The Bank of America PPP Scam
How the bank is using pandemic relief funds to minimize default risk to its loan portfolio.
On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which is designed to support the U.S. economy during the coronavirus pandemic.
One component of this law is called the “Paycheck Protection Program” (PPP), which provides $349 billion in loans to small businesses to help them keep their payrolls going. (On April 7, Treasury Secretary Steven Mnuchin announced that he’s seeking an additional $250 billion for the program.)
Here are a few key facts about the program:
- These loans are taxpayer money being channeled through the federal government to assist small businesses.
- The federal government is asking banks to distribute the funds to their existing small business customers.
- Banks are not being asked to risk any of their own money.
- Banks are being paid for this service: The SBA is paying them processing fees, plus the 1% interest on the loans goes to them.
- The loans are 100% guaranteed by the federal government.
All the rules and guidelines for the program are in the PPP Interim Final Rule, a 31-page document on the SBA website. It covers pretty much everything that banks and borrowers need to know.
Nowhere in the PPP Interim Final Rule does it say that a borrower must have a credit card or any other loan product with their bank to qualify for the loan assistance.
Yet, this is exactly what Bank of America is requiring, and they are rejecting applications from small businesses who don’t borrow money from them.
“… inclusive of credit card”?
Why would Bank of America add this requirement?
Maybe because there is a huge benefit to them:
By prioritizing PPP loans to customers with existing credit lines, Bank of America is effectively using taxpayer money to reduce the default risk to its loan portfolio.
In other words, they are using taxpayer money, intended to protect jobs during a national crisis, to protect their business interests instead.
It also amounts to punishment for positive cash flow. Here’s how one frustrated Bank of America customer put it:
There’s also the hypocrisy:
- Under the Troubled Asset Relief Program (TARP) of 2008, designed to assist banks during the financial crisis of 2008–09, Bank of America received a $40 billion bailout from taxpayers.
- Today, they’re in a unique position to help millions of taxpayers get through a different crisis but don’t appear to be willing to return the favor.
Once the dust settles, hopefully there will be full transparency into this process and important question will be answered. Were banks using this opportunity to maximize their profits at the expense of small business owners and their employees? Was it really first-come-first served, as advertised? Who received PPP money but was already sitting on lots of cash and didn’t need it?
For now, I’m certain of one thing: Under current leadership, doing business with Bank of America is not an option for me. Their greed, especially during a national crisis, is staggering.
(It’s not really relevant in my view, but for full disclosure, my father spent much of his career at Bank of America. He worked there for 25 years from the 1960s–80s. This article is based solely on current observations.)
UPDATE
More information:
- Banks Gave Richest Clients ‘Concierge Treatment’ for Pandemic Aid ~ New York Times, April 22, 2020
- Lawsuits claim BofA, Wells Fargo, others shuffled stimulus loans for profit ~ The Charlotte Observer, April 23, 2020
- Lawsuit alleges Wells Fargo unfairly shuffled Paycheck Protection Program applications ~ USA Today, April 19, 2020
