SBA Clarifies Debanking Compliance Rules for Community Banks Following OBL Advocacy

10/01/25

Background on SBA's Initial Directive
In August, the U.S. Small Business Administration (SBA) issued a sweeping letter to lenders participating in SBA programs, citing President Trump's Executive Order on "Guaranteeing Fair Banking for All Americans." The order requires banks to halt any "politicized or unlawful debanking"-a practice where institutions freeze or close accounts or deny services based on political or ideological grounds.

The original SBA letter (dated August 2025) imposed significant new requirements on all lenders. Banks were directed to:

• Identify and review past or current debanking practices,
• Attempt to reinstate affected customers,
• Provide notices to previously denied customers, and
• Submit a detailed compliance report to SBA by December 5, 2025.

Community bankers across Ohio quickly raised concerns about the letter's broad scope, vague definitions, and compliance burden. The Ohio Bankers League (OBL), along with other national trade associations, strongly advocated with SBA and federal regulators to exempt community banks from one-size-fits-all mandates that would have diverted time and resources from serving local borrowers.

SBA Issues Clarification for Community Banks
This week, in direct response to industry pushback, SBA released a new letter that substantially eases compliance obligations for community banks. Read the letter here.

Key highlights of the new guidance:

• Community bank exemption: Institutions under $30 billion in assets supervised by federal banking regulators are now eligible for simplified compliance.
• Streamlined reporting form: Instead of preparing exhaustive investigations and customer reinstatements, community banks can demonstrate compliance by completing a brief model form provided by SBA.
• Good-faith review standard: SBA makes clear that only "reasonable review" of existing records is required, relying on current staff and systems without incurring undue costs.
• Extended timeline: Community banks have until January 5, 2026, to submit the form, rather than the December deadline in the original directive.

OBL Advocacy Pays Off
OBL played a central role in pressing SBA to recognize the disproportionate impact the original directive would have had on smaller lenders. The OBL engaged directly with SBA officials and member of the Ohio congressional delegation to outline how compliance would drain resources from community lending. We are pleased that SBA responded by creating a path tailored to community institutions, preserving their ability to focus on serving customers and local economies rather than navigating unnecessary red tape. OBL will continue to provide guidance to member banks as they prepare to comply with the new requirements. We will also monitor any further regulatory developments or clarifications related to the Fair Banking Executive Order. Community banks should review the enclosed SBA form, and prepare to submit by the January 5, 2026 deadline.

OBL is hosting a free member webinar on October 30^th at 10 am to discuss both the SBA letter and all the new debanking rules. Register for the webinar here.