The Paycheck Protection Program, a small business credit facility created by the Trump administration and Congress amid the pandemic, has charged more than $ 18 billion in fees to the banks of the Land generated.
Since their inception in April, banks have helped lend more than $ 525 billion in government forgivable loans to small businesses willing to keep their doors open and keep their people busy. The program has not only helped troubled businesses as it appears to have thrown some sort of lifeline for banks whose lending activities and loan portfolios have collapsed under the stresses of the pandemic.
JP Morgan Chase & Co., the country’s largest bank, topped all banks on both lending and fees, extended an estimated $ 29.3 billion in PPP loans, and earned fees of just over $ 1 billion . It was followed by Bank of America Corp., which lent $ 25.5 billion in PPP funds and generated fees of more than $ 947 million. These two outperformed the third largest lender by value, Wells Fargo & Company, which had approximately $ 10.5 billion in PPP loans.
“You can see it as a stimulus at a time when banks needed it most during a recession,” said Ken Thomas, a banking analyst in South Florida. “The last thing you want during a pandemic is a financial crisis. We want our banks to be strong. That keeps the economy going. … It was an incentive for the banks. It kept them in the game. “
Under the rules of the program, banks were promised tiered fees for processing loans in the program. They earned a fee of 5% for loans under $ 350,000, 3% for loans between $ 350,000 and $ 2 million, and 1% for loans over $ 2 million.
By comparison, banks typically charge companies an issuing fee of between 1% and 6% on the average small business loan. Using the Small Business Administration fee schedule, McClatchy’s analysis showed that banks approved loans that would have earned them nearly $ 18.2 billion in fees.
As a benchmark, $ 18 billion is roughly what the Trump administration proposed in its latest budget for the Department of Education to provide grants to improve schools in impoverished inner cities and Indian reservations.
Aware of the prospect of such high fees, some of the largest banks had already pledged to reinvest this money in programs to help small businesses and nonprofits, community-based organizations.
The largest PPP lender, JP Morgan Chase, said it intends to return all profits to the communities.
“The company does not intend to make a profit from PPP and remains fully committed to supporting programs that help small businesses – especially minority-owned and underserved communities economically affected by the pandemic,” said Nicole Robbat, a spokeswoman.
Bank of America announced that it would use the proceeds in a similar way to support small businesses and local communities.
Wells Fargo said it would donate and distribute any dues earned – rather than subtracting expenses first around $ 50 million in grants Community financial institutions over the next five weeks to help small business owners get through the holiday season.
While the country’s largest banks were among the top fee-earners in the PPP program, a few smaller banks also topped the list.
Cross River Bank Inc. generated estimated fees of nearly $ 300 million, the seventh largest of all banks in the country, but has only one branch in New Jersey.
The bank approved more than $ 6.4 billion in PPP loans through its partnerships with financial technology companies like BlueVine, which rely largely on technology, not people, to approve loan applications – making the approval process faster with even fewer employees .
But this speed can come at a price. The bank has reportedly approved a majority of the fraudulent loans an analysis of PPP fraud cases through the state oversight project.
The bank did not respond to several requests for comment.
McClatchy and the Miami Herald previously documented how the PPP program was a boon for ailing online lender Kabbage, who had a number of employees on leave at the start of the pandemic but had backed its books with strong involvement in the program. The online lender eventually approved more than $ 3 billion in PPP loans and took an estimated $ 145 million in fees, but approved loans to one disproportionate share of companies identified by McClatchy and the Herald as potentially ineligible for the program. Kabbage’s success in the program made it an attractive acquisition target, and American Express agreed to purchase the company in August.
Zions Bancorporation, the 39th largest bank by assets in the country, earned approximately $ 220 million in fees, 10. most banks in the program.
A company spokesman said the bank’s oversized performance was due to the “long hours” staff spend processing loan applications. He said the fees earned by the bank were fair given the bank’s efforts and that they would donate a portion of the proceeds.
“We have spent tens of millions of dollars and will be spending another sizable sum to process the application, funding and issuance of the PPP loans,” said James Abbott. “As a result of our success with the program, we also donated $ 30 million to charity.”
Another bank was noticed by their absence at the top of the list. Citibank is fourth largest by size in the country, but ranked 21st in terms of PPP loan volume.
That caught the attention of Thomas, the bank advisor in South Florida.
“My biggest problem would be the banks that are not on the top of this list because they don’t lend PPP and help the community,” he said.
The bank declined to provide specific comment but defended its involvement in the program and directed McClatchy Company blog post That indicated that the bank has smaller business lending practices than its competitors.
Some of the approved loans included in McClatchy’s analysis were never actually granted, which means the amounts borrowed from banks were likely lower. The SBA also reserves the right to reclaim fees on loans that were ultimately deemed ineligible.
When the PPP was first launched, the Miami Herald and its parent company McClatchy documented business owners complaining that they had no access to the funds and that the largest banks appeared to be lending to customers who already owed them money , and so their back own outstanding loans.
And smaller community banks complained loudly that the larger lenders dominated the program, even if small business lending is the niche that distinguishes community banks.
A second round of PPP lending included a spin-off for community banks, and they have since worked on lending to small businesses. Ironically, these smaller banks are relatively likely to have charged more fees than their larger counterparts in relative terms, as the fee percentage is higher for lower-value loans.
That doesn’t mean the fees are turned into profits, warned Paul Merski, vice president of the Independent Community Bankers Association.
“The work around the PPP loan is far more intensive than expected. In the end, they put dozens of hours into each of those loan applications and the [loan] The forgiveness part is very complex, ”Merski said, quoting a member who showed him a request for forgiveness with 200 attachments. “Many of the loans will break-even or at a loss because of the time spent on them.”