Banking and Finance Law Daily New report finds Trump administration failed to assist struggling small businesses
News
Monday, October 19, 2020

New report finds Trump administration failed to assist struggling small businesses

By Stephanie K. Mann, J.D.

In an examination of the Paycheck Protection Program, the House Select Subcommittee on the Coronavirus Crisis found that the Treasury Department and Small Business Administration encouraged big banks to provide loans to wealthy, existing clients.

In a new staff report from the House Select Subcommittee on the Coronavirus Crisis on the Paycheck Protection Program (PPP), the legislators found that the Treasury Department and Small Business Administration have encouraged big backs to provide loans to their wealthy existing clients to the detriment of small businesses in underserved communities who may be struggling. The PPP was created as part of the Coronavirus Aid, Relief, and Economic Security Act to help small businesses and non-profit organizations survive the coronavirus pandemic "by providing forgivable loans to cover payroll, rent, and utility payments." The CARES Act encouraged the SBA to issue guidance stating that the funds should be prioritized for entities in underserved and rural markets, including businesses owned by veterans, members of the military community, socially and economically disadvantaged individuals, and women.

"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 Subcommittee’s press release. "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 funding than larger, wealthier companies."

The report found that Treasury, SBA, and several large financial institutions failed to implement PPP as Congress intended in at least three critical respects:

  1. Treasury privately encouraged banks to limit their PPP lending to existing customers, excluding many minority and women-owned businesses. Documents obtained by the Subcommittee show that Treasury privately told lenders to "go to their existing customer base" when issuing PPP loans.
  2. SBA and Treasury failed to issue guidance prioritizing underserved markets, including minority and women-owned businesses. SBA and Treasury did not issue any meaningful guidance to lenders to prioritize underserved markets as Congress urged in the CARES Act.
  3. Several lenders processed bigger PPP loans for wealthy customers at more than twice the speed of smaller loans for the neediest small businesses. Several financial institutions set up PPP lending programs in which larger commercial clients enjoyed a separate, faster process.

"The Administration’s implementation failures had consequences," the report observed. "The Federal Reserve Bank of New York reported, ‘Since the onset of the COVID-19 pandemic, Black business ownership has sharply dropped.’ Forty-one percent of businesses owned by African Americans failed between February and April 2020, higher than any other demographic group and more than double the percentage of White-owned businesses that closed over the same period."

ABA statement. In response to the report, the American Bankers Association criticized the Subcommittee for failing to take into account the unprecedented actions taken by the banks to get the PPP "off the ground in the middle of a pandemic" and the banks’ efforts to make it a success. According to the trade association, banks were always encouraged to process loans for both new and existing customers, but due to the need to process applications quickly, banks often processed applications from existing customers first since they already had the borrower information in their systems. In addition, the ABA said, at the beginning of the pandemic, banks struggled to meet regulatory requirements, including Know Your Customer rules, but as time passed, the Treasury and SBA were able to provide additional clarity, which made it easier to process new customers under the PPP.

Companies: American Bankers Association

MainStory: TopStory BankingOperations CommunityDevelopment Covid19 Loans OversightInvestigations

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More

Banking and Finance Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on banking and finance legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.