Senator Elizabeth Warren and New York Congresswoman Nydia Velazquez are calling on inspectors general to launch an investigation into whether banks issuing federal loans for small businesses were “playing favorites” by giving preferential treatment to bigger customers.
The Democrats, in a letter sent Thursday to Small Business Administration Inspector General Hannibal “Mike” Ware and General Richard Delmar, the Treasury Department’s acting inspector general, called on the watchdogs to review the rollout of the SBA’s $349 billion Paycheck Protection Program to determine whether the agencies “included appropriate protections against waste, fraud, and abuse.”
Citing numerous media reports, Warren and Velazquez, who chairs the Committee on Small Business, called out JP Morgan Chase for favoring large clients by providing loans to its commercial banking customers first, while shutting out most of the bank’s smallest customers.
“Once the banks began processing loans, small businesses immediately began to raise concerns that they were playing favorites, processing the largest loans first out of a desire to reap higher fees, and shoring up their business lines by prioritizing existing larger customers over small mom and pop businesses,” wrote Warren and Velazquez.
A spokeswoman for JP Morgan Chase declined comment on the letter. But Chase denied allegations brought up in previous media reports that it mishandled PPP loans, saying the bank “processed loan applications generally sequentially.” The bank also said that about half of its loans were for less than $100,000, and the majority went to clients with fewer than 25 employees.
The first round of the PPP has come under intense criticism since the money ran out on April 16, only 13 days after the program launched. Small business owners ― in lawsuits and through the media ― have complained about how loans went to the well-connected, even though the SBA designed the program as “first come, first served.”
The fact that dozens of publicly traded companies were able to tap the loan program also concerned Warren and Velazquez, who asked the inspectors general to investigate how the businesses obtained the funds. The Democrats also wanted to know whether companies with close ties to the Trump administration got these loans.
On Thursday, the SBA updated PPP guidelines, saying that public companies must prove they need the money, and that is “unlikely” that a public company with substantial market value and access to capital markets would qualify for a loan.
The PPP is the centerpiece of the federal government’s rescue of small businesses forced to shutdown to contain COVID-19. Congress passed another round of PPP funding — $310 billion — as part of the next emergency package signed by President Trump on Friday.
The letter to the inspectors general comes on the heels of Massachusetts Attorney General Maura Healey sending letters on Wednesday to the CEOs of Bank of America, Santander, TD Bank, and Wells Fargo over their handling of the PPP. Her office has fielded numerous complaints alleging an unfair process that favored big customers.
Representative Joseph P. Kennedy III sent a similar letter on Friday to Bank of America CEO Brian Moynihan after hearing from aggrieved entrepreneurs. Kennedy is demanding the bank explain its process for doling out the federal loan money. “Small business owners deserve clarity and transparency as it is apparent institutions are not reviewing applications on a first-come, first-served basis,” he wrote.
Bank of America declined to comment on these allegations.
The PPP 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.
Shirley Leung is a Business columnist. She can be reached at firstname.lastname@example.org.