JPMorgan, Bank of America, Citi among banks facing US probe over PPP loans

FILE PHOTO: JP Morgan Chase & Co corporate headquarters in New York
A House panel overseeing the coronavirus response is looking into whether several banks, including JPMorgan Chase, Bank of America, Wells Fargo & Co and Citigroup Inc., favored larger, well-connected companies over smaller firms from rural or minority communities when making small-business loans to combat the economic fallout from the coronavirus pandemic.

The investigations, launched by the Democratic-led Select Subcommittee on the Coronavirus Crisis, also are seeking details from the Treasury Department and Small Business Administration about companies that received Paycheck Protection Program aid and all communication with lenders regarding the handling and prioritizing of loans.

“Some large lenders apparently created a two-tier system for processing PPP loan applications,” according to the letters sent by the committee Monday. “The banks’ wealthiest clients had access to a personalized application process that ensured their applications were processed first.”

“Other applicants had to use poor-performing electronic portals, faced significant processing delays, and sometimes needed to find another lender to consider their application,” the letters said.

Republicans on the subcommittee didn’t sign onto the letters asking the banks to turn over documents.

The Trump Administration is facing criticism for not releasing the details of the companies that received billions of dollars through the PPP, a high-profile federal coronavirus-relief initiative that forgives loans of as much as $10 million if most of the proceeds are spent on payroll.

The subcommittee asked the banks for records about all the PPP applications they received and what guidance and they got from the Trump administration. The lawmakers want communication about the program’s “first-come, first served” policy, as well as prioritizing under-served and rural markets as required by law in response to reports the large banks were favoring their largest customers.

An SBA spokesman declined to comment. A Treasury Department spokesman didn’t immediately respond to a request for comment about the letters. Treasury spokeswoman Monica Crowley said on Twitter that Treasury “is fully complying with all of the substantial oversight, transparency and reporting requirements” of the law.

Bank of America, which handled more than 325,000 PPP loans with an average size of about $79,000 that went mostly to firms with fewer than 100 employees, declined to comment on the probe. JPMorgan Chase said it hadn’t yet received the letter and declined to comment.

A spokesman for Citigroup said the bank wouldn’t comment on the letter before it had a chance to review it. The bank has said that 80% of its PPP loans went to “micro businesses,” or those with 10 or fewer employees, with nearly two-thirds went to businesses with five or fewer or workers.

Wells Fargo said in a statement it “continues to work as quickly as possible to prepare and submit” PPP applications and that more than 80% of its 168,000 approved loans worth $10.2 billion were for companies with fewer than 10 employees.
Truist Financial Corp. said in a statement that PPP applications were handled through a single portal “without any preference given to larger or more affluent clients” and that it looks forward to providing information to the panel “as we believe in fairness, accountability and transparency in connection with the PPP.”

After the PPP launched April 3, many borrowers complained that banks wouldn’t take their PPP application unless they had an existing lending relationship, and that larger firms got funding at the expense of mom and pop shops in the initial round of funding.

The SBA failed to take steps to prioritize underserved borrowers while issuing rules that hurt businesses and contradicted the law that created the PPP, according to an inspector general’s report issued in May.

Entities including Shake Shack Inc. and the Los Angeles Lakers returned PPP loans after a public outcry, and the SBA and Treasury have taken steps to ensure more minority-owned and other disadvantaged small businesses get access to PPP funding. But lawmakers say they’re still hearing complaints that those businesses need help.

The subcommittee also called on Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza to release details about which companies received funding and in what amount after Mnuchin testified at a Senate committee hearing last Wednesday that such information would be withheld because it’s proprietary or confidential with payroll information.
“There is nothing ‘proprietary’ or ‘confidential’ about a business receiving millions of dollars appropriated by Congress, and taxpayers deserve to know how their money is being spent,” the subcommittee said in its letter.

After a backlash from lawmakers, Mnuchin tweeted on Monday he’ll be talking to the Senate Small Business & Entrepreneurship Committee and others on a bipartisan basis “to strike the appropriate balance for proper oversight” with the “appropriate protection” of small business data.

Besides the letters from the subcommittee, the leaders of the House committees on Ways and Means, Financial Services and Small Business also sent a letter on Saturday to Mnuchin and Carranza asking them to provide no later than June 19 the names of all recipients of PPP loans, the dollar amount received, and the names of all applicants who did not received a loan.

“At a minimum, we owe the American people that information,” that letter said. “As the pandemic continues to cause financial hardship for countless small businesses, we must understand whether this program is functioning as intended and determine how best to help businesses going forward.”

The applications for PPP loans, which are forgivable if borrowers meet certain criteria, say such data will “automatically” be released. Moreover, the SBA, which oversees the lending program, told Bloomberg News in April that such loan-specific information would be made public “in the near future.”

The SBA reported that as of Friday, loans had been approved for almost 4.6 million small businesses totaling $512.3 billion, with about $130 billion in funding remaining before the agency stops accepting new applications on June 30.

The panel requested the documents be submitted by June 29.

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