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The Treasury has encouraged banks to prioritize PPP loans for existing customers

On April 24, 2020, United States President Donald Trump shows a salary protection program and health care improvement act signed in the Oval Office of the White House in Washington, DC.

Olivier Douliery | AFP | Getty Images

The Treasury Department privately encouraged banks to prioritize existing customers during the implementation of the federal government̵

7;s salary protection program that provided coronavirus relief to small businesses, according to a report on Friday from a surveillance panel in the US. Room.

The Trump administration’s directive to favor existing customers in PPP lending decisions has disproportionately harmed minorities and women-owned businesses, the Democrat-led select subcommittee on the coronavirus crisis said in its report.

“As a result, small businesses that really needed financial support during the economic crisis often faced longer waits and more hurdles to receive PPP funding than larger and wealthier companies,” the Congressional group said in a statement. declaration.

Congress established the PPP as part of the CARES Act, designed to provide repayable loans to small businesses and nonprofits to help them overcome the Covid-19 pandemic and preserve jobs. The Small Business Administration has relied on banks and other private lenders to process the funds.

Documents obtained by the subcommittee revealed that the Treasury told banks to “go to their existing customer base” when lending, according to an email sent by American Bankers Association CEO Rob Nichols to the board of directors. administration of the group on 28 March. .

“From the beginning there was an understanding from the Treasury that banks were working with existing clients,” Jennifer Roberts, a senior banker at JPMorgan Chase & Co, told the subcommittee in July, according to the report.

Banks and other financial institutions faced difficulties in screening new customers and processing applications in a timely manner during the early implementation of the PPP. The congressional jury found that seven of the eight banks involved in its investigation restricted PPP lending to existing customers.

But this tactic has hurt disadvantaged groups, the House panel found. Research shows that minority and women-owned businesses are less likely to have existing relationships with lenders.

An August report from the Federal Reserve Bank of New York found that 41% of black-owned businesses closed between February and April 2020, a percentage higher than any other demographic. The New York Fed pointed to “racial disparities in access to federal relief funds”, including “large gaps in PPP coverage.”

In the CARES Act, Congress specified that “the Administrator should provide guidelines to lenders and agents to ensure that the processing and disbursement of covered loans gives priority to small businesses and entities in rural and underserved markets. “.

According to financial institutions interviewed by the subcommittee, the report concluded that neither the Treasury nor the SBA offered “meaningful” directives for lenders to prioritize disadvantaged groups.

The Congressional jury also found that several banks in their investigation processed PPP funds for larger business customers at a faster rate than smaller loans, offering different channels and levels of customer care depending on the type of customer.

“JPMorgan processed loans over $ 5 million nearly four times faster than loans under $ 1 million,” the report details. “PNC processed loans in excess of $ 5 million more than double that of loans of less than $ 1 million.”

The Treasury and ABA did not immediately respond to CNBC’s request for comment.

A spokesperson for the SBA said in a statement: “PPP loans have been widely distributed, with around 27% of funds going to low and moderate income communities, which is proportional to their percentage of the population.”

A spokesman for the Republican subcommittee said in a statement: “The PPP has helped support over 51 million jobs across the country, including tens of millions of jobs in rural and minority communities. President Pelosi and the Democrats. the House harmed minority-owned small businesses and disadvantaged populations by blocking a PPP extension nearly 40 times on the house floor. “

The report comes as efforts continue to pass a new coronavirus stimulus package, with President Donald Trump, Treasury Secretary Steve Mnuchin, and Senate leaders at odds.

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