Banks, which cashed in during the 2008-2009 financial crisis, are cashing in again during the coronavirus crisis.
The banks that are handling the government’s $349-billion Paycheck Protection Program loan program for small businesses earned more than $10 billion in processing fees, according to an analysis of financial records by NPR.
For every transaction made, banks working with the Small Business Administration took 1 percent-to-5 percent in fees, depending on the amount of the loan, according to government figures. Loans worth less than $350,000 brought in 5 percent in fees while loans worth anywhere from $2 million to $10 million brought in 1 percent in fees, NPR reported.
The parent company of Ruth’s Chris Steak House, for example, received a loan of $10 million. JPMorgan Chase & Co., acting as the lender, took a $100,000 fee on the one-time transaction. Ruth’s Chris Steakhouse owner RCSH Operations LLC later said it would repay $20 million in small business loans it has received under the PPP deal.
“Banks do collect fees when processing any SBA loan, but rarely, if ever, have banks processed this volume of loans this quickly with fees ranging past $10 billion in a two-week period,” NPR reported. The SBA did not respond to detailed questions about the program.
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Some aren’t happy about all these fees being collected by major banks. Stalwart Law Group has filed five class-action lawsuits alleging that banks processed clients with larger loans first because they could receive more money in fees. And by the time the banks got around to processing loans from smaller clients, the program had run out of money, the lawsuit claims.
“Rather than processing Paycheck Protection Program applications on a first-come, first-served basis as required by the rules governing that program,” the lawsuit says, “(the banks) prioritized loan applications seeking higher loan amounts because processing those applications first generated larger loan origination fees for the banks.”
The banks say they did nothing wrong.
“We funded more than twice as many loans for smaller businesses than the rest of the firm’s clients combined,” JPMorgan said in a statement to clients. “Each business worked separately on loans for its customers. Business Banking, Chase’s bank for our smaller business customers, processed loan applications generally sequentially, understanding that a given loan may take more or less time to process. Our intent was to serve as many clients as possible, not to prioritize any clients over others.”
But guidelines from the Treasury Department gave lenders “delegated authority to speedily process PPP loans.”
“Lenders are permitted to rely on borrower certifications and representations,” the department’s guidance told banks.
There is evidence that many of JPMorgan’s biggest customers who applied for small business loans got them.
The suits allege that the banks “concealed from the public” that they were “reshuffling the PPP applications it received and prioritizing the applications that would make the bank the most money.”
According to a spokesperson for Citibank, the bank distributed 6,753 loans worth $1.1 billion. Of those loans, just five worth $25 million were issued to private bank clients, Salon reported
“There is also evidence that a substantial amount of PPP loans have gone to large hotel and restaurant chains, rather than the struggling small and minority-owned businesses who may be forced to permanently close their doors without urgent assistance,” said Sen. Gary Peters, D-Mich., the top Democrat on the Homeland Security and Governmental Affairs Committee. “I am concerned that PPP loans may not have gone to those who need them most.”