World banks are looking to siphon off some $18 billion in fees for facilitating the settlement of small business relief loans under the Paycheck Protection Program (PPP) that originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Washington Center for Equitable Growth’s (WCEG) policy director, Amanda Fischer, is cited by The Intercept as saying.
Fischer refers to a recent report from the WCEG, according to which financial institutions will collect around 3 percent of the aggregate total of $640 billion in PPP relief loans, just for processing the funds.
“If we did it through a public institution, there would be [more than] $140 billion left,” Fischer underscored, as opposed to the $130 billion still available for Americans.
Typically, banks resort to the fees to cover some of the costs that come with processing loans, such as call center time, employee hours spent on paperwork, besides risks in case some loans turn out to be fraudulent, says Fischer, however, the PPP loans are government-funded, which means the risks in this case ought to be negligible.
“Basically it’s free money,” claims Fischer, pointing to the hefty boons the arrangement entails for certain banks like JP Morgan Chase, which could obtain $864 million and New Jersey-based Cross River Bank potentially looking at $163 million in fees.
The WCEG policy director explains that lack existing public infrastructure in the US ready to quickly get money out to struggling businesses amid the coronavirus pandemic resulted in a situation where banks are “siphoning money off of the relief program”.
Slamming this as a “failure of preparedness,” Fischer adds:
“We should have invested in better systems.”
Previously the Small Business Association (SBA), that handles PPP relief programs, came under fire for not facilitating change to the infrastructure around accessing disaster relief funds. When the COVID-19 pandemic hit, the SBA was unable to manage the situation on its own, with Congress mandating that relief loans be run through banks.
Although deploring the situation, Fischer agreed that at the time it was too late to look for other options, saying:
“It’s hard to build the plane while you’re flying it.”
Besides the programme allowing banks to “skim” relief money, relying on these firms meant an uneven distribution of funds, claims Fischer, pointing to a study that found areas served by four of the largest US banks — JPMorgan Chase, Wells Fargo, Citibank, and Bank of America — had seemingly “underperformed” in providing PPP funding to businesses.
While voicing surprise at how little public comment there has been regarding the banks capturing such hefty sums in fees, Fischer pointed to a surge of outrage targeting companies and people that seemingly didn’t appear deserving of received PPP loans.
While the $18 billion collected by banks “is technically above board,” says the Policy Director of the Washington Center for Equitable Growth, she adds:
“But it’s a much bigger grift than some elderly person getting a check because their spouse died three months ago.”