Major Banks Sued for Handling of Paycheck Protection Program Loans
The federal government’s Paycheck Protection Program was part of the $2 trillion stimulus package bill approved recently. This was a $349 billion emergency small business lending program meant to keep businesses afloat and staffers employed in the wake of the coronavirus pandemic.
PPP is now already out of funds, but could receive more money in the next few days. It launched with many issues, and even more surfaced later when large companies such as Shake Shack for example received funding due to a loophole. On the other hand many other real small businesses never even heard anything back regarding their applications.
Now several lawsuits filed on behalf of small business owners accuse some of the nation’s biggest banks, JPMorgan Chase, Bank of America, Wells Fargo and U.S. Bank, of unfairly allocating these government-backed loans to certain small businesses.
The banks are accused of prioritizing small business borrowers who were seeking larger loan amounts under the federal government’s Paycheck Protection Program. This was in order to generate bigger loan origination fees for the bank, rather than processing the applications on a first-come, first-serve basis. Banks are paid a percentage of these loans, so the bigger the loan the bigger the payout for the banks. Big banks received nearly $6 billion in processing fees, according to the lawsuit.
The lawsuit compares loan amounts in the first 10 days and then the last 3 days Fox News reports. “Comparing the April 13 data to the April 16 data shows that — in the last three days of the PPP — banks processed loan applications for $150,000 and under at twice the rate of larger loans,” the lawsuits read. This shows that the larger loans were processed first/ If applications were processed on a first-come, first-serve basis, “the percentage change of applications submitted in the last three days of the program would be consistent among all application types,” the lawsuits read.