Joseph Carpenter, a 76-year-old military veteran from Tampa Bay, Florida, recently received a distressing letter from the Small Business Administration (SBA) about a SBA loan.
The letter claimed that Carpenter had taken out a $20,000 SBA loan in 2021, and now it was time to repay the debt. The catch? Carpenter insists he never took out any such loan, yet the SBA is demanding repayment. If Carpenter fails to prove his innocence, the agency threatens to garnish up to 15% of his Social Security retirement benefits.
This unsettling situation has left Carpenter and many others in a precarious position. As a retiree who relies on Social Security benefits to make ends meet, losing even a fraction of his income could have serious consequences. “There are all those loans out there,” Carpenter told WFLA News Channel 8. “They’re going to make you do the work. They’re not going to do the work. They put the burden of proof on the person they’re accusing of having the loan.”
The SBA’s approach, requiring Carpenter to prove that he did not receive the loan, has only added to the veteran’s frustration. Carpenter has since filed a complaint with the inspector general, but the ordeal highlights a larger issue affecting many Americans who find themselves in similar predicaments.
What Are SBA Loans?
The Small Business Administration is a federal agency designed to assist Americans in building or growing their small businesses. Through various programs, the SBA provides expertise, counseling, and loans. During the COVID-19 pandemic, the SBA offered several types of loans, including Economic Injury Disaster Loans (EIDLs), EIDL Targeted Advances, Supplemental Targeted Advances, and Paycheck Protection Program (PPP) loans. Many of these loans were eligible for forgiveness if the borrowers used the funds for specific purposes, such as covering payroll costs.
However, the SBA’s streamlined loan process during the pandemic opened the door to widespread fraud. According to the Office of the Inspector General, the SBA disbursed over $200 billion in potentially fraudulent loans during the pandemic. Fraudsters exploited the relaxed requirements, applying for loans using other people’s information and pocketing the funds, leaving victims like Carpenter to deal with the fallout.
How Much of Your Social Security Benefits Can the SBA Take?
If you default on a legitimate SBA loan, the agency, through the Department of Treasury, can garnish up to 15% of your Social Security benefits. This process, known as “offset,” was established under the Debt Collection Improvement Act. While there are some protections in place, the potential financial impact on those with limited income is significant.
For instance, if you receive $1,000 per month in Social Security benefits, you could lose $150 to offset a debt. However, by law, your benefits up to $9,000 per year, or $750 per month, are protected from garnishment. For example, if your monthly benefit is $850, the offset amount would be the lesser of $127.50 (15% of $850) or $100, which is the amount by which your benefit exceeds $750. In this case, the offset would be $100 per month, provided the debt is at least that amount.
While these limits are intended to reduce hardship, the reality is that any reduction in income can create financial challenges, especially for those on a fixed income like Social Security.
What To Do If You’re Billed for a Fraudulent SBA Loan
Carpenter’s situation is particularly frustrating because the SBA is asking him to prove a negative—that he did not take out a loan. However, there are steps that individuals can take if they find themselves facing a similar challenge.
First, the Federal Trade Commission (FTC) recommends contacting the SBA’s Office of Disaster Assistance for support. Additionally, you can submit a Freedom of Information Act (FOIA) request to obtain the loan application and any related documents. This can provide crucial evidence to help dispute the claim.
Next, it’s important to check your credit report for unfamiliar accounts or suspicious activity. If you find anything out of the ordinary, close those accounts immediately and report them to the relevant lenders and IdentityTheft.gov.
Filing a report with the Consumer Protection Bureau (CFPB) can also help bring attention to your case and may lead to additional support or resolution.
Finally, if the situation escalates, as it has for Carpenter, consider seeking legal representation. An attorney can provide valuable guidance and help protect your rights as you navigate the complex process of disputing a fraudulent loan.
Joseph Carpenter’s ordeal is a stark reminder of the potential pitfalls of a system that places the burden of proof on the victim. As more Americans rely on Social Security to get by, ensuring that their benefits are protected from unwarranted claims should be a priority.
