Several large banks have been sued by small businesses who say large business loans for coronavirus relief were prioritized over small firms, who were then unable to access the much-needed funds.
Wells Fargo, Bank of America, JPMorgan Chase US Bankcorp were named in the lawsuit accusing them of processing applications for the largest loan amounts due to the massive fees they would generate, vs. processing them on a first-come-first-served basis as the Trump administration said would happen, according to Bloomberg.
Banks earned origination fees of 5% on loans up to $350,000; 3% on loans between $350,000 and $2 million; and 1% on loans between $2 million and $10 million. That means they earned $17,500 for processing a $350,000 loan, compared to $100,000 for a $10 million loan. -Bloomberg
The lawsuits, filed Sunday in Los Angeles federal court, claims that thousands of small businesses trying to apply for the Paycheck Protection Program administered by the Small Business Administration were left with nothing.
JPMorgan said in a FAQ on their website that small businesses received over 2x as many loans as the rest of its clients combined, while other banks had no comment, according to the report.
The complaints are based on two reports released by the SBA about the loans. One had data from April 3 when the program launched through April 13, when about three-quarters of the program’s funding had been claimed. The other report showed data as of April 16, after the funding was exhausted and the SBA stopped taking applications.
The complaint says in the last three days before the money ran out, loan applications for $150,000 and less were processed at twice the rate of larger loans compared with the initial report, suggesting the largest loans were front-loaded. But SBA hasn’t released data showing loan activity by lender, or how many loans and what loan amounts were processed on each day. -Bloomberg
The PPP, which ran out of money last week, offered loans of up to $10 million which are guaranteed by SBA and accessed through lenders. If a company is able to keep workers on the payroll and cover rent and other approved expenses, the loans turn into a grant.
On Monday, burger chain Shake Shack announced that they would be returning $10 million they received under the PPP following outrage over large businesses and hedge funds accessing the program intended to save small businesses during the coronavirus pandemic.