformed and discriminatory value judgments on their worthiness to receive support."

The PPP offers forgivable loans to business owners if they keep workers on the payroll. The program excludes businesses if a loan applicant with 20% or more ownership of the company is in jail, on probation, on parole, under indictment or was convicted of a felony in the past five years. Owners under arraignment or who pleaded guilty or no contest are also ineligible to participate in the program.

"If I've already paid my debt to society and successfully reintegrated to the point I am able to launch and build a viable business, the fact that I am a felon should not automatically disqualify me from the same assistance given to other business owners," said Frederick Hutson, a small business owner in Nevada with a criminal record, who founded Pigeonly, a digital platform that let's people communicate with an incarcerated family member. "Building a business is hard, doing so as a convicted felon is even harder."

Small businesses worry about spending PPP money 05:31

Congress created the PPP as part of the larger Coronavirus Aid, Relief, and Economic Security Act and specified that any business that meets the size requirements is eligible for a loan. The SBA subsequently added on the criminal exclusion, the ACLU said. 

The SBA last week reduced the five-year time frame for to one year. SBA administrator Jovita Carranza said in a final ruling earlier this month that lowering the time frame "is more consistent with congressional intent to provide relief to small businesses" during the pandemic.

The SBA has not explained why such exclusions exist, said the ACLU, Public Interest Law Center and Washington Lawyers' Committee for Civil Rights and Urban Affairs, the groups that filed the lawsuit. A SBA official told CBS MoneyWatch Tuesday that the agency has no comment on the lawsuit.

John Garland, who owns a sign company in New York, said the SBA shouldn't impose any restriction on those with a criminal past who are seeking PPP funds. Garland said he faces pending petty larceny charges, a case that has prevented him from getting a loan.

"There is no reason that our business should be denied the chance to survive this crisis and continue to grow into the future or that my employees should not be able to be paid," Garland said in a statement. 

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