Government must stop direct lending, says GOP representative Luetkemeyer


Representative Blaine Luetkemeyer (R-MO) speaks as Health and Human Services Secretary Alex Azar testifies before the House Subcommittee on the Coronavirus Crisis, on Capitol Hill on October 2, 2020 in Washington, DC, DC.

J. Scott Applewhite | Swimming pool | Getty Images

In the 1970s, an agency of the United States Department of Agriculture granted thousands of direct loans for the purchase of farmland. Easy money and lack of government due diligence led to a massive increase in land values. It ultimately ended in disaster with $ 13.5 billion in unpaid loans and several farms seized by the agency.

Then, in 1998, the Small Business Administration also learned a hard lesson about the government’s inability to responsibly lend money. The agency had to stop issuing direct commercial loans because the subsidy rate – the cost to taxpayers – was 10 to 15 times the subsidy rate of its loan guarantee programs.

In order not to be discouraged by a history of failure or a complete lack of expertise, the SBA has, in recent years, provided direct loans under the Economic Disaster Lending Program (EIDL). And much to everyone’s shock, the program was riddled with frauds.

As the senior Republican on the House Small Business Committee, I have been watching EIDL closely and have continuously called for investigations into this flawed program.

Recently, the SBA Inspector General found that there has been $ 78.1 billion in potentially fraudulent EIDL activity. As of September 16, the SBA has disbursed around $ 290 billion in Covid EIDL loans and grants. This equates to a fraud rate of almost 30%. This is unacceptable and further proves that the federal government is incapable of managing a direct loan program with any level of competence.

Much like Congressional Democrats and the Biden administration responding to inflation with more spending, their reaction to decades of failed direct loan programs is to create more. The multi-trillion dollar reconciliation bill circulating in the House calls for $ 4.5 billion for direct loans under loan program 7 (a). Using EIDL fraud figures, we can expect around $ 1.35 billion to be handed over to bad actors.

On top of that, Democrats are now putting government in direct competition with the nation’s smaller financial institutions.

When Covid shut down the country, Congress created the Paycheck Protection Program and turned to financial institutions to help save the economy. Banks, community development financial institutions, minority depositories and credit unions worked day and night to help millions of small business owners who were struggling with all their energy to survive and keep their employees working.

Now these same institutions have a very powerful new competitor: the federal government.

To be clear, we are not talking about multinational banks with unlimited resources and teams of lawyers and lobbyists. We are talking about community banks serving small towns in rural America and the intuitions of minority custodians who disproportionately serve minorities and customers in underserved areas. They are the cornerstones of their local economies, but they could soon be in the crosshairs of a government that doesn’t seem to follow its own regulations and has absolutely no problem wasting taxpayer money on looks. of “public service”.

It is high time we ended direct government lending. As a leading member of the Small Business Committee, I am working to do just that. With my Republican colleagues on the committee, we are drafting a bill to reform the SBA and a key aspect is to remove their direct lending authority.

Many loan guarantee programs have been successful, especially for small and disadvantaged businesses. This is where the government’s niche should be. The private sector and industry experts will take care of the rest.

History has shown too many times that government failures end with American citizens paying the price. It has to stop.

Rep. Blaine Luetkemeyer is a Republican who has represented Missouri’s 3rd Congressional District since 2009. He is the senior member of the House Small Business Committee and the Consumer Protection & Financial Institutions Subcommittee.

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