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Banks raked in $10 billion in fees for handing out US-backed loans to shore up small businesses battered by the coronavirus — despite taking on little to no risk on the deals, a new report says. The feds paid banks for serving as intermediaries for the $349 billion Paycheck Protection Program, which allowed any federally …
Banks raked in $10 billion in fees for handing out US-backed loans to shore up small businesses battered by the coronavirus — despite taking on little to no risk on the deals, a new report says.
The feds paid banks for serving as intermediaries for the $349 billion Paycheck Protection Program, which allowed any federally insured bank or credit union to field applications for rescue loans and pass them on to the US Small Business Administration for approval, NPR reported Wednesday.
As compensation for getting the money out the door, the SBA promised banks processing fees that varied by the size of the loan. They ranged from 1 percent for loans of at least $2 million to 5 percent for those up to $350,000.
That allowed JPMorgan Chase to make $100,000 for handling a single $10 million loan to the parent company of the Ruth’s Chris Steak House restaurant chain, according to NPR. Other banking giants including Bank of America and PNC Bank also reportedly collected the fees.
The banks reaped the cash even though they took on next to no risks for the loans, which the federal government guaranteed with taxpayer money, the radio network reported. The loans were also reportedly less labor-intensive to process because banks were not required to verify applicants’ claims about their assets.
Bank of America stood by the fees, telling NPR that the program had “significant vetting requirements” such as “collecting, personally examining, and storing data” that’s needed for the applications.
The bank added that it had 8,000 workers helping businesses that could get on the next round of loan funding. The initial appropriation for the program ran out last week, but the Senate passed a bill Tuesday that includes more than $320 billion to keep it going.
The Paycheck Protection Program has also faced criticism for allowing big publicly traded companies to get help while many Main Street merchants were left out in the cold. Well-heeled firms that got loans in the first round included the Potbelly Sandwich Shop restaurant chain and Wilhelmina International, a celebrity modeling agency.
