SBA EIDL Borrowers Raise Questions Over Treasury Referrals and Required Notice Process

Small business borrowers with delinquent COVID-19 Economic Injury Disaster Loan (EIDL) balances are raising questions about whether they received legally required notices before the U.S. Small Business Administration (SBA) transferred their loans to the U.S. Department of the Treasury for collection.

The issue has gained attention following claims from attorneys representing affected borrowers that some EIDL loans were referred to Treasury without borrowers first receiving the required opportunity to resolve their debt with the SBA. If substantiated, the allegations could have implications for borrowers already subject to Treasury collection tools, including administrative offsets and wage garnishment.

Federal Rules Require Advance Notice Before Treasury Referral

Federal debt collection rules generally require agencies to notify borrowers before referring delinquent debts to the Treasury Offset Program or Treasury Cross-Servicing.

Treasury guidance states that agencies must provide written notice at least 60 days before referring eligible debts to Treasury, informing borrowers of the amount owed, the planned referral, and their rights to review records, dispute the debt, or seek repayment arrangements.

Similarly, federal regulations governing debt referrals require agencies to certify they have made reasonable efforts to notify debtors before transferring eligible debts for collection.

The SBA’s current EIDL servicing guidance also explains that loans reaching specified delinquency thresholds may be referred to Treasury’s collection programs, after which the SBA generally can no longer service the account directly.

Treasury Collection Significantly Changes Borrower Options

Once an EIDL loan enters Treasury Cross-Servicing, collection authority shifts away from the SBA.

Depending on the circumstances, Treasury may use several administrative collection tools authorized under federal law, including:

• Treasury Offset Program interception of eligible federal payments, including tax refunds.
• Administrative wage garnishment under applicable federal procedures.
• Referral to private collection agencies working on behalf of the federal government.
• Assessment of additional collection costs authorized under federal debt collection statutes.

Because loan modification and repayment flexibility become more limited after referral, the timing of required notices can have significant practical consequences for borrowers.

Allegations Have Not Been Tested in Court

The recent claims originated from Frost Law, which says it has worked with numerous EIDL borrowers who reported learning their loans had already been transferred to Treasury without receiving all required SBA notices.

The firm argues that borrowers who did not receive the required pre-referral notices may have been denied the opportunity to:

• Pay delinquent balances before referral.
• Negotiate repayment arrangements with the SBA.
• Request hardship assistance.
• Challenge the debt before Treasury assumed collection authority.

Those allegations have not been adjudicated by a court, and no government finding has determined that the SBA systematically failed to provide required notice.

Background: Large-Scale Pandemic Loan Collections Continue

The renewed attention comes as the federal government has accelerated collections on delinquent pandemic-era loans.

Earlier this year, the SBA announced the referral of hundreds of thousands of delinquent pandemic-related loans to the Treasury Department for collection as part of broader efforts to recover unpaid federal obligations.

Separate from the recent allegations, online borrower forums have reflected ongoing confusion over EIDL notices, Treasury referrals, and repayment options, although those anecdotal accounts do not establish whether notification requirements were met in individual cases.

Why It Matters for the Receivables Industry

The dispute highlights the importance of procedural compliance in government debt collection.

For agencies, contractors, and collection firms handling federally referred debt, documentation showing required notices were issued can become an important issue if borrowers later challenge Treasury referrals or subsequent collection actions.

For borrowers, understanding when administrative collection rights attach and what opportunities exist before referral remains critical because available resolution options generally narrow once Treasury assumes responsibility for collection.