Treasury Department Encouraged Banks to Prioritize Existing Customers for PPP Loans, House Panel Says--2nd Update
17 October 2020 - 3:50AM
Dow Jones News
By Amara Omeokwe and Ryan Tracy
WASHINGTON -- The Treasury Department privately encouraged
lenders to prioritize existing customers when issuing loans for the
federal government's small-business coronavirus aid program,
according to a report set to be released Friday by a Democratic-led
congressional oversight subcommittee.
The Treasury Department's actions were one of several ways the
Trump administration and several large banks put underserved
businesses, including those owned by women and minorities, at a
disadvantage when applying for the $670 billion Paycheck Protection
Program, said the report from the House Select Subcommittee on the
Coronavirus Crisis. Banks and other lenders issued PPP loans, and
the Small Business Administration guaranteed them.
The Treasury Department, which helped run the program along with
the Small Business Administration, denied to the subcommittee that
it had told banks to prioritize existing customers, the report
said. The Treasury Department and SBA had no immediate comment
Friday.
The report said that documents obtained by the subcommittee show
The Treasury Department instructed PPP lenders to "go to their
existing customer base" when issuing the loans.
On March 28, a day after the law establishing the PPP was
enacted, Rob Nichols, president of the American Bankers
Association, emailed the trade group's board about a call with
Treasury officials the previous day. "Treasury would like for banks
to go to their existing customer base," said the email, according
to the report. "This will allow loans to move quickly," Mr. Nichols
added.
A spokesman for the American Bankers Association said Friday the
email "shows the lengths to which ABA was trying to assist the
government in getting the PPP program off the ground in the middle
of a pandemic." He noted that while banks initially processed loans
faster for customers they already knew, "over time it became easier
to gather information to process new customers in this new and
unprecedented program."
A senior banker from JPMorgan Chase & Co. also told the
congressional panel that "from early on there was an understanding
from Treasury that banks were working with existing clients," the
report said.
"Given the time-consuming regulatory requirements to onboard a
new client, and the need to move very quickly for struggling
businesses, we initially focused on existing customers," a JPMorgan
spokeswoman said, noting that Treasury Secretary Steven Mnuchin
"encouraged small businesses to go to their own banks for this
reason."
One concern for banks in the early days of the PPP was the
challenge of vetting new customers in time to process their loans
quickly at a time when the companies were deluged with
applications. Federal law generally requires banks to check new
customers thoroughly to prevent money laundering.
"The Members of Congress drafting this report are highlighting
the issues directly related to the way they structured the program
and banks raised with them and SBA during the breakneck
implementation," said Richard Hunt, chief executive of the Consumer
Bankers Association, a trade group for retail banks. Mr. Hunt said
the program's average loan size, at $100,729 , proved "banks were
able to reach those businesses most in need."
At Citigroup Inc., employees expressed concern in an internal
April 4 presentation that "a policy of not taking non-customers
might create heightened risk of disparate impact on minority and
women-owned businesses," the report said.
A representative of Citigroup had no immediate comment.
Citigroup told the panel it partnered with community lenders to
help those demographic groups, the report said.
The congressional panel reviewed eight of the largest U.S. banks
and said seven of them limited PPP lending to existing
customers.
The Paycheck Protection Program was peppered with complaints
when it opened in early April, as some lenders prioritized
customers with existing relationships amid overwhelming demand,
despite rules issued by the Trump administration that the program
was "first-come, first served."
The initial round of funding was quickly exhausted, leaving many
small firms shut out while several larger, well-known companies
received loans. Some of those companies later returned the money
after public backlash. Many businesses that struggled early on to
get loans eventually received them.
Small-business advocates, members of Congress from both parties
and the Small Business Administration's own inspector general have
raised concerns that PPP's implementation may have made it harder
for certain groups to access the program, including minorities and
business owners in rural areas. A report released in August by the
Federal Reserve Bank of New York concluded that areas with high
numbers of Black-owned businesses may have received fewer PPP loans
because of weaker relationships with financial institutions.
The panel's report is part of a continuing investigation into
PPP's implementation. It also alleged the Treasury Department and
SBA failed to provide guidance to lenders to prioritize underserved
markets, contrary to Congress's intent. The agencies have
previously disputed that assertion, in part by citing their push
for community-based lenders to issue the loans.
Write to Amara Omeokwe at amara.omeokwe@wsj.com and Ryan Tracy
at ryan.tracy@wsj.com
(END) Dow Jones Newswires
October 16, 2020 12:35 ET (16:35 GMT)
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