The Trump administration’s reliance on large banks to distribute aid to small businesses under the Paycheck Protection Program and the lack of transparency requirements have caused many black-owned businesses to be excluded from the program. One bank, Wells Fargo, reported that it distributed just one PPP loan of more than $ 150,000 to a Black-owned business of the more than 12,000 it provided.
Even when they had better financial profiles than white-owned companies, black business owners faced racial discrimination from banks, according to a recent study. A disproportionate number of PPP loans flowed to mostly white areas, The New York Times reported.
Large banks face multiple class action lawsuits alleging that they prioritized existing corporate clients over needy small businesses. The economic shock of the coronavirus and lack of relief have left black-owned companies without a safety net, and up to half may not survive the pandemic.
Part of the reason so many black-owned companies were excluded is the lack of government oversight. The Treasury Department and the Small Business Administration did not require applicants or banks to report demographic information, not even how many jobs the loans would save.
Wells Fargo, one of the largest banks in the U.S., reported that it distributed 12,147 PPP loans worth $ 150,000 or more, according to data released by the Small Business Administration. It did not list how many jobs were retained on 8,190 of those loans, and reported zero jobs saved on 3,957 of those loans. The bank reported race and ethnicity data on just 37 of those loans, only one of which went to a Black-owned business.
A Wells Fargo spokesman said he did not submit the data because the government did not require it. However, the other four largest banks (Chase, Bank of America, Citibank, and US Bank) did not report job data for just 291 of more than 78,000 loans.
“The SBA did not require banks to submit payroll information (including any measures related to job retention),” the spokesperson said. “And we understand that this information will not be necessary until the loan forgiveness application process begins, where applicants will need to document their payroll information.”
The bank said the Small Business Administration similarly did not require the collection of race and ethnicity data, and therefore did not collect it. The spokesperson added that 41% of his reserved applications were for low- or moderate-income areas, and the average loan amount was just over $ 56,000.
“With the approval of the program extension, as well as the start of the forgiveness process, we know that our work is far from over,” said the spokesperson, “and we will continue to work tirelessly to support our clients and the small business community both in the context of the APP as beyond “.
A government watchdog argued that the SBA should have required this information from the start, and blamed the movement for the difficulty black-owned companies have faced in obtaining much-needed relief.
“Trump PPP was unable to support small businesses in communities of color that are disproportionately affected by this crisis, while wealthy publicly traded companies received the red carpet treatment,” said Kyle Herrig, president of the watchdog group. Progressive Accountable.US, which launched TrumpBailouts to track recipients of federal aid, said. “The rejection of transparency and accountability sent a clear message to banks that they were free to ignore small, black, Latino or Asian business owners who needed it without consequence, and that is exactly what they did. Congress needs to replace PPP with a new program that ensures resources reach underserved communities across the country. “
The problem is not limited to Wells Fargo. Hundreds of thousands of loans distributed by banks listed zero jobs saved, which experts say “will make accountability a challenge.” This can also cause problems for companies when loan forgiveness begins.
“It is going to be a huge disaster,” Veronique de Rugy, principal investigator at the Mercatus Center at George Mason University, told Marketwatch. “Companies that have done everything right will be denied forgiveness, and vice versa. If you’re not even asked how many employees you started with in the application process, then you’re in big trouble.”
Part of the problem, added Aaron Klein, a member and chief policy officer at the Brookings Institution’s Market and Regulation Center, is that the “government depended on the banks.”
It is unclear why the SBA provided so few requirements for banks, given that many have a controversial past when it comes to racial discrimination.
In 2012, Wells Fargo settled with the Justice Department for $ 175 million after being charged with charging black and Latino applicants the highest rates and fees for mortgage loans. It also agreed to pay millions to Baltimore homeowners, who sued the bank in 2008 for “reverse redistribution” practices that resulted in higher foreclosure rates in minority communities.
In 2017, the Comptroller of the Currency said that the bank “suspended” its testing of loans to the community due to the “length and appalling nature of the evidence of discriminatory and illegal credit practices” and the “widespread and widespread pattern and practice of violations across multiple lines of business within the bank. “
Last year, the bank struck a $ 10 million settlement with Philadelphia after being accused of discriminating against minority borrowers and violating the Fair Housing Act by leading black and Latino borrowers to mortgages that were “riskier and more expensive than those offered to similarly situated white houses. “Buyers,” reported The Philadelphia Inquirer.
A federal investigation last year also found that the bank had discriminated against thousands of black and female job seekers.
Despite its history, the Federal Reserve raised its asset limit at the bank to be able to offer PPP and other aid loans after it was prevented from increasing its assets as a result of several scandals. The bank has paid more than $ 18 billion for “widespread customer abuse” since the 2008 financial crisis. In 2017, the bank admitted to creating around 3.5 million fake accounts to meet sales targets.
The bank is now facing a class action lawsuit accusing it of unfair practices against some small businesses that applied for PPP loans, as well as a federal investigation into their PPP loan practices.
