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Dem Letter on PPP Demands Rules Requiring Equitable Lending from Banks

April 16, 2020
Press Release

WASHINGTON, DC — Today, Democratic Members of the House of Representatives, led by Rep. Judy Chu (CA-27), chair of the House Small Business Subcommittee on Investigations, Oversight, and Regulations and Committee Chairwoman Nydia M. Velázquez (NY-07) sent a letter to US Treasury Secretary Steven Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza urging new rules for the Paycheck Protection Program (PPP). The PPP was established by Congress to help small businesses survive the coronavirus crisis without having to let go of staff. However, when SBA and Treasury expanded lending participation to all federally insured banks, they did not include any rules to prohibit exclusionary or inequitable practices. As a result, the nation’s largest banks limited applications to only their highest-value existing business customers, excluding the majority of small businesses – including many of their current customers. This has overwhelmed small banks and community lenders with applicants who have been denied service by the largest lenders. The letter, signed by 38 members, urges SBA and Treasury to correct this by immediately issuing new rules to require PPP lenders to treat all applications equally by forbidding the imposition of any application restrictions not specified by Congress or the Administration. Rep. Chu issued the following statement:


“We are in the midst of a crisis. With Americans being told to stay home to contain COVID-19, businesses are furloughing employees, or shutting down altogether. That is leaving millions unable to afford food for their families or pay their bills. That is why Congress acted decisively to implement the Paycheck Protection Program (PPP) to keep employees paid. But by expanding lending authority to the country’s biggest banks without requiring equitable lending, Treasury and the SBA created a system that has left the majority of small businesses – those the PPP was most meant to help – out of luck. This is not only harmful, it’s needless. PPP was established with no risk to lenders. This was done to maximize lending. But letting banks pick and choose only the most profitable clients is counterproductive. Now, as it becomes clear that we will need to put even more money into the popular and necessary PPP, this is also an opportunity for us to ensure it gets to the businesses that need it most. SBA and Treasury must act immediately to fix this and get the money Congress approved into the American people’s hands.”


The letter is online here and included below.

The Honorable Jovita Carranza                                              The Honorable Steven Mnuchin
Administrator                                                                          Secretary
U.S. Small Business Administration                                      U.S. Department of the Treasury
409 3rd Street SW                                                                  1500 Pennsylvania Avenue NW
Washington, DC 20416                                                          Washington, DC 20510

Dear Administrator Carranza and Secretary Mnuchin:

We write to urge immediate action that ensures fair and equitable administration of the Paycheck Protection Program (PPP) by participating lending institutions.

Congress established PPP to ensure that small businesses and nonprofits could secure the financing they need to survive mandated closures and business reductions resulting from the COVID-19 pandemic without laying off their employees. The successful and effective administration of this program is critical for the millions of impacted business owners and their workers. In the last two weeks of March, the U.S. saw nearly 10 million workers file unemployment insurance claims, an unprecedented number. At least 54% of small businesses in the country have either closed or expect to close within weeks, and public health experts and economists warn that the country is “nowhere close” to reopening.

The CARES Act (P.L. 116-136) specified that all current SBA certified 7(a) lenders are automatically qualified to participate in PPP may process and approve applications under delegated authority. It also authorized the SBA Administrator and Treasury Secretary to extend participation to additional lenders to meet the extreme need for assistance in the small business community. SBA and the Treasury Department exercised that authority by extending participation to all federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions. In doing so, SBA and Treasury assumed responsibility for setting rules and regulations to ensure that these lending institutions would administer PPP loans equitably and fairly.

SBA’s Interim Final Rule [Docket No. SBA-2020-0015], however, does not prevent lenders from setting unreasonable, exclusionary, and inequitable conditions on applicants. The nation’s largest banks, including Bank of America, JPMorgan Chase, and Wells Fargo, all engaged in this behavior, announcing they would be accepting applications only from customers with a pre-existing business lending relationships or business checking accounts. Wells Fargo announced on April 6, one business day after the program’s launch, that it would not accept any more PPP applications. 

Allowing participating lenders to categorically exclude the majority of small businesses and nonprofits from submitting PPP applications has created an environment in which the most powerful banks pick and choose only the largest and most attractive borrowers. As we have all observed, this practice has overwhelmed smaller banks, participating CDFIs and other lenders with the remaining applications, leaving countless small business owners without options for submitting a PPP application and accessing the assistance Congress sought to provide. 

It is important to recognize that PPP loan products are favorable for lenders. The federal government assumes all risk and holds lenders harmless in the approval process. In exchange, SBA and Treasury must ensure that participating lenders are maximizing borrower access to PPP loans, rather than restricting PPP loans to businesses who represent significant potential losses for the bank, or on which the bank will earn the highest profits. Our nation’s small businesses are suffering, and it was Congressional intent in creating the PPP that they have the necessary resources to withstand this economic disruption.

We urge SBA and Treasury to immediately issue rules requiring PPP lenders treat all applications equally by forbidding the imposition of any application restrictions not specified by Congress or the Administration.