BUSINESS + ECONOMY

Past-due COVID loans will no longer be collected

Oct 23, 2023, 12:11 PM

A sheet of paper reads "LOAN." It is surrounded by coins and a pencil....

The Small Business Administration decided it will not collect the balances of EIDL loans. (Canva)

(Canva)

WASHINGTON, D.C. —  The U.S. government announced that it will no longer try to collect $62 billion in past-due COVID-19 pandemic loans.

The Small Business Administration determined that efforts to collect the money would be more expensive than the amount they would recover. 

Scammers stole $136 billion from the Economic Injury Disaster Loan program, Reason reported.

Small businesses were the intended recipients of the EIDL pandemic loans. Eric Boehm, a reporter for Reason, said that because the money was stolen, the government doesn’t know where to go to get it back. 

“The Small Business Administration effectively has just thrown up its hands and said ‘well, it’s going to cost more to go get it back than we’d actually recoup’,” said Boehm. 

The newest inspector general report found that over 455,000 EIDL loans under $100,000 were flagged as fraudulent by the SBA.

Unpaid EIDL loans should have been sent to the U.S. Treasury Department, according to Boehm. He also says the treasury has more power to collect unpaid loans through means such as garnishing wages.

The inspector general expressed skepticism of the SBA’s decision to stop collections on the loans on the basis of cost. The inspector general sent a letter to the SBA outlining the skepticism. 

What’s with the skepticism stopping collection of COVID loans

According to the letter, the decision to stop collections violated the Debt Collection Improvement Act of 1996. The act prohibits the termination of loan collection on “fraudulent, false, or misrepresented claims.” 

Additionally, the inspector general’s letter questioned the SBA’s decision to end collections based on cost. 

The letter said the administration’s calculations were “unreliable.”

Federal law allows the sale of delinquent loan portfolios to private debt collection agencies. According to the inspector general’s letter, the SBA did not investigate that option. 

Following the inspector general’s letter, Republicans in the House and the Senate requested more documentation on the SBA’s decision, according to Boehm. 

“I think that will lead us back to bigger questions about how these programs were handled in the first place,” said Boehm. 

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Past-due COVID loans will no longer be collected