Subcommittee Probe: Treasury Hampered CDFI Participation in PPP

The Trump Administration threw roadblocks in front of Community Development Financial Institutions that wanted to participate in the Paycheck Protection Program in its early days, while at the same time, it encouraged the largest banks to make loans to their best customers, a House Subcommittee charged Friday.

“As a result of these delays and challenges, many minority and women-owned small businesses that traditionally bank with CDFIs and [Minority Depository Institutions] faced difficulties obtaining PPP loans during the critical early phase of the program,” the staff of the Democratic-controlled House Select Subcommittee on the Coronavirus Crisis said as it released the results of its investigation into the PPP program.

At the same time, “Treasury privately encouraged banks to limit their PPP lending to existing customers, excluding many minority and women-owned businesses,” the subcommittee said. “Documents obtained by the subcommittee show that Treasury privately told lenders to ‘go to their existing customer base’ when issuing PPP loans.”

CUNA Chief Advocacy Officer Ryan Donovan said the results of the subcommittee’s investigation are not surprising.

“The challenges credit unions and other small lenders faced as they navigated the PPP and the SBA’s antiquated system have been well documented,” he said. “It was so difficult at some points that they had to shut down the system for large lenders to allow smaller lenders to process loan applications. So, when you think about all of those problems and the delays in getting the forgiveness process started, the findings in the report, while incredibly disappointing, are sadly not surprising.”

The subcommittee reported that CDFIs and MDIs were largely excluded from the first round of PPP lending. During that first round, those institutions made just 65,000 out of 1.67 million loans. Only later did the Trump Administration set aside PPP funds for those lenders.

Officials from the banking industry told the subcommittee that Treasury wanted banks to lend to their existing customers, with a JPMorgan official telling the panel that  “From early on there was an understanding from Treasury that banks were working with existing clients.”

The report said Treasury Department officials denied that allegation.

The panel said that Treasury and the Small Business Administration should issue clear guidance instructing financial institutions to place a priority on underserved markets in a manner consistent with fair lending laws.

The subcommittee also said if Congress extends the PPP, Trump Administration officials should work with CDFIs and MDIs to ensure that they are equipped to handle additional loan volume and have the technical assistance to handle new loan applications.