US banks were told to prioritize existing customers for PPP loans, House committee finds

Last modified October 18, 2020. Published October 16, 2020.
In this Sept. 1, 2020 file photo, Treasury Secretary Steven Mnuchin testifies before the House Select Subcommittee on the Coronavirus Crisis, during a hybrid hearing on Capitol Hill in Washington. (Graeme Jennings/Pool via AP, File)

In this Sept. 1, 2020 file photo, Treasury Secretary Steven Mnuchin testifies before the House Select Subcommittee on the Coronavirus Crisis, during a hybrid hearing on Capitol Hill in Washington. (Graeme Jennings/Pool via AP, File)

The U.S. advised banks to favor existing customers when providing coronavirus relief loans, the House Oversight Committee found in a new report, fueling claims that women and minority-owned businesses were shut out of financing.

The congressional investigative committee revealed results Friday of a monthslong probe into the Paycheck Protection Program, in which it discovered that the Treasury Department privately told lenders to work with existing customers in administering loans. Banks followed this guidance despite concerns it could lead to relief being awarded more heavily to white, male borrowers. 

“The report finds that contrary to Congress’s clear intent, the Trump Administration and many big banks failed to prioritize small businesses in underserved markets, including minority and women-owned businesses,” said the committee. “As a result, small businesses that were truly in need of financial support during the economic crisis often faced longer waits and more obstacles to receiving PPP [Paycheck Protection Program] funding than larger, wealthier companies.”

Banks have come under scrutiny for their uneven handling of loans, prompting Treasury Secretary Steve Mnuchin to say in August that the government would audit PPP loans over $2 million. JPMorgan Chase, which was the largest lender of these funds as of June 30, fired several employees accused of fraud related to loan administration.

The issue of women and minority-owned businesses struggling to access relief financing has also spurred legal action. In April, a Baltimore federal judge ruled in a lawsuit over the matter that Bank of America could prioritize existing customers in disbursing the loans.

In the report disclosed Friday, the oversight committee cited a March 28 email from Rob Nichols, CEO of the American Bankers Association, to the group’s board of directors that said that “Treasury would like banks to go to their existing customer base,” which the committee said was corroborated by JPMorgan in a congressional briefing.

Bristling at the committee’s findings, banks said that existing customers could receive loans more quickly because banks already had key information to streamline the lending process. Banks said that difficulties obtaining Bank Secrecy Act waivers and other red tape hampered their efforts to provide funds to other would-be recipients.

“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,” said JPMorgan spokesperson Anne Pace. “In fact, in April, Secretary Mnuchin publicly encouraged small businesses to go to their own banks for this reason.”

The American Bankers Association echoed that sentiment, saying that the “House Select Committee’s report fails to capture a full and complete picture of the PPP program and the banking industry’s significant efforts to make it a success.”

The Consumer Bankers Association said the report merely highlights the “issues directly related to the way they structured the program,” referring to federal lawmakers.

“The accusation banks processed loans for larger companies faster is a direct result of the program guidelines issued by Congress,” said the Consumer Bankers Association, explaining that PPP applications involved collecting payroll, utility, mortgage, benefits and data. “Larger businesses have dedicated staff and expensive automated payroll systems, giving them the ability to gather loan paperwork much faster than smaller businesses.”

However, the House Oversight Committee said that the bottleneck and red-tape issues raised by the banks were not a significant hurdle, pointing out that U.S. Bank was able to obtain certain approvals for noncustomers even faster than for existing customers.

“U.S. Bank allowed noncustomers to apply for PPP loans through its online portal starting the first day of the program. Including noncustomers in the program did not hinder U.S. Bank’s ability to process PPP loans. On the contrary, the bank was able to secure [] approval for noncustomers on average within 15.33 days of application, compared to 16.68 days for existing customers,” the committee said. 

U.S. Bank declined to comment on the report. The committee’s report also examined JPMorgan, Bank of America, Wells Fargo, Citigroup, Truist Financial, PNC Financial and Santander Bank, finding that U.S. Bank was the only one to treat existing customers the same as other applicants.

Wells Fargo said that over 80% of the loans it issued went to small businesses of ten or fewer employees, with an average loan size around $75,000, declining to comment further on the report. In July, the bank said it would redirect $400 million in fees earned through the program to minority-owned small businesses.