Treasury urged banks to prioritize PPP loans for existing clients
The Treasury Department has privately encouraged banks to prioritize existing customers when implementing the federal government’s paycheck protection program, which has provided coronavirus relief for small businesses, according to a released report Friday by a House oversight committee.
Trump administration directive to favor existing clients in PPP lending decisions disproportionately harms minority and women-owned businesses, Democrat-led select subcommittee on coronavirus crisis said in his report.
“As a result, small businesses that really needed financial support during the economic crisis often faced longer waits and more obstacles to receive PPP funding than larger, richer businesses,” he said. the congressional panel said in a statement.
Congress established the PPP under the CARES Act, designed to provide forgivable loans to small businesses and nonprofits to help them overcome the Covid-19 pandemic and preserve jobs. The Small Business Administration relied on banks and other private lenders to process the funds.
Documents obtained by the subcommittee revealed that the Treasury told banks to “go to their existing customers” when issuing loans, according to an email sent by the CEO of the American Bankers Association , Rob Nichols, to the group’s board of directors on March 28. .
“From the start, the Treasury understood that banks were working with existing customers,” said Jennifer Roberts, senior banker at JPMorgan Chase & Co, the subcommittee said in July, according to the report.
Nichols said in a statement Friday that the House panel report lacked key context in its assessment of banks’ involvement in the PPP program.
“Banks of all sizes have always been encouraged by the administration to process loans for new and existing clients at the start of the PPP program. They have also been encouraged to start processing loans as quickly as possible to support the deterioration of the market. the economy, ”Nichols wrote.
“To achieve this goal, many banks first processed applications from existing borrowers because they already had the necessary borrower information to meet regulatory requirements, including Know Your Customer rules.
The congressional panel, however, found that seven of the eight banks involved in its investigation limited PPP lending to existing customers.
This tactic hurt underserved groups, the House panel found. Research shows that minority and female-owned businesses are less likely to have existing relationships with lenders.
An August report from the Federal Reserve Bank of New York found that 41% of black-owned businesses closed between February and April 2020 – more than any other demographic. The New York Fed has highlighted “racial disparities in access to federal relief funds,” including “glaring gaps in P3 coverage.”
In the CARES Act, Congress clarified that “the administrator should issue guidelines to lenders and agents to ensure that the processing and disbursement of covered loans prioritize small businesses and entities in underserved markets. and rural ”.
The report concluded that neither the Treasury nor the SBA have offered “meaningful” guidelines to lenders to prioritize underserved groups, according to financial institutions interviewed by the subcommittee.
The congressional panel also found that several banks in its survey were processing PPP funds for large business customers at a faster rate than small loans, offering different channels and levels of customer support depending on the type of customer.
“JPMorgan processed loans over $ 5 million almost four times faster than loans under $ 1 million,” the report details. “PNC processed loans over $ 5 million more than twice as fast as loans under $ 1 million.”
The Treasury, in a statement sent to CNBC, denied the subcommittee’s claims. “From the start of the Paycheck Protection Program, the Treasury and the SBA have consistently urged PPP lenders to serve all eligible businesses. We have encouraged all banks to offer loans to their existing small business clients, but no Treasury official has ever suggested that banks should do so to the exclusion of new clients. The subcommittee’s contrary conclusion is false and unsupported by its own record, ”a Treasury spokesperson said.
A spokesperson for the SBA said in a statement: “PPP loans have been widely distributed, with around 27% of funds going to low and moderate income communities, which is proportional to their percentage of the population.”
A spokesperson for the Republican Select Subcommittee said in a statement: “The PPP has helped support more than 51 million jobs across the country, including tens of millions of jobs in minority and rural communities. Speaker Pelosi and House Democrats have hurt small minority-owned businesses and underserved populations. by blocking an extension of PPP almost 40 times upstairs in the house. “
The report comes as efforts to adopt a new coronavirus stimulus package continue, with President Donald Trump, Treasury Secretary Steve Mnuchin and Senate leaders at variance.