Attorney General Maura Healey is scrutinizing Bank of America, Santander, TD Bank, and Wells Fargo over how they handled a $349 billion federal loan program designed to help small businesses, after her office fielded numerous complaints alleging an unfair process that favored big customers.
Healey’s office on Wednesday sent letters to the banks’ CEOs asking for details about how the institutions rolled out the Small Business Administration’s Paycheck Protection Program, or PPP, which launched April 3. The program, administered through banks, is the centerpiece of the federal government’s rescue of small businesses that have been forced to shutdown to contain the pandemic.
The first round of money ran out on April 16, but Congress is poised to approve a second round of $310 billion. The program has come under intense criticism after big restaurant chains and publicly traded companies managed to score loans that were meant to help mom-and-pop businesses.
Healey’s inquiry comes on the heels of lawsuits filed across the country by small business owners against several banks, including Bank of America and Wells Fargo, alleging unfair treatment that prioritized the applications of bigger customers.
The PPP “was meant to help small businesses," Healey said in an interview. “That said, we know a lot of small businesses have been shut out, and they are frustrated, and they don’t know where to turn to. We’re not interested in lawsuits. ... We’re just trying to make this process work for these small businesses here who desperately need this assistance.”
The four-page letter from Healey’s office focuses on whether some banks gave preferential treatment to major clients instead of processing applications in the order they were received. In some cases, local small businesses were told their applications were being processed when the institutions were instead concentrating on larger eligible customers, according to the letter.
Healey’s letter also asserts that institutions in some cases required potential borrowers to provide additional information and data beyond what was required by the SBA, “making it harder for less sophisticated businesses to complete their application packages quickly.”
Some institutions, according to the letter, also turned away small businesses that did not have “deep enough relations with the bank, leaving unsophisticated borrowers without a practical way to take advantage of the program.”
Healey’s office is asking a series of questions — ranging from how many loans were processed and approved, to the demographic data of loan recipients, as well as the number of potential loan applicants who were turned away.
A Bank of America spokesman said it is focused on preparing the more than 390,000 applications it has received so far for the next round; the bank also denied the allegations in the lawsuit. A Santander spokeswoman confirmed the bank has received Healey’s letter and is reviewing it. Wells Fargo declined comment, while TD Bank could not be reached for comment.
The PPP program got off to a rocky start because the SBA rushed it out in order to offer immediate relief to small businesses. Guidelines and terms of the loans kept changing, confusing banks and their customers. In Massachusetts, banks processed 46,937 loans for the program totaling $10.4 billion, according to the SBA.
The loans provide up to $10 million to companies with fewer than 500 workers and can be used for salaries and rent. Much of the loan can be forgiven depending on the number employees the business can retain or rehire.
Among thousands of Massachusetts loan applicants who were shut out was Boston retail incubator For Now, which has a storefront in the Seaport.
Cofounder Kaity Cimo said the company went to Bank of America but was turned away on the first day because For Now did not have a lending relationship with the institution, only a checking account. After a public outcry, the bank allowed customers like For Now to apply for the PPP.
Despite applying early on, For Now was unable to secure the $37,000 loan it was seeking. The store shuttered March 16, laid off one employee, and withdrew job offers from two hires.
Cimo said the company wants to switch to a smaller bank in hopes it will get better treatment. The most frustrating part, she added, was filling out the application, only to learn later that it never made it to the SBA in time.
Said Cimo: “We went to the bottom of the list just because we aren’t a big client."
Shirley Leung is a Business columnist. She can be reached at email@example.com.