WASHINGTON – The Treasury Department is privately encouraging lenders to prioritize existing customers when lending to the federal government’s small business coronavirus assistance program, according to a report released Friday by the Democratic-led Congressional Monitoring Subcommittee.
The Treasury Department’s actions are one of the ways in which the Trump administration and several major banks put underserved businesses, including those owned by women and minorities, at a disadvantage when applying for the $ 670 billion payroll program. says the report of the House Select subcommittee on the coronavirus crisis. Banks and other lenders issued PPP loans, and the small business administration guaranteed them.
The finance ministry, which helped launch the program with the small business administration, denied to the subcommittee that it had told banks to prioritize existing customers, the report said.
The report says documents received from the subcommittee show that the Ministry of Finance has instructed PPP creditors to “go to their existing customer base”
“We have encouraged all banks to offer loans to their existing small business customers, but no finance ministry employee has ever offered banks to do so, except for new customers,” a Finance Ministry spokesman said. “The subcommittee’s conclusion to the contrary is incorrect and is not supported by its own record.”
The SBA has no immediate comment on Friday.
On March 28, the day after the enactment of the PPP Act, Rob Nichols, president of the American Banking Association, sent an email to the trade group board about a conversation with Treasury officials the day before. “The finance ministry would like banks to move to their existing customer base,” the email said, according to the report. “This will allow loans to move quickly,” Mr Nichols added.
A spokesman for the American Bankers Association said Friday that the email “shows the length of time the ABA has been trying to help the government pull out a PPP program in the middle of a pandemic.” He noted that although banks initially process loans faster for already known customers, “over time, it has become easier to gather information to process new customers in this new and unprecedented program.”
Senior Banker at JPMorgan Chase & Co.
He also told a congressional committee that “from the outset, the Treasury has understood that banks work with existing customers,” the report said.
“Given the time-consuming regulatory requirements for boarding a new customer and the need to move very fast for difficult businesses, we initially focused on existing customers,” a JPMorgan spokesman said, noting that Finance Minister Stephen Mnuchin “encourages small businesses to go this reason in their own banks. “
One of the concerns for banks in the early days of PPPs was the challenge of checking new customers in time to process their loans quickly at a time when companies were overwhelmed with applications. Federal law usually requires banks to scrutinize new customers to prevent money laundering.
“The members of Congress drafting this report point to issues directly related to the way they structured the program and the banks raised with them and the SBA during the high performance,” said Richard Hunt, chief executive of the Consumer Bankers Association. , a retail trade group. Mr Hunt said the programme’s average loan of $ 100,729 proved that “banks have been able to reach the most needy companies”.
At Citigroup Inc.,,
officials expressed concern in an internal presentation on April 4 that “the policy of non-acceptance of non-clients could create an increased risk of different impacts on minority businesses and women’s property,” the report said.
A Citigroup representative did not comment immediately. Citigroup told the panel it was partnering with community lenders to help these demographic groups, the report said.
The congressional panel reviewed eight of America’s largest banks and said seven of them had restricted PPP lending to existing customers.
The payroll program was full of complaints when it opened in early April, as some lenders prioritized customers with existing relationships amid huge demand, despite rules issued by the Trump administration that the program was “first-come, first-served.” first served ‘.
The initial round of financing was quickly exhausted, leading to the exclusion of many small companies, while several larger, well-known companies received loans. Some of these companies later returned the money after a public reaction. Many companies that struggled to get loans early eventually got them.
Proponents of small business, members of Congress from both parties, and the Small Business Administration’s own inspector general expressed concern that implementing PPPs could hamper access for some groups to the program, including minorities and business owners in rural areas. A report released by the Federal Reserve Bank of New York in August concluded that areas with a large number of black-owned businesses may have received fewer PPP loans due to weaker relationships with financial institutions.
The panel’s report is part of an ongoing investigation into the implementation of PPPs. He also argued that the Treasury and the SBA had not provided guidance to creditors on prioritizing underserved markets, contrary to Congress’ intention. The agencies have previously disputed this claim, citing in part their current lenders in the community to issue loans.
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