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The Treasury Department encouraged banks to prioritize existing clients privately when the federal government’s paycheck protection program was implemented, providing coronovirus relief to small businesses, according to a report by the House Oversight Panel.
The Trump administration’s directive in favor of current customers in the PPP lending decision has badly hurt minority and women-owned businesses, the Democratic-led Select Subcommittee on the Coronovirus Crisis said in its report.
The congressional panel said in the statement, “As a result, small businesses were in need of financial support during the economic crisis, which often faced long waits and greater barriers to PPP funding.”
Congress established the PPP as part of the CARS Act, which was designed to provide forgiveness loans to small businesses and non-profit organizations to help them weather the Kovid-19 epidemic and preserve jobs. So to receive. The Small Business Administration relies on banks and other private lenders to process funds.
Documents obtained by the subcommittee showed that the Treasury asked banks to “move to their existing customer base” when issuing the loan, according to an email sent by Rob Nichols, CEO of the American Bankers Association to the group’s board of directors, on March 28 . .
According to the report, Jennifer Roberts, a senior banker at JPMorgan Chase & Co., “Treasury had an understanding from the earliest times that banks were working with existing clients.”
During the initial rollout of PPP, banks and other financial institutions were faced with challenging new customers and processing applications in a timely manner. The congressional panel found that seven of the eight banks involved in its investigation lend PPP to existing customers.
But the strategy did harm underserved groups, the House panel found. Research suggests that minority and women-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 demographic group. The New York Fed pointed to “racial inequality in access to federal relief funds”, including “stark PPP coverage gaps.”
In the CARES Act, Congress specified “the administrator should issue guidance to lenders and agents to ensure that the processing and disbursement of covered loans gives priority to small business-related concerns and entities.”
The report concluded that neither the Treasury nor the SBA offered “meaningful” instructions to lenders that prioritize ineligible groups, according to financial institutions interviewed by the subcommittee.
The congressional panel also found that many banks in their investigations processed PPP funds for larger commercial customers than smaller loans, offering different channels and levels of support for customers, depending on the type of customers .
The report stated that JPMorgan processed loans above $ 5 million, almost four times faster than those under $ 1 million. “PNC has processed loans over $ 5 million, compared to loans under $ 1 million.”
Treasury and the ABA did not immediately respond to CNBC’s request for comment.
A spokesman for the SBA said in a statement, “PPP loans … have been broadly disbursed, with approximately 27 percent of the money going to low and middle-income communities, in proportion to the percentage of their population is.”
A spokesman for the Republican Select Subcommittee said in a statement, “The PPP helped support more than 51 million jobs across the country, including millions from minority and rural communities. Speaker Pelosi and House Democrats held minority-owned Has hurt small businesses and the inept population. By stopping the expansion of PPP on the floor of the House nearly 40 times. ”
The report comes as part of an effort with President Donald Trump, Treasury Secretary Steve Mnuchin and Senate leaders to pass a new coronovirus stimulus package at odds.
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