Letter to SBA and Treasury Inspectors General on the Paycheck Protection Program — Elizabeth Warren
- Date
- 2020-04-23
Archived source: Letter to SBA and Treasury Inspectors General on the Paycheck Protection Program — Elizabeth Warren. Captured from www.warren.senate.gov.
Cited in: Emily Flitter · Stacy Cowley
Full text
April 23, 2020
Mr. Hannibal “Mike” Ware
Inspector General
Office of the Inspector General
U.S. Small Business Administration
409 3rd Street, S.W., Suite 7150
Washington, DC 20416
Richard K. Delmar
Acting Inspector General
Office of the Inspector General
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
Dear Mr. Ware and Mr. Delmar:
We write to request your offices open an investigation into the implementation of the Paycheck
Protection Program (PPP) created by the Coronavirus Aid, Relief, and Economic Security Act
(CARES) Act. This program was created to support millions of small businesses that have been
devastated by the economic collapse caused by to the novel coronavirus 2019 (COVID-19)
pandemic, and the need for this program has become so important that Congress has already
allocated an additional $310 billion in support of its goals.
We supported the program and the extension of funds because small businesses are facing dire
needs. But now that the program has been replenished, Congress and the Administration have a
responsibility to ensure that these funds are helping the businesses they are designed to help, and
that they are being distributed consistent with the law and without waste, fraud, and abuse.
The CARES Act tasked the Small Business Administration (SBA) and the Department of
Treasury (Treasury) with the implementation of the $349 billion PPP1 to quickly disburse loans
to keep small businesses afloat amid the economic downturn resulting from the shutdown caused
by the spread of COVID-19.2 Under the program, small businesses, private non-profit
organizations, or 501(c)(19) veterans organizations with less than 500 employees affected by
COVID-19 can apply for loans,3 which are forgivable “if all employees are kept on the payroll
1
CARES Act, § 1102 (b)(1)
2
CARES Act, § 1102
3
U.S. Small Business Administration, “Paycheck Protection Program (PPP), https://www.sba.gov/funding-
programs/loans/paycheck-protection-program-ppp
for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.”4 These
loans are processed and disbursed by banks, credit unions, and other SBA-certified lenders.5
Congress created this structure to prevent bottlenecks and allow banks and credit unions in every
community to quickly and easily administer this small business assistance.
But even before the program officially began – and as banks opened their door to the first small
businesses seeking loans on April 6, 2020, there were reports of numerous problems with the
SBA and Treasury Department rules and implementation of the law, and it became apparent that
agency leadership did not take adequate steps to prevent a number of foreseeable errors.
SBA rules imposed a complicated restriction on how the funds could be used – requiring that at
least 75% of all loans be used for payroll– that was not part of the law.6 Lenders reported
difficulties with accessing SBA’s loan-processing system and the first days of the program were
riddled with confusion over the types of documentation they were required to collect and
transmit on behalf of applicants.7 Community banks and credit unions raised concerns that the
SBA’s initial guidance would not let them register and qualify as lenders for the program.8 And
many small businesses reported that they were not hearing back via email or phone from the
SBA or banks about their loan applications when they sought assistance or updates.
Once the banks began processing loans, small businesses immediately began to raise concerns
that they were playing favorites, processing the largest loans first out of a desire to reap higher
fees, and shoring up their business lines by prioritizing existing larger customers over small mom
and pop businesses.9 For example, JP Morgan “provided loans to virtually all of its commercial
banking customers that sought financing through the small business relief program, while the
lender’s smallest customers were almost entirely shut out.”10 Ultimately, based on the last update
provided by the SBA, the largest 4% of loans approved under the program cost over $150 billion
4
Id.
5
U.S. Department of the Treasury, “Paycheck Protection Program (PPP) Information Sheet,”
https://home.treasury.gov/system/files/136/PPP%20Lender%20Information%20Fact%20Sheet.pdf
6
Small Business, Administration, “Paycheck Protection Program,” https://www.sba.gov/funding-
programs/loans/coronavirus-relief-options/paycheck-protection-program
7
Politico, “Small business loan program stumbles as SBA system crashes,” Zachary Warmbrodt, April 6, 2020,
https://www.politico.com/news/2020/04/06/small-business-loan-program-system-crashes-169614
8
Letter from State Community Banking Associations to Secretary Mnuchin and Administrator Carranza, April 2,
2020. https://www.icba.org/docs/default-source/icba/advocacy-documents/letters-to-regulators/paycheck-
protectionprogram-state-banking-association-letter.pdf?sfvrsn=4a52b17_0.
9
Wall Street Journal, “In Race for Small-Business Loans, Winning Hinged on Where Firms Bank,” Ruth Simon and
Peter Rudegair, April 20, 2020, https://www.wsj.com/articles/in-race-for-small-business-loans-winning-hinged-on-
where-firms-bank-11587410421
10
Bloomberg, “ JP Morgan Commercial Clients Beat Out Smaller Ones for SBA Loans,” David McLaughlin and
Michelle F Davis, April 22, 2020, https://www.bloomberg.com/news/articles/2020-04-22/jpmorgan-commercial-
clients-beat-out-smaller-ones-for-sba-loans
– and accounted for 45% of all program funding,11 a clear sign that mom and pop businesses did
not proportionally benefit from the program.12
A detailed report by the New York Times explained that the program was “anything but” first
come first serve,
[S]ome of the nation’s biggest banks, including JPMorgan Chase, Citibank and
U.S. Bank, prioritized the applications of their wealthiest clients before turning to
other loan seekers …Customers of Citi’s private bank, where the minimum
account size is $25 million, didn’t have to use an online portal to apply for a loan;
they could simply submit paperwork to their banker, who would put in an
application on their behalf. At Chase, the nation’s largest bank, nearly all private
and commercial banking clients who applied for a small-business loan got one,
whereas only one out of every 15 retail banking customers who sought loans was
successful. Some banks provided highly personalized, so-called concierge service
to their richest clients by enlisting representatives to walk them through every step
and submit their paperwork. The two-tiered system paid off for well-to-do
customers.13
In addition to favoring large, well-off customer, the program was undermined by large restaurant
chains, hotels, and other huge publicly traded companies that received PPP loans that were
intended to benefit small businesses. The Wall Street Journal reported that “dozens of publicly
traded companies” – including large restaurant chains like Potbelly and Ruth’s Chris Steak
House- “received forgivable loans totaling more than $500 million.”14 In another case, Dallas
hotel magnate Monty Bennett received $2 million in preferred dividends, laid off most of his
staff, and then, using “[h]otels and luxury resorts that funnel money back to a single company…
secured about $53 million in federal virus aid,” including through the Ritz Carlton Hotel in
Atlanta.15 And in a third case, Continental Materials, a “company owned by a prominent Chicago
family [the family of U.S. Ambassador to Belgium Ronald Gidwitz] with close ties to the Trump
administration was able to get a $5.5 million loan under the program.”16 These reports are
11
Small Business Administration, Paycheck Protection Program, Approvals Through 12 PM EST, April 16, 2020,
https://www.sba.gov/sites/default/files/2020-04/PPP%20Deck%20copy.pdf.
12
Id.
13
New York Times, “Banks Gave Richest Clients ‘Concierge Treatment’ for Pandemic Aid,” Emily Flitter and
Stacy Cowley, https://www.nytimes.com/2020/04/22/business/sba-loans-ppp-coronavirus.html
14
Wall Street Journal, “Public Companies Got $500 Million in Small Business Loans,” Inti Pacheco and Theo
Francis, April 22, 2020, https://www.wsj.com/articles/these-are-the-public-companies-that-got-small-business-
loans-11587493742
15
Wall Street Journal, “Dallas Hotel Owner is Biggest Beneficiary of Coronavirus Loan Program,” Konrad Putzier,
April 22, 2020, https://www.wsj.com/articles/dallas-hotel-owner-is-biggest-beneficiary-of-coronavirus-loan-
program-11587568827; New York Times, “Luxury Hotel Company is Biggest Beneficiary of Small-Business
Funds,” Jeanna Smialek, Jim Tankersley, and Alan Rappeoirtm April 22, 2020
https://www.nytimes.com/2020/04/22/business/economy/coronavirus-small-business-loans-real-estate-trusts.html
16
NPR, “Company with Ties to Trump Receives Millions from Small Business Loan Program,” Robert Benincasa,
April 20, 2020, https://www.npr.org/2020/04/20/839455480/company-with-ties-to-trump-receives-millions-from-
small-business-loan-program
disturbing, raising significant questions about whether SBA and Treasury Department officials
that wrote the rules took appropriate steps to prevent abuse. Although the Treasury Department
announced updated guidance on April 23, 2020, designed to make it “unlikely” for publicly
traded companies to qualify for loans moving forward, and suggested that these companies
should repay any PPP loans already taken out, it is unclear if these rules will be sufficient to
prevent abuse.17
The PPP was intended to help the small businesses that form the backbone of our economy, and
has now been provided over $650 billion by Congress to do so. To make sure that these funds are
spent consistent with congressional intent and appropriately to address the economic impacts of
the COVID-19 pandemic, I request that you open a broad investigation into the program’s
implementation. This investigation should include:
A review of the SBA and Treasury Department rulemaking and guidance process, and an
assessment of whether this process was effective in ensuring that lenders and small
businesses could access the program quickly and equitably, and whether SBA and
Treasury included appropriate protections against program waste, fraud, and abuse.
An analysis of the lending process and the role of banks in providing funds, including an
assessment of whether banks favored larger, wealthier customers and existing customers
to the detriment of the small mom and pop businesses that the program was designed to
benefit.
A review of program participants, to determine if (1) larger businesses and public
companies were able to obtain loans, and if so, the cost of these loans to taxpayers; (2)
businesses that received loans were in need of these funds due to the COVID-19
pandemic; (3) companies with close ties to Administration officials or other political
connections were able to receive PPP funds.
We appreciate your attention to this matter, and am happy to discuss this request with you in
more detail.
Sincerely,
Elizabeth Warren Nydia M. Velázquez
United States Senator Chairwoman
Committee on Small Business
cc: Michael Horowitz, Chair, Council of the Inspectors General on Integrity and Efficiency
17
Wall Street Journal, Public Companies Have to Repay Small-Business Rescue Loans, April 23, 2020,
https://www.wsj.com/articles/public-companies-have-to-repay-small-business-rescue-loans-11587670442
File and source
- File
- 2020-04-23-letter-to-sba-and-treasury-ig-pdf_ecb9bb5392a86025.pdf
- Size
- 350,806 bytes
- SHA-256
- 35f9bbdf1f609db6e4b976da7e8f23934d1bece171dd9e7fa223848f056beac6
- Original
- www.warren.senate.gov