Bloomberg.com published this article in their business section yesterday. Because many of our clients applied for financing with Wells Fargo and Bank of America, we are sharing the article for general interest.
April 20, 2020, 12:19 PM EDT Updated
on April 20, 2020, 5:08 PM EDT
- Banks prioritized large loan amounts for fees, lawsuits say
- Small-business owners say they were shut out of SBA program
Wells Fargo
& Co., Bank of America Corp., JPMorgan
Chase & Co. and US Bancorp were sued by small businesses that
accused the lenders of prioritizing large loans distributed as part of the
virus rescue package, shutting out the smallest firms that sought money.
The four banks processed
applications for the largest loan amounts because they generated the highest
fees, rather than processing them on a first-come-first-served basis as the
government promised, according to lawsuits filed Sunday in federal court in Los
Angeles.
As a result, thousands of small
businesses that were entitled to loans under the program administered by the Small
Business Administration, known as the Paycheck Protection Program,
were left with nothing, the plaintiffs said.
JPMorgan declined to comment on the
lawsuit. The bank said in a FAQ posted on its
website that its smallest business clients received more than twice as many
loans -- about 18,000 -- compared to larger customers of its commercial banking
and other units. JPMorgan’s business banking unit, which serves smaller
businesses, received more than 300,000 applications for loans.
US Bancorp said the lawsuit is
“without merit.”
“We continue to serve our small
business customers and are prepared to process loans as quickly as possible
should additional funds become available,” the bank said in an emailed
statement.
Representatives for Bank of America
and Wells Fargo didn’t respond to requests seeking comment.
The complaints are based on two
reports released by the SBA about the loans. One had data from April 3 when the
program launched through April 13, when about three-quarters of the program’s
funding had been claimed. The other report showed data as of April 16, after
the funding was exhausted and the SBA stopped taking applications.
The complaint says in the last three
days before the money ran out, loan applications for $150,000 and less were
processed at twice the rate of larger loans compared with the initial report,
suggesting the largest loans were front-loaded. But SBA hasn’t released data
showing loan activity by lender, or how many loans and what loan amounts were
processed on each day.
The plaintiffs in the lawsuits,
which are seeking class-action status, include an optometrist in Long Beach,
California, a frozen yogurt shop in Montrose, California, a marketing business
in San Diego, and a law firm in Los Angeles County.
The program, which was enacted last
month as part of a $2.2 trillion relief package in response to the outbreak,
offered loans of as much as $10 million that are guaranteed by SBA and
disbursed by lenders to small businesses. The loans convert to grants if
proceeds are used to keep workers on the payroll and cover rent and other
approved expenses for about two months, a short-term stopgap designed to help
businesses get by until the economy reopens.
Banks earned origination fees of 5%
on loans of up to $350,000; 3% on loans between $350,000 and $2 million; and 1%
on loans between $2 million and $10 million. That means they earned $17,500 for
processing a $350,000 loan, compared to $100,000 for a $10 million loan.
— With assistance by Zachary Mider
(Updates with plaintiffs in 10th
paragraph)
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