JPMorgan Chase roots out PPP fraud; Main Street program faces risk questions
Receiving Wide Coverage ...
JPMorgan Chase “has found evidence of employees and customers misusing the government’s flood of stimulus funds this spring and is cooperating with authorities,” the Wall Street Journal reported. “In a memo to employees, the bank didn’t detail specific instances but said it had found customer wrongdoing involving the Paycheck Protection Program, unemployment benefits and other government programs aimed at easing the coronavirus pandemic’s economic effects.”
“Some employees have fallen short, too,” according to the memo, which described the issues as “conduct that does not live up to our business and ethical principles—and may even be illegal.” The bank made $28 billion in loans through the PPP, “the largest amount by any bank in the rush to pump the government’s money out the door. Investigators and lawmakers have already been probing the program for fraud.”
“The JPMorgan memo is one of the first signs that lenders and their staffs may be swept up in federal efforts to police pandemic-related aid programs,” Reuters said. “In May, Reuters reported that the U.S. Justice Department had subpoenaed Wall Street banks to seek records on PPP lending as it kicked off its enforcement efforts, but it was unclear if the banks themselves were targets at the time.”
Too close for comfort
Barclays “has been forced to withdraw mortgages for certain customers in the U.K. after coming close to breaching a regulatory limit on lending to higher-risk borrowers. The U.K. bank shocked customers last week when it reduced without notice the maximum they could borrow from 5.5 times income to 4.49 times. The change affected borrowers who had already agreed to mortgages, putting some property purchases at risk of collapse.”
“The decision was made after Barclays came close to a limit imposed by the Prudential Regulation Authority, the banking regulator, stipulating that no more than 15% of mortgages for each lender can have an income multiple of 4.5 times or above. U.K. banks have been inundated with mortgage applications in recent weeks as the temporary cut to stamp duty has led to soaring demand for property, with U.K. house prices hitting record highs last month.”
How much risk?
Eric Rosengren, the president of the Federal Reserve Bank of Boston, “is calling on Congress to clarify whether the Main Street Lending Program can make riskier loans, which could help push more money out the door to companies fighting for survival.” The program, which “has been widely criticized as too slow to launch and as having such onerous terms that borrowers and lenders don’t want to take part … is expected to be one of several of the Fed’s emergency facilities to be discussed at a Senate Banking Committee hearing Wednesday.”
“It’s important for Congress to make clear how much risk they want,” Rosengren told the Post. “Right now, it’s easy to say, ‘We want lots of loans.’ But a year and a half from now, people are going to want to know why those loans went bad.” So far, only $1.2 billion in loans had been made out of a total $600 billion pot, Rosengren said.
Lenders also want Congress to resuscitate the Paycheck Protection Program, American Banker’s John Reosti reports.
No quid pro quo
The U.K.’s competition watchdog “has stopped Lloyds Banking Group from forcing small business customers hit by the COVID-19 pandemic to open business current accounts to access emergency state-backed funding,” Reuters reported. “The Competition and Markets Authority said Lloyds had unfairly limited choice by requiring struggling companies to open a business account in order to get a so-called ‘Bounce Back’ loan.”
“By forcing businesses to open current accounts as a pre-condition to access this scheme, Lloyds breached the CMA undertakings it signed, reduced choice and put their customers at risk of being unnecessarily charged,” the agency said. “The CMA found 30,000 customers that were running their business using their personal account were required by Lloyds to open a business account to access the scheme.”