Big banks generated billions in fees from Paycheck Protection Program

The Paycheck Protection Program, a small-business lending facility created by the Trump administration and Congress amid the pandemic, has generated more than $18 billion in fees for the nation’s banks, according to a new data analysis by McClatchy and the Miami Herald.

Since its creation in April, banks have helped funnel more than $525 billion in forgivable government loans to small businesses willing to keep their doors open and their workers employed. The program hasn’t just helped struggling businesses, as it appears to have thrown a lifeline of sorts to banks that have seen their lending activities and loan portfolios sag under pandemic strains.

JP Morgan Chase & Co., the biggest bank in the country, led all banks in both loans and fees, lending an estimated $29.3 billion in PPP loans and earned fees just over $1 billion. It was followed by Bank of America Corp., which lent out $25.5 billion in PPP money and generated fees of more than $947 million. Those two far outpaced the third-largest lender by value, Wells Fargo & Company, which processed about $10.5 billion in PPP loans with fees of nearly $427 million.

“You can see it as a stimulus at a time when the banks most needed it during a recession,” said Ken Thomas, a South Florida bank analyst. “The last thing you want during a pandemic is a financial crisis. We want our banks strong. That’s what keeps the economy going. ... It was a stimulus to the banks. It kept them in the game.”

Under the program’s rules, banks were promised fees on a sliding scale for processing loans in the program. They earned a 5% fee on loans under $350,000, 3% on loans between $350,000 and $2 million and 1% on loans above $2 million.

By comparison, banks typically charge businesses an origination fee between 1% and 6% on the average small business loan. Using the Small Business Administration’s fee schedule, McClatchy’s analysis showed that banks approved loans that would have netted them nearly $18.2 billion in fees.

As a reference point, $18 billion is about what the Trump administration proposed in its most recent budget for the Department of Education to spend on grants to improve schools in impoverished inner cities and on Native American reservations.

Aware of the optics of such big fees, some of the largest banks had already pledged to put this money back into programs that help small businesses and non-profit, community-based organizations.

The largest PPP lender, JP Morgan Chase said it intended to return any profits to communities.

“The firm does not intend to earn a profit from PPP and remains fully committed to supporting programs that help small businesses — especially minority-owned businesses and underserved communities that have been economically impacted by the pandemic,” said Nicole Robbat, a spokeswoman.

Bank of America said it would similarly steer proceeds to supporting small businesses and local communities.

Wells Fargo said it was donating all fees earned — and not first subtracting expenses — and would distribute some $50 million in grants over the next five weeks to community financial entities to help small business owners get through the holiday season.

While the nation’s biggest banks were among the top fee earners in the PPP program, a few smaller banks also cracked the top of the list.

Cross River Bank Inc. generated nearly $300 million in estimated fees, seventh most of any bank in the country, but has only one branch in New Jersey.

The bank approved more than $6.4 billion in PPP loans through its partnerships with financial technology companies such as BlueVine, which largely rely on technology rather than people to approve loan applications — hastening the approval process even with fewer employees.

But that speed can come at a cost. The bank has approved a large share of fraudulent loans, according to an analysis of PPP fraud cases by the Project on Government Oversight.

The bank didn’t respond to multiple requests for comment.

McClatchy and the Miami Herald previously documented how the PPP program was a boon for the struggling online lender Kabbage, which had furloughed a number of employees at the beginning of the pandemic but shored up its books through heavy involvement in the program. The online lender ultimately approved more than $3 billion in PPP loans and took in an estimated $145 million in fees, but it approved loans to a disproportionate share of companies flagged by McClatchy and the Herald as potentially ineligible for the program. Kabbage’s success in the program helped make it an attractive acquisition target, and American Express agreed to purchase the company in August.

Zions Bancorporation, the 39th largest bank by assets in the country, earned roughly $220 million in fees, 10th most of any bank in the program.

A company spokesman said the bank’s outsized performance was due to the “long hours” put in by employees to process loan applications. He said the fees earned by the bank were fair given the effort the bank put forth, and that it would be donating a portion of the proceeds.

“We have spent tens of millions of dollars, and will spend another sizable sum to process the application, the funding, and the forgiveness of the PPP loans,” said James Abbott. “We also contributed $30 million to charity as a result of our success with the program.”

Another bank was conspicuous by its absence near the top of the list. Citibank is fourth largest by size in the country, but was 21st in terms of PPP loan volume.

That caught the notice of Thomas, the South Florida banking consultant.

“My biggest issue would be with the banks who are not high on that list because they weren’t making PPP loans and helping the community,” he said.

The bank declined to provide specific comment but defended its level of participation in the program, directing McClatchy to a company blog post that pointed out that the bank has a smaller small-business lending practice than its peers.

Some of the approved loans included in McClatchy’s analysis were never actually distributed, meaning that the amount banks took in was likely lower. The SBA also reserves the right to claw back fees from loans that are ultimately determined to be ineligible.

When the PPP was first launched, the Miami Herald and its parent, McClatchy, documented how business owners complained they were unable to access the funds, and that the largest banks appeared to be providing loans to customers who already owed them money, effectively backstopping their own outstanding lending.

And smaller community banks were vociferous in their complaints that the larger lenders were dominating the program, even as lending to small businesses is the niche that distinguishes community banks.

A second round of PPP lending included a carve-out for community banks and they have since worked to get loans out to small businesses. Ironically, these smaller banks are likely to have brought in more in fees in relative terms than their larger counterparts since the fee percentage is higher for lower-value loans.

That doesn’t mean the fees translated to profits, cautioned Paul Merski, vice president of the Independent Community Bankers Association.

“The work involved with the PPP loan is far more intensive than they ever anticipated. They’re ending up putting in dozens of hours into each one of these loan applications and the [loan] forgiveness portion is very complex,” said Merski, citing one member who showed him a forgiveness application with 200 attachments. “A lot of the loans will be break-even or at a loss because of the amount of time dedicated to it.”