Wells Fargo, Bank of America and other lending giants are the subjects of a class-action suit that alleges they abused a federal stimulus program
Wells Fargo, Bank of America, U.S. Bank and JPMorgan Chase have been accused of shuffling the order of stimulus loans in order to maximize their own profits.
A series of class-action lawsuits filed in California and New York accuse the banks of maximizing the fees they were paid to participate in the federal government’s Paycheck Protection Program, according to a report by The Charlotte Observer. The lawsuits accuse the banks of submitting larger loans to the Small Business Administration ahead of smaller ones.
The upshot was that larger businesses got greater access to PPP funds before the program ran out of funding, the Observer reported. Banks are supposed to process PPP applications on a first-come, first-served basis.
The PPP was backed by $349 billion from the federal stimulus package passed last month. Through the program, a business with fewer than 500 workers could get a loan of up to $10 million. That money has already been exhausted, but lawmakers have agreed to replenish the coffers with an additional $320 billion, according to the Observer. So far, banks have reportedly collected more than $10 billion in fees from the program.
Banks make between 1% and 5% in fees on each PPP loan, depending on size, according to the Observer. For loans under $350,000, banks pocket a 5% fee, while they make 1% for loans between $2 million and $10 million. For a $10 million loan, banks pocket $100,000. On a $100,000 loan, banks make $5,000.
Data released by the Small Business Administration seemed to show a trend in PPP loans submitted to the agency. On April 13, 30% of the loans processed by the SBA were for more than $150,000 – meaning they were for larger small businesses, according to the Observer. That figure fell to 26% on April 16, as the PPP ran out of money.
Ji-In Lee Houck, a lawyer with the Stalwart Group – the firm behind the lawsuits – said that trend showed that the banks were prioritizing larger loans.
“There’s plenty of evidence so far already that these were not taken in order and larger loans were processed ahead of smaller ones,” she told the Observer.
According to the lawsuits, the banks intentionally prioritized the larger loans in order to maximize their fees.
“Banks front-loaded applications for the largest loans. Because, if applications were being processed on a first-come, first-served basis as required, the percentage change of applications submitted in the last three days of the program would be consistent among all application types.”
Bank of America and U.S. Bank have both denied the allegations, according to the Observer. Wells Fargo and JPMorgan Chase declined to comment.