Banks Accused Of Rigging Aid Program Against Small Businesses
LOS ANGELES, CA — Separate class-action lawsuits filed in Los Angeles accuse the nation's largest banks of rigging the application process for the federally funded aid program designed to help small businesses imperiled by the coronavirus pandemic. The lawsuits allege JPMorgan, Bank of America, Wells Fargo and US Bank allowed bigger companies to drain the Paycheck Protection Program while passing over smaller companies seeking emergency loans.
Bank officials deny the allegations.
The lawsuits cap weeks of frustration over the disbursement of $349 billion Congress allocated in emergency funds to help American businesses survive the COVID-19 pandemic under the CARES Act. The PPP program which launched on April 3 was intended to provide loans up to two and a half times the total of a business owner's monthly payroll but ran out of funds Thursday, leaving most of the small business applicants empty-handed, according to the plaintiffs. According the the lawsuits, the banks shuffled the large loans to the front of the line because they proved to be more profitable for the banks.
More than 25% of the aid went to less than 2% of the firms that got relief including several publicly traded companies with thousands of employees and hundreds of millions of dollars in annual sales, Reuters reported. Amid uproar over the process, at least one major chain, the Shake Shack, announced it would return its Paycheck Protection Program loan so that companies in greater need could access the cash.
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Even now, the White House and Congress are trying to fashion another bailout package aimed at helping to mitigate the pandemic's economic and health consequences. The new package would amount to roughly $470 billion in new spending, including $370 billion directed to small businesses. President Donald Trump said he hoped for a Senate vote on Tuesday.
According to the lawsuits filed Sunday, instead of a "first-come, first-served basis," the banks processed the biggest loan amounts first because it increased the banks' origination fees while leaving more than 90% of the small businesses owners who applied for loans out of luck once the funds were depleted. An origination fee is the compensation the lender receives for processing a new application.
A JPMorgan spokesman declined comment, but provided informational material stating that nearly 70% of the applications approved and funded by the bank were from smaller businesses clients with roughly $20 million in revenue or less, while 80% of the bank's paycheck protection loans have been for businesses with less than $5 million in revenue.
"We have more than 40,000 applications that are now fully processed, complete, and ready to submit to the (Small Business Administration). We are fully prepared to help our customers when the next round of funding is approved," according to JPMorgan's statement.
A Bank of America representative said only that the institution denies the allegations.
A Wells Fargo spokeswoman also declined to comment on the lawsuit, but provided a statement saying the bank is "working as quickly as possible to assist small business customers with the Paycheck Protection Program in compliance with the regulations and guidance provided by U.S. Treasury and the SBA."
"We have mobilized thousands of employees and launched new technology to better assist customers seeking assistance via the Paycheck Protection Program," according to Wells Fargo's statement.
US Bank issued a statement saying it plans to "vigorously" defend itself because the lawsuit is "without merit" and the "cumulative industry data provided by the SBA is not reflective of U.S. Bank's practices or results. We continue to serve our small business customers and are prepared to process loans as quickly as possible should additional funds become available."
The SBA officially ran out of money for the PPP last week. Negotiations have been ongoing since then to inject more money into the program.
City News Service and Patch Staffer Paige Austin contributed to this report.
This article originally appeared on the Hollywood Patch
